UK Budget 2026 in plain English: What it means for your salary, your side income and your plans
The Chancellor delivered Budget 2026 on Wednesday 28 October. If you are paid through a payslip, the short version is that the big numbers did not move. The Treasury's own document, Budget 2026, HM Treasury, 28 October 2026, says it in its first chapter: no increase to the headline rates of income tax, National Insurance contributions or VAT. The personal allowance, the point where 40% tax starts and the National Insurance rates all read the same for 2027/28 as they do today.
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The Second Income Tax Pack 2026/27, 16 pages, free
How tax works when you earn beside a salary, what to set aside, every 2026/27 date, payments on account and Making Tax Digital, with a twelve-point checklist.
Get the free tax pack →The changes are on the other side of your finances: the money you earn beside the salary, the interest on your savings, the rent from a property, and the paperwork around all three. The biggest one is good news. The trading allowance, which is the amount of small trading income you can earn each year without paying tax on it, triples from £1,000 to £3,000 from 6 April 2027.
This post is the follow-up promised in the Budget preview. It is written from the Treasury documents and the rates annex, not from the speech. Where the Budget gives no date, no date is given here. It is organised by who you are, so you can read your own section and skip the rest.
First, the numbers that stayed where they were
A threshold is the point at which a tax rate starts. An allowance is an amount you can earn before any tax is due. The OOTLAR rates annex published alongside the Budget lists the same income tax thresholds and allowances for 2027/28 as for 2026/27: a personal allowance of £12,570, a basic rate band of £37,700 taxed at 20%, the higher rate of 40% from £50,271, and the additional rate of 45% above £125,140.
Employee National Insurance stays at 8% between £242 and £967 a week and 2% above that. Self-employed Class 4 National Insurance stays at 6% between £12,570 and £50,270 of profit and 2% above. The VAT registration threshold stays at £90,000. Dividend tax stays at 10.75%, 35.75% and 39.35% with a £500 allowance. The personal savings allowance stays at £1,000 for basic rate and £500 for higher rate taxpayers.
Unchanged for 2027/28, OOTLAR Annex A, 28 October 2026
Those thresholds are frozen in cash terms: the annex prints the same figures for 2027/28 as for 2026/27, and the Budget neither raises them nor announces any change to the freeze. That phrase, in cash terms, is the quiet tax rise in every Budget that "does nothing" to income tax, and the first section below explains it.
If you are employed, salary only
What changed. Nothing in the rates or thresholds that set your payslip. Two smaller items touch employees: the tax-free mileage rate for using your own car at work rises, and from 6 April 2028 the £2,500 expenses threshold goes. That threshold is the point above which an employee claiming tax relief on unreimbursed work costs has to file a self assessment return. Removing it means more people claim through PAYE, their employer's payroll system, instead of filing a return.
What did not. Your take-home pay, the amount that lands in your account after income tax and National Insurance, is calculated on the same bands next April as this April. Here are three salaries on the unchanged 2027/28 bands, for someone in England with no pension contributions and no student loan. Each of £35,000, £45,000 and £60,000 has its own page if you want the monthly breakdown.
| Salary, 2027/28 | Income tax | National Insurance | Take-home, year | Take-home, month |
|---|---|---|---|---|
| £35,000 | £4,486 | £1,794 | £28,720 | £2,393 |
| £45,000 | £6,486 | £2,594 | £35,920 | £2,993 |
| £60,000 | £11,432 | £3,211 | £45,357 | £3,780 |
Those are the same figures as 2026/27, and that is the point. Fiscal drag is the name for what happens when your pay rises and the thresholds do not. A 3% rise on £45,000 is £1,350, and all of it is taxed at 20% plus 8%, so you keep £972. Two more rises like that and the salary crosses £50,270, where every further pound is taxed at 40% plus 2%. Nobody voted for a tax rise, but a frozen threshold delivers one every April that pay goes up.
Two things for parents and for pension savers. The high income child benefit charge, which claws back Child Benefit when one parent's income passes £60,000, keeps its £60,000 to £80,000 band; the only change is that HMRC will now automatically offset Child Benefit overpayments against the charge, which saves a round trip of money rather than any tax. And the cap on the amount of pension contributions that can be salary sacrificed is confirmed in the Budget as part of its revenue plan, with no new date or figure added to what Budget 2025 announced; for now sacrificing salary into a pension saves National Insurance as well as income tax on every pound.
