Personal Allowance & Income Tax Rates 2021/22

Looking for the rates for the 2022/23 tax year? Check out our 2022/23 self-employed tax rate guide.

In the article below, you'll find a summary of the 2021/22 tax rates for sole traders. It’s worth familiarising yourself with them so that there are no surprises when you come to complete your tax return and pay your tax bill at the end of the year.

Personal Allowance 2021/22

Everyone has a Personal Allowance—an amount of money that you can earn tax-free—that gets reset at the beginning of each tax year. It's important to remember that how much this is changes based on your earnings (so you may need to check in on this a couple of times).
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Earnings Bracket

Personal Allowance

£0-£100,000.

£12,570

£100,001 – £125,140

Your personal allowance will decrease by £1 for every £2 of income over £100,000

Over £125,140

£0

Income tax rates 2021/22

If you're based in England, Wales or Northern Ireland, all income that you earn over and above your Personal Allowance will be taxed as follows:

Tax Bands

Rate

Earnings below personal allowance (£12,570)

No income tax payable

Basic rate (£12,571- £50,270)

20%

Higher rate (£50,271 – £150,000)

40%

Additional rate (Over £150,000)

45%

If you live in Scotland then different income tax rates apply, these are shown below:

Tax Bands

Rate

Earnings below personal allowance (£12,570)

No income tax payable.

Starter rate (£12,571- £14,667)

19%

Basic rate (£14,668 and £25,296)

20%

Intermediate rate (£25,297 and £43,662)

21%

Higher rate (£43,663 and £150,000)

41%

Additional rate (Over £150,000)

46%

National Insurance rates 2021/22

In addition to income tax, sole traders also need to pay National Insurance Contributions to HMRC. The amount that you need to pay depends on your profits.

There are two forms of National Insurance: Class 2 and Class 4. For the 2021/22 tax year, National Insurance rates are as follows:

Class 2:

Profits (Per Year)

Class 2 Payable

Below £6,515

No class 2 is payable

Above £6,515

£3.05 per week

Class 4:

Profits (Per Year)

Class 4 Payable

Below £9,568

No class 4 is payable

Between £9,568 – £50,270

Over £50,270

VAT

Once the annual revenue of your company reaches £85,000, you will need to register for Value Added Tax (VAT), a tax paid on most goods and services. Once you’ve registered, you'll need to start charging VAT on your sales—but you can also reclaim VAT on purchases, too.

Managing VAT is where finances can start to get slightly complicated, as there are a few different rates and VAT schemes to be aware of. It requires careful record-keeping of all transactions and the rate of VAT they were charged at. Here are the standard VAT rates:

VAT Type

Rate

Standard – applicable to most goods and services

20%

Reduced rate – a lower rate applicable to certain goods and services

Zero rate – applied to specific goods and services such as food, books, newspapers, children’s clothes

Always know how much you need to set aside for tax

With Coconut's tax app for sole traders and landlords, you'll be able to easily track your income and outgoings throughout the year—meaning you’ll always have an up-to-date view of how much you need to set aside for tax.‍

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