2026/27 tax rates for contractors
The rates and thresholds that matter most to UK limited company contractors for the 2026/27 tax year (6 April 2026 to 5 April 2027). Figures are rest-of-UK rates; income tax bands differ for Scottish taxpayers, while dividend, NIC, corporation tax and VAT figures apply UK-wide.
These figures are confirmed for 2026/27 and reflect the Autumn Budget 2025. Income tax and NIC thresholds remain frozen (now extended to April 2031). Rates are reconfirmed every April, so always check the date before relying on them — this page was last updated in July 2026.
Income tax (rest of UK)
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The personal allowance is £12,570. It tapers by £1 for every £2 of income over £100,000, disappearing entirely at £125,140 — creating an effective 60% marginal rate between £100,000 and £125,140. See our salary vs dividends guide for planning around this.
National Insurance
| Class | Threshold / band | Rate |
|---|---|---|
| Lower Earnings Limit (secures a qualifying year for the State Pension) | £6,708 a year (£559/month, £129/week) | 0% |
| Employee (Class 1) primary | £12,570 – £50,270 | 8% |
| Employee (Class 1) above upper limit | Over £50,270 | 2% |
| Employer (Class 1) secondary | Over £5,000 | 15% |
| Employer Class 1A (benefits in kind) | — | 15% |
| Employment Allowance | Per eligible employer, per year | up to £10,500 |
| Self-employed Class 4 | £12,570 – £50,270 / above | 6% / 2% |
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. Class 2 NIC is no longer required to be paid by most self-employed people, though voluntary contributions can still be made to protect the State Pension record.
Dividend tax
| Item | 2026/27 |
|---|---|
| Dividend allowance | £500 (taxed at 0%) |
| Ordinary (basic) rate | 10.75% |
| Upper (higher) rate | 35.75% |
| Additional rate | 39.35% |
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
| Profit | Rate |
|---|---|
| Small profits rate (up to £50,000) | 19% |
| Marginal relief band (£50,000 – £250,000) | 26.5% marginal (≈ tapered effective rate) |
| Main rate (over £250,000) | 25% |
Within the £50,000–£250,000 band, marginal relief means each extra pound of profit is effectively taxed at 26.5% — higher than the 25% main rate. The £50,000 and £250,000 limits are shared between associated companies, so having more than one company reduces them.
VAT
| Item | 2026/27 |
|---|---|
| Standard rate | 20% |
| Registration threshold | £90,000 |
| Deregistration threshold | £88,000 |
| Flat Rate Scheme — limited cost trader | 16.5% |
You must register once rolling 12-month taxable turnover exceeds £90,000. Most service contractors are "limited cost traders" on the Flat Rate Scheme — see our VAT guide.
Capital gains tax (in brief)
| Item | 2026/27 |
|---|---|
| Annual exempt amount | £3,000 |
| Basic-rate band gains | 18% |
| Higher / additional-rate gains | 24% |
| Business Asset Disposal Relief (BADR) | 18% (lifetime limit £1m) |
BADR rose to 18% from 6 April 2026 (from 14% in 2025/26). It's especially relevant when closing a company through a Members' Voluntary Liquidation.
Pension annual allowance (in brief)
| Item | 2026/27 |
|---|---|
| Standard annual allowance | £60,000 |
| Tapered allowance (threshold income over £200,000 and adjusted income over £260,000) | down to £10,000 minimum |
| Money Purchase Annual Allowance (MPAA) | £10,000 |
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.
These are generic 2026/27 figures for rest-of-UK taxpayers and don't account for your personal circumstances. For calculations specific to your income, try our contractor calculators or get in touch.
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