Personal Allowance Tax-Free Income

Wojciech

Wojciech

Diploma in Professional Accounting
Diploma for Financial Advisers
Member of London Institute of Banking and Finance


Beyond the specific Trading Allowance for self-employment, every individual in the UK has a Personal Allowance. This is a fundamental concept in the UK tax system, representing the amount of income you can earn in a tax year from all sources – including self-employment profits, employment wages, pensions, and rental income – before you begin to pay Income Tax [2].

For the 2024/2025 tax year, the standard Personal Allowance is set at £12,570. This means that if your total income from all sources for the entire tax year falls at or below this figure, you will not be liable to pay any Income Tax. It’s crucial not to confuse the Personal Allowance with the Trading Allowance. While the Trading Allowance specifically addresses your gross self-employment income, the Personal Allowance is a broader tax-free amount that applies to your overall earnings after certain deductions and allowances have been applied.

Even if your self-employment income exceeds the £1,000 Trading Allowance, requiring you to complete a Self Assessment tax return, you might still not owe any Income Tax if your total taxable profits (your self-employment income minus any allowable business expenses) remain below your Personal Allowance. However, it’s important to note that even if you don’t pay Income Tax, you might still be required to pay National Insurance contributions, depending on the level of your self-employed profits. Always check the latest guidance on National Insurance thresholds.

Reference

[2] GOV.UK. Income Tax rates and Personal Allowances. Available at: https://www.gov.uk/income-tax-rates

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