Working mother sat at laptop holding child | UK tax allowances, rates and thresholds 2023/24

UK tax allowances, rates and thresholds in 2023/24

February 21, 2023

If the UK tax system leaves you feeling a bit confused, you’re not alone. Getting to grips with personal allowances, National Insurance contributions and the different Income Tax bands is hard enough if you’re an employee.When you work for yourself, there can be even more to think about. Your business structure affects everything from how much tax to pay, to the type of tax you’ll need to pay.The type of tax you pay can also vary depending on whether you classify as an employee or employer. You could even be both if you’re a salaried business owner or director, or if you’re freelancing alongside your day job.In this guide, we’ll dive into the tax allowances, tax rates and tax thresholds for the 2023/24 tax year that are due to affect the self-employed.

Tax-free Personal Allowance 2023/24

For the 2023/24 tax year, your tax-free Personal Allowance is £12,570. This is the same amount as the previous tax year, although tax years before that look a little different:

Tax Year	Personal Allowance	Income limit for Personal Allowance
2022/23	£12,570	100,000
2021/22	12,570	£100,000
2020/21	£12,500	£100,000
2019/20	£12,500	£100,000

The tax-free Personal Allowance thresholds for previous years can be found at GOV.UK.

Your Personal Allowance is the amount of income you can earn before you need to start paying Income Tax. This tax allowance can change from tax year to tax year, so knowing how much your Personal Allowance is can keep you up to speed with what you take home in a given year.After reaching your Personal Allowance limit for the tax year, every £1 earned above this will be liable for Income Tax.For example:

If you earn £25,000, you’ll pay no Income Tax up to £12,570, then you will pay the 20% basic tax rate on everything over this

For earnings of £55,000 per year, you’ll pay tax on £42,430 after your Personal Allowance. All your earnings up to £50,270 will be taxed at 20% and then the higher rate of 40% will come into force for the rest

If you’re self-employed, you’ll also be entitled to a trading allowance of up to £1000. You won’t be required to file a Self Assessment tax return until you’ve surpassed this threshold, but once you do you’ll need to file by 31st January every year — even if you’re earning below your Personal Allowance.It’s also worth noting that for every £2 you’re earning above £100,000, your Personal Allowance will 'taper off’ by £1 you make until your Personal Allowance is £0.

Income Tax rates

Income Tax is what it says on the tin: tax charged on most types of income. Alongside wages and salaries, Income Tax is paid on:

Self-employment earnings

Rental income if you’re renting out property as a landlord

Interest and dividends from interest and savings

As explained above, you typically won’t pay Income Tax on all your taxable income, as you’ll likely be eligible to your Personal Allowance, as well as other tax reliefs which we’ll cover in detail later on.The 2023/24 rates of Income Tax for England, Northern Ireland and Wales are as follows:

td>Personal Allowance

Band	Amount of Income	Rate
Up to £12,570	0%
Basic Rate	£12,571-£50,270	20%
Higher Rate	£50,271-125,139	40%
Additional Rate	£125,140+	45%

If you’re in Scotland, the Income Tax bands are set by the Scottish government, with the proposed Income Tax bands for 2023/24 being as follows:

Band	Amount of Income	Rate
Personal Allowance	Up to £12,570	0%
Starter Rate	£12,571-£14,732	19%
Basic Rate	£14,733-£25,688	20%
Intermediate Rate	£25,689-£43,662	21%
Higher Rate	£43,663-£125,140	42%
Top Rate	£125,140+	47%

Source: GOV.SCOT

This tax allowance describes a tax-free amount that, if you meet the eligibility criteria, you won’t have to pay Income Tax until you’re earning above the tax threshold.

Tax year	Blind Person's Allowance
2023/24	£2,870
2022/23	£2,600
2021/22	£2,520

In England and Wales, you can claim the tax allowance if both of the following apply:

You’re registered with your local council as blind or severely sight impaired

You have a certificate that says you’re blind or severely sight impaired, or a similar document from your doctor

In Scotland and Northern Ireland, you can claim this tax allowance if both of the following apply:

You cannot do work for which eyesight is essential

You have a certificate that says you’re blind or severely sight impaired, or a similar document from your doctor

If both you and your spouse are eligible, you’ll both be entitled to the tax allowance.