What to do. Know your marginal rate, the tax on your next pound of pay, because every decision below depends on it. If a pay rise or a bonus will take you over £50,270 or £60,000 in 2027/28, a pension contribution before 5 April 2028 is the lever that still works. And if you claim work expenses, note the April 2028 date: the return may stop being necessary.
If you are employed with a side income: The side hustle tax changes
What changed. This is the section the Budget wrote for you. The government will increase the trading allowance from £1,000 to £3,000, allowing individuals to receive up to £3,000 of trading and miscellaneous income tax-free each year. It goes into Finance Bill 2026-27 and takes effect from 6 April 2027.
Three things about that sentence matter. First, it is an allowance, so it removes tax, not merely paperwork. Second, it is measured against gross trading income, which means your sales before any costs, exactly as the £1,000 allowance is today. Third, the date is 6 April 2027. For the whole of 2026/27 the allowance is still £1,000, and the rules in the trading allowance explainer apply unchanged until 5 April 2027.
It also settles a confusion this site has been careful about for over a year. In March 2025 the plan was a higher self assessment reporting threshold for trading income. Self assessment is the annual return you file to tell HMRC about income that is not taxed through a payslip. That plan would have let people with small trading income report it through a simpler route, with the tax above £1,000 still due, and no start date was ever published. The Budget did not deliver that. It delivered an allowance, which is better for anyone earning a few thousand pounds on the side, because the tax itself disappears up to £3,000.
The distinction, restated
The 2025 plan was a reporting threshold: the same tax, less form-filling. Budget 2026 delivered an allowance: no tax on the first £3,000 of gross trading income from 6 April 2027.
Until 5 April 2027 the figure is £1,000. Above the allowance you still choose between deducting the allowance or your actual expenses, never both.
Worked example: £45,000 salary, £2,800 of side income, tax year 2027/28
An employee earns £45,000 through PAYE and £2,800 gross from freelance work in 2027/28, with small costs, so the allowance beats actual expenses. The salary already uses the personal allowance and sits inside the basic rate band, so every pound of taxable side income is taxed at 20%. Under the old £1,000 allowance, £1,800 is taxable and the income tax on it is £360. Class 4 National Insurance is nil either way, because the profit is far below £12,570.
Under the £3,000 allowance the whole £2,800 is covered, the taxable figure is nil and the tax is nil. The same income in 2026/27 still carries the £360, because the allowance that year is £1,000.
Assumes England, Wales or Northern Ireland rates, no other income and no student loan. At £3,500 of side income the new allowance leaves £500 taxable, so £100 of tax rather than £500. On the current rules, income fully covered by the allowance does not need to be reported; check HMRC's 2027/28 guidance once published.
For a basic rate taxpayer the saving is £360 a year, and for a higher rate taxpayer with the same side income it is £720, since the extra £2,000 of allowance is worth 40p in the pound. The self-assessment tax calculator still runs on 2026/27 rules, which is the right basis for the return you will file by 31 January 2028.
Three more items in this section carry dates. A payment on account is an advance payment towards next year's tax bill: once your self assessment bill passes £1,000, HMRC asks for half of next year's estimate on 31 January and half on 31 July. The Budget confirms that from April 2029, taxpayers who already make payments on account will make smaller, more regular in-year payments instead, following consultation. Nothing changes for the payment due on 31 January 2027, the one due on 31 July 2027, or the January 2028 bill after them.
Making Tax Digital, or MTD, is HMRC's programme to replace the once-a-year return with digital records and four quarterly updates, phased in by income. The Budget gives the April 2027 joiners a softer first year: no penalty points for late submission of their first four quarterly updates for 2027/28, which the costings call a 12 month penalty easement. It also defers the roll-out to several taxpayer groups until further notice, without naming them in the main document, so check the OOTLAR entry and the MTD post before assuming you are in or out. The easement is for quarterly updates only; the end-of-year return and the payment dates do not move.
