If you run an online shop, the income tax bands decide how much of every extra pound you keep. That matters most in a strong quarter, when a good run on Amazon, Etsy or Shopify can quietly push your profits into a higher band.
The 2026/27 bands for England, Wales and Northern Ireland are unchanged from 2025/26. The personal allowance stays at £12,570. So the bands themselves aren't the story. What you do with them is.
This guide sets out the rates in full, explains the £100,000 personal allowance trap, and shows how sole traders and limited company directors can use the bands to plan. The examples are illustrative, but the rules behind them are real and cited.
What are the income tax bands for 2026/27?
These rates apply to taxable income in England, Wales and Northern Ireland for 2026/27. Scotland sets its own rates, which we cover further down.
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The personal allowance is £12,570 for 2026/27, and the basic rate band runs to £37,700 of taxable income above it, which puts the higher rate threshold at £50,270 of total income.
Because these thresholds aren't rising, "fiscal drag" keeps doing its quiet work. As your profits grow, more of them fall into higher bands even though the rates haven't moved. For a seller whose profits climb from £45,000 to £55,000 over a couple of years, that's the difference between staying in the basic rate band and paying 40% on the top slice. It deserves a planning conversation, not just a line on the return.
How does the personal allowance work?
The personal allowance is the amount you can earn before paying any income tax. For 2026/27 it's £12,570.
It applies across employment income, self-employment profits and pension income, with separate rules for savings and dividends. Most ecommerce owners use the full allowance against their trading profits or salary before any income tax is due.
One thing to flag up front: the allowance isn't guaranteed for higher earners. Once your income passes £100,000, it starts to shrink.
What is the 60% tax trap at £100,000?
Once your adjusted net income goes over £100,000, your personal allowance reduces by £1 for every £2 above that figure. By £125,140 it's gone completely.
The result is a marginal rate of 60% on income between £100,000 and £125,140. That's not a typo. You pay 40% higher rate tax on that slice, plus an effective 20% on top from losing the allowance you'd otherwise have kept.
For directors of growing online businesses who are heading into this band, pension contributions are one of the most useful tools available. A pension contribution reduces your adjusted net income, which can claw back some or all of the lost allowance and cut that effective rate sharply.
Illustrative example. Maya, who runs a homeware brand through her own company, expects adjusted net income of £110,000 in 2026/27. The £10,000 over £100,000 costs her £5,000 of personal allowance. A £10,000 personal pension contribution brings her adjusted net income back to £100,000, restoring the full £12,570 allowance and avoiding the 60% band on that slice. Always check the position with your accountant first, because pension annual allowance limits and other income can change the maths.
How do the bands affect ecommerce sole traders?
If you trade as a sole trader, all your profits are added to any other income and taxed through Self Assessment. Ecommerce income tends to be lumpy, so a strong fourth quarter can tip you from the basic rate into the higher rate without much warning.
On top of income tax, sole traders pay Class 4 National Insurance. For 2026/27 the Class 4 main rate is 6% on profits between £12,570 and £50,270, then 2% above that.
Illustrative example. Tom sells phone accessories on eBay as a sole trader and makes £50,000 profit in 2026/27. He has no other income. His taxable income is £37,430 (his profit of £50,000 less the £12,570 personal allowance), all within the basic rate band, so his income tax is 20% of £37,430, which is £7,486. His Class 4 NI is 6% on the same £37,430 (profits between £12,570 and £50,270), which is £2,245.80. So his income tax and Class 4 NI together come to £9,731.80 before any reliefs or payments on account.
The practical fix for lumpy income is forecasting. If you can see a strong year coming, you can act before 5 April rather than getting a surprise the following January. Our self-employed tax calculator is a quick way to sanity-check where a given profit figure lands. For ongoing support, our accounting for ecommerce sellers service is built around exactly this kind of seasonal trade.
How are company directors taxed on salary and dividends?
If you run your shop through a limited company, profits sit in the company and are taxed at corporation tax rates first. You then usually take income as a mix of salary and dividends.
