2026/27 tax rates for contractors

Income tax (rest of UK)

The personal allowance is £12,570. It is an allowance rather than a 0% band: income within it simply is not taxed. It tapers by £1 for every £2 of income over £100,000, disappearing entirely at £125,140, creating an effective 60% marginal rate on salary between £100,000 and £125,140. See our salary vs dividends guide for planning around this.

These rates and bands apply to England, Wales and Northern Ireland. Scotland sets its own income tax rates and bands for non-savings, non-dividend income, so a Scottish taxpayer's income tax will differ from the table above. Dividend tax, National Insurance, corporation tax and VAT apply UK-wide.

National Insurance

The employer secondary threshold is just £5,000 and the rate is 15%. Most single-director companies cannot claim the Employment Allowance (it's unavailable where the sole employee is also a director), which is why a director's salary above £5,000 now carries employer's NIC.

Earnings at or above the Lower Earnings Limit of £6,708 attract no National Insurance, but they do count towards the State Pension record and entitlement to contributory benefits. Whether a given year ends up as a qualifying year depends on your full contribution and credit record for that year, so it is worth checking your record on GOV.UK rather than assuming.

Class 2 NIC (self-employment). The Small Profits Threshold for 2026/27 is £7,105. Self-employed people with profits at or above that threshold are treated as having paid Class 2 NIC, so nothing is actually payable but the year still counts towards contributory benefits and the State Pension record. Those with profits below £7,105 can choose to pay Class 2 voluntarily at £3.65 a week to protect their record, subject to the relevant rules.

Dividend tax

Dividend ordinary and upper rates rose by 2 percentage points from 6 April 2026 (from 8.75% and 33.75%); the additional rate is unchanged. The S455 charge on overdrawn directors' loans tracks the upper rate and is 35.75% for loans made on or after 6 April 2026.

Corporation tax

Profits up to £50,000 are charged at the 19% Small Profits Rate, and profits over £250,000 at the 25% Main Rate. Companies with profits between £50,000 and £250,000 benefit from Marginal Relief: the effective Corporation Tax rate on total profits increases gradually from 19% towards 25%, and the marginal rate used in the Marginal Relief calculation is 26.5%. That 26.5% applies to each additional pound of profit within the band, not to the company's entire profit. A company with £80,000 of profit, for example, pays an effective rate of about 21.8% overall.

The £50,000 and £250,000 limits are divided by the number of associated companies, so two associated companies means limits of £25,000 and £125,000. A company that has not carried on any trade or business at any time in the relevant accounting period is generally disregarded for this test, and a company owned by a spouse or civil partner is not associated automatically: the control rules have to be applied, and where an associate's rights fall to be attributed, that requires substantial commercial interdependence between the companies. See HMRC's CTM03945.

VAT

You normally need to register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period, or if you expect it to exceed £90,000 in the next 30 days alone. Both tests apply, and the 30-day test can catch a contractor who signs a single large contract well before the rolling total gets there.

On the Flat Rate Scheme, the 16.5% limited cost business rate applies only where the business meets the limited-cost test for the period: spending on relevant goods of less than 2% of VAT-inclusive turnover, or more than 2% but less than £1,000 a year (£250 a quarter). Many service contractors do fall within it, because relevant goods exclude services, most capital expenditure, fuel and food and drink, but it is a test to apply to your own figures each period rather than an assumption. See our VAT guide for how the test works in practice, and VAT Notice 733 for HMRC's own wording.

Capital gains tax (in brief)

BADR is a relief rather than a standalone CGT rate: where the qualifying conditions are met, gains on a qualifying business disposal are charged at 18% instead of the normal 18%/24% rates, up to a £1m lifetime limit on qualifying gains. Gains above the lifetime limit are charged at the main rates. The BADR rate rose to 18% for disposals from 6 April 2026 (14% for 2025/26, 10% before that). It is especially relevant when closing a company through a Members' Voluntary Liquidation, though the conditions need checking in each case. See GOV.UK.

Pension annual allowance (in brief)

Unused allowance can generally be carried forward up to three tax years. Employer pension contributions are a powerful, corporation-tax-deductible way to extract value from a company, but pensions are a regulated area, so the product decision should be taken with an FCA-authorised Independent Financial Adviser. We model only the tax effect.