Mileage is the last one. The Budget makes the increase to tax-free mileage rates permanent: 55p a mile for the first 10,000 business miles, which the costings table dates from 6 April 2026, and 35p a mile above 10,000 from 6 April 2027, up from 25p. The rates apply to employees and to the self-employed using their own car or van, so a second income that involves driving to clients gets a larger deduction from April.
What to do. For 2026/27, nothing changes: the allowance is £1,000, so keep setting aside tax on side income at your marginal rate and file the return by 31 January 2028. From 6 April 2027, treat the extra £2,000 of tax-free room as a lower cost of starting rather than a ceiling to stop at. The employed and self-employed tax post shows how the two incomes stack once you pass it.
If you are facing or planning redundancy
What changed. Nothing in the rules that decide what a redundancy package is worth. The Budget document does not mention redundancy pay at all. The £30,000 limit, the amount of a genuine redundancy payment you can receive free of income tax, is a long-standing rule set outside the Budget, and statutory redundancy pay, the legal minimum your employer owes after two years of service, is set by a weekly pay cap that is uprated each April by separate regulations, £751 a week for dismissals from 6 April 2026. Neither moved on 28 October.
What did change around them. The National Living Wage rises 3.9% to £13.21 an hour on 1 April 2027, which matters if a bridging job is part of your plan. The Budget also confirms the Spring 2026 Youth Employment and Skills Package: a Jobs Guarantee for eligible 18 to 24 year olds on Universal Credit, now extended to 22 to 24 year olds, a £3,000 Youth Jobs Grant for businesses hiring eligible young unemployed people, and a £2,000 apprenticeship hiring payment for smaller employers in England. Those are paid to employers, not to you, so they shape who gets hired rather than what you receive. The fuel duty cut and the VAT cut on electricity, in the household section below, both run to 1 July 2027.
What to do. Work out the statutory figure, then read the offer against it, because everything above the statutory line is the employer's choice and is negotiable. Only the first £30,000 of a genuine redundancy payment is tax-free; the rest is taxed as income in the year it is paid. The redundancy pay calculator post walks through three worked examples.
If you are switching jobs
What changed. Nothing in how a move is taxed. Second job tax, where the second payslip is taxed at the basic rate from the first pound because your personal allowance is already used by the first, is not mentioned in the Budget and works the same way in 2027/28. The pay rise maths is unchanged too: a rise inside the basic rate band leaves you 72p in the pound and a rise above £50,270 leaves you 58p, as the second income versus pay rise post sets out.
What did not. Two things graduates and savers were watching. The Budget's own tables record a freeze of the Plan 2 student loan repayment threshold, and separately cap Plan 2 and Plan 3 interest at 6% from 1 September 2026 to 31 August 2027; it does not print the threshold figure, so check GOV.UK for the number. The cash ISA allowance stays at £20,000 for 2027/28, because the Budget reversed the planned cut.
What to do. Compare offers on take-home pay, not headline salary, using the unchanged bands. If a move involves fewer days, the pro rata salary is the figure to compare, not the full-time equivalent. And if the new role comes with a second income on the side, the April 2027 trading allowance is now part of the arithmetic.
If you are starting a business
What changed. The trading allowance, above, is the first-year gift. Beyond it, the Budget touches the exit rather than the start. Business Asset Disposal Relief, or BADR, gives a reduced 18% rate of Capital Gains Tax when you sell a business you have built; the lifetime limit on gains that qualify halves from £1 million to £500,000 from 6 April 2027. In the other direction, a new Capital Gains Tax Founders' Relief arrives on the same date, offering a 10% rate on up to £10 million of lifetime gains, with the detailed design to be developed with industry.
