What is Personal Allowance?

The personal allowance is the amount of income you can earn in a tax year before you start paying income tax. For the 2025/26 tax year, the personal allowance is £12,570.

UK income tax bands for 2025/26 (after personal allowance):

• Basic rate (20%): £12,571 to £50,270
• Higher rate (40%): £50,271 to £125,140
• Additional rate (45%): Over £125,140

Important rules about the personal allowance:

• It applies to your total taxable income from all sources (employment, self-employment, rental income, etc.)
• If your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 earned over £100,000
• At £125,140, your personal allowance is completely eliminated
• The personal allowance has been frozen at £12,570 since 2021/22 and is expected to remain frozen until at least 2027/28

For freelancers, the personal allowance means the first £12,570 of your taxable profit (income minus allowable expenses) is tax-free. This is one reason why tracking expenses accurately is so important — legitimate business expenses reduce your taxable profit.

If you have both employment income and freelance income, your personal allowance is usually applied to your employment income first through PAYE. Your freelance profits are then taxed at the applicable rate based on your combined income.