Salary is taxed at the normal income tax bands above. Dividends have their own rates and sit on top of your other income when working out which band they fall in. For 2026/27 the dividend rates are:
| Dividend band | Rate (2026/27) |
|---|---|
| Within basic rate band | 10.75% |
| Within higher rate band | 35.75% |
| Within additional rate band | 39.35% |
There's also a £500 dividend allowance for 2026/27, which is taxed at 0% but still uses up part of your band.
Illustrative example. Sarah is the sole director of her Shopify company. She takes a salary of £12,570 and dividends of £37,000 in 2026/27, giving total income of £49,570, which is under the £50,270 higher rate threshold. Her salary uses the personal allowance, so no income tax is due on it. The first £500 of dividends is covered by the dividend allowance. That leaves £36,500 of dividends, all within the basic rate band, taxed at 10.75%, which is £3,923.75. Check your own numbers with an accountant, as the right salary level depends on your wider circumstances.
If you want to model different splits, our dividend tax calculator and income tax calculator let you test salary and dividend combinations side by side.
What tax planning can you do around the bands?
The bands are fixed. The planning is in deciding where your income falls within them.
- Pension contributions. The most flexible lever. For anyone near the higher rate threshold or the £100,000 taper, a pension contribution can keep income in a lower band and protect the personal allowance.
- Dividend timing. If your income is close to a band boundary, moving a dividend into the next tax year (or bringing one forward) can change which band it lands in. This needs care and a clear paper trail.
- Salary level for directors. The best salary depends on whether the company pays employer NI, whether you have other income, and whether you want the year to count towards your State Pension record. It's worth reviewing every year.
- Forecasting with live data. Quarterly bookkeeping means you can spot a strong year by autumn and act before 5 April, rather than reacting in January.
If you're weighing up sole trader against a company, the income tax bands are only one part of the picture. Corporation tax, dividend rates and admin costs all matter too, which is why it's worth talking it through rather than relying on a rule of thumb. Zmartly works with limited company and sole trader ecommerce sellers across the UK.
What about Scotland?
If you're a Scottish taxpayer, your income tax rates and bands are set by the Scottish Parliament and differ from the rest of the UK, especially for higher earners. Savings and dividend income, though, are taxed using the UK-wide rates and bands shown above wherever you live.
Scottish rates and thresholds change from year to year, so check the current figures on the official Scottish income tax page rather than assuming they match England and Wales. If you're a Scottish ecommerce seller, get the year's bands confirmed before you plan around them.
FAQs
What are the income tax bands for 2026/27 in the UK?
For England, Wales and Northern Ireland in 2026/27: personal allowance £12,570 at 0%, basic rate £12,571 to £50,270 at 20%, higher rate £50,271 to £125,140 at 40%, and additional rate over £125,140 at 45%. Scotland sets its own rates and bands.
Is the personal allowance changing in 2026/27?
No. The personal allowance for 2026/27 is £12,570, the same as 2025/26. Because the threshold isn't rising in line with earnings, more income is pulled into higher bands over time even though the rates stay the same.
What is the 60% tax trap?
When your adjusted net income goes over £100,000, your personal allowance falls by £1 for every £2 above that, disappearing entirely at £125,140. The 40% higher rate plus the lost allowance produces an effective 60% rate on income between £100,000 and £125,140.
What are the dividend tax rates for 2026/27?
For 2026/27, dividends above the £500 dividend allowance are taxed at 10.75% within the basic rate band, 35.75% within the higher rate band, and 39.35% within the additional rate band.
How do the bands affect ecommerce sole traders?
Self-employment profits are added to your other income and taxed through Self Assessment, so a strong trading year can push you into the higher rate band. Sole traders also pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, then 2% above that, for 2026/27.
Are the Scottish income tax bands the same as the rest of the UK?
No. Scotland sets its own income tax rates and bands through the Scottish Parliament, and they differ from England, Wales and Northern Ireland. Check the current figures on gov.uk before planning. Dividend and savings income are still taxed at UK-wide rates wherever you live.
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Want help getting your income tax planning right?
Whether you sell as a sole trader or through a company, a short review before the tax year ends can save you a lot more than it costs. Book a free 20-minute call with a Zmartly accountant who understands ecommerce trade, and we'll look at your bands, your salary and dividend split, and where you can plan ahead. Talk to a Zmartly accountant.
