Self Assessment and the Personal Allowance
The personal allowance is the amount of income you can earn each year before paying Income Tax. For 2026/27, it is £12,570.
How It Works
Your first £12,570 of income is tax-free. Everything above that is taxed at the appropriate rate (20%, 40%, or 45%).
For self-employed sole traders, the personal allowance is applied to your total income from all sources — self-employment, employment, property, savings, and dividends.
The £100,000 Trap
If your total income exceeds £100,000, you lose £1 of personal allowance for every £2 above £100,000. This means:
- At £100,000: Full £12,570 allowance
- At £112,570: Allowance reduced to £6,285
- At £125,140: No personal allowance at all
The effective marginal tax rate between £100,000 and £125,140 is 60% — making this one of the highest tax rates in the UK system.
Strategies
If your income is near £100,000, consider pension contributions to bring your taxable income below the threshold and retain your full personal allowance.
Accounted shows you your real-time tax position, including personal allowance calculations.
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Tax & Compliance Specialists
Our tax specialists have decades of combined experience in UK sole trader and small business taxation, MTD compliance, and HMRC submissions. All content is reviewed against current HMRC guidance before publication and updated quarterly to reflect legislative changes.
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