Marriage Allowance

If you’re married or in a civil partnership, Marriage Allowance allows you to transfer 10% of your Personal Allowance with your partner, providing some tax relief for the given tax year.As the Personal Allowance for 2023/24 is £12,570, you can transfer £1,260 to your partner, reducing their Income Tax for the tax year by £252.To claim this couples allowance, the lower earner must normally have an income below £12,570, and the higher earner must only be being taxed Income Tax at the Basic Rate.In Scotland, your spouse or civil partner must be paying the Starter Rate, Basic Rate or Intermediate Rate to be eligible.You cannot claim Marriage Allowance if you’re living together but aren’t married or in a civil partnership.You can apply any time and backdate your claim to include any tax year since 5th April 2018, if you were eligible, receiving a payment of up to £1,220 at a time.

National Living Wage

In the 2022 Autumn Statement, HM Revenue and Customs (HMRC) confirmed that the National Living Wage from 1st April 2023 will be £10.42 for those aged 23 years and above.For those aged 22 and below, the minimum wage rates — known as the National Minimum Wage — dictate the minimum they can be paid based on the age bracket they’re in.The hourly rates from April 2023 are as follows:

21 to 22-year-olds must be paid a minimum of £10.18 per hour

18 to 20-year-olds must be paid a minimum of £7.49 per hour

Under 18s must receive a minimum of £5.28 per hour

What is the minimum hourly rate for apprentices?

From April 2023, the minimum wage for apprentices is £5.28 per hour.The apprenticeship rate is applicable for those on an apprenticeship who are:

Aged 19 or under

Are in their first year of an apprenticeship

National Insurance rates

From 6 July 2023, the amount of income you can earn before paying National Insurance is increasing, meaning both employed and self-employed workers can keep more of their earnings. The UK Treasury estimates that around 30 million people will benefit from the changes to these thresholds, with 2.2 million not required to pay National Insurance contributions (NICs) altogetherThere are 4 classes of National Insurance:

Class 1 National Insurance contributions (NICs) are paid by both employers and employees

Class 2 is a flat rate paid by self-employed workers to claim state benefits

Class 3 is voluntary and is paid by those who want to improve their eligibility for state benefits

Class 4 is paid by self-employed individuals on the profits their business makes

Dividend Allowance

The Dividend Allowance describes the amount of dividends you can earn tax-free in one year, with the tax-free Dividend Allowance for 2023/24 being £1,000.

Since this is a separate allowance to the Personal Tax Allowance you can use both in tandem, meaning that if your only income is a £13,570 dividend payment, you won't have to pay any Income Tax. You also don’t have to pay National Insurance on dividend payments, either.How much dividend tax you pay is based on the tax band that you fall into after you’ve added your total dividend income to any other income you receive.The dividend tax rate thresholds in 2023/24 are as follows:

	Thresholds 2023/24	Dividend Tax Rate 2023/24
Personal Allowance	£0-£12,570	0%
Basic Rate	£12,571-£50,270	8.75%
Higher Rate	£50,271-£125,140	33.75%
Additional Rate	£125,140+	39.35%

When it comes to paying tax on dividends, tax on income earned through a salary will be collected through your payroll. However, when you’re self-employed and receive dividends from a company, you need to declare and pay tax on them by submitting your Self Assessment.

Capital Gains Tax rates

Capital Gains Tax (CGT) is a tax paid on any profits made when you sell or ‘dispose of’ all or part of a business asset. This includes giving assets away as gifts, swapping them for something else or receiving compensation for them.

CGT is paid by those who are self-employed, sole traders or partners in businesses.For the 2023/4 tax year, the annual Capital Gains Tax allowance — also known as the annual CGT exemption — is £6,000.

Corporation Tax rates

All UK companies must pay Corporation Tax on the profits they earn. However, Corporation Tax is only paid by limited companies, as sole traders are charged Income Tax on their profits through their Self Assessment tax return.

From April 2023, the main rate of Corporate Tax is rising from 19% to 25%. However, the good news is that not all companies will have to pay the same rate. Smaller companies may pay less as it depends on your level of profits for each fiscal year.If your annual profits are £50,000 or less, you’ll pay Corporation Tax at a rate of 19%. The full 25% rate applies to companies whose annual profits exceed £250,000. In between these two rates, a system of marginal relief applies.

VAT rate and threshold for 2023/24

The 2023/24 threshold for registration is £85,000 and will remain at this level until 31 March 2024. VAT (or Value Added Tax) is a tax charged by VAT-registered businesses on most goods and services procured and supplied in the UK, as well as some imported from EU countries.You need to register for VAT if the taxable turnover of your business for any consecutive 12-month period exceeds the £85,000 threshold for VAT registration.

Caroline WireFreelance Copywriter

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