What did not. The sole trader or limited company question has the same inputs next April. A sole trader pays income tax and Class 4 National Insurance on profit; a limited company pays corporation tax and then you pay tax on what you draw. The income tax bands, the Class 4 rates and the dividend rates are all unchanged for 2027/28, and the Budget maintains the 2024 Corporate Tax Roadmap. The only self-employed figures that move are the Class 2 small profits threshold, from £7,105 to £7,355, and the voluntary Class 2 rate, from £3.65 to £3.80 a week. Making Tax Digital still arrives for sole traders by income band, with the easement described above.
| What moved | 2026/27 | 2027/28 | Date |
|---|---|---|---|
| Trading allowance | £1,000 | £3,000 | 6 April 2027 |
| Savings income rates | 20% / 40% / 45% | 24% / 44% / 49% | 6 April 2027 |
| Property income rates | 20% / 40% / 45% | 24% / 44% / 49% | 6 April 2027 |
| Dividend rates | 10.75% / 35.75% / 39.35% | Unchanged | |
| Cash ISA limit | £20,000 | £20,000, planned cut reversed | |
| Mileage rate above 10,000 business miles | 25p | 35p | 6 April 2027 |
| Class 2 NI small profits threshold | £7,105 | £7,355 | 6 April 2027 |
| BADR lifetime limit | £1 million | £500,000 | 6 April 2027 |
| National Living Wage | Current rate | £13.21 an hour, up 3.9% | 1 April 2027 |
What to do. Start as a sole trader unless there is a clear reason not to, exactly as before; the sole trader or limited company post has the framework and nothing in it is out of date. If you are already thinking about a sale years from now, the BADR change is worth a conversation with an accountant before April 2027, not after.
If you run a small business
What changed. The high street gets the most. From 1 April 2027 in England, the Small Business Rates Relief thresholds for retail, hospitality and leisure properties rise from £12,000 to £18,000 of rateable value for 100% relief and from £15,000 to £21,000 for tapered relief, which the Treasury says takes around 70,000 more businesses out of business rates. Pubs, social clubs and all but the largest live music venues get an extra 20% relief from the same date, bringing their total relief to 35%. Other retail, hospitality and leisure properties get a two-year real-terms freeze.
Three administration changes carry 2029 dates. VAT invoices will have to be issued in a specified electronic format from 1 April 2029, with the full technical design published by April 2028. Businesses will be required to set up a direct debit instruction for VAT and PAYE return liabilities from April 2029, with other payment methods still allowed before a cut-off and the direct debit collecting any unpaid balance. And from April 2029, eligible self-employed fathers, partners and adopters in Great Britain will be able to access parental pay for the first time.
One 2027 date matters if you sell through platforms. The online marketplace VAT rules that already apply to overseas sellers are extended to UK businesses with annual sales of £90,000 or more per platform from 1 October 2027, so the marketplace collects the VAT on those sales. If you are below £90,000 on a given platform, the Budget says nothing changes for you.
What did not. The VAT registration threshold stays at £90,000. Corporation tax follows the 2024 roadmap. Employer National Insurance is not changed in the annex. The 5p fuel duty cut, which was due to end in January, runs to 1 July 2027, and the 0% VAT rate on domestic electricity runs to the same date.
What to do. If you occupy a shop, café or workshop in England, check your rateable value against £18,000 and £21,000 now, because the saving starts in April 2027. If you sell on marketplaces, know your sales per platform. And put e-invoicing and the direct debit requirement in the 2028 diary rather than the 2029 one.
The household items, briefly
Four measures affect the household rather than the tax return. The temporary 0% VAT rate on domestic electricity, introduced on 1 October 2026, is extended to 1 July 2027, which the Treasury expects to take around £50 off the Ofgem price cap in April 2027. A £100 Household Energy Payment goes directly to households in England in council tax bands A to D from January 2027, delivered through the council tax system. The 5p fuel duty cut is extended to 1 July 2027 rather than ending in January. And the National Living Wage rises 3.9% to £13.21 an hour on 1 April 2027, with the 18 to 20 rate at £11.27 and the 16 to 17 and apprentice rate at £8.31.
Two more are worth a line. Savers and landlords pay more from April 2027: Budget 2025 had already added two percentage points to the rates on savings and property income from that date, and this Budget adds two more, so the 2027/28 rates are 24% basic, 44% higher and 49% additional against 20%, 40% and 45% today. Interest inside an ISA is untouched, and the cash ISA limit stays at £20,000.
"The salary side of this Budget is a freeze with the lights off. The second income side is a £2,000 rise in the tax-free line, dated and in the Finance Bill. That is the asymmetry worth noticing."
What to do before 6 April 2027
This is general information, not tax, legal or financial advice. Every figure comes from Budget 2026, HM Treasury, 28 October 2026, and the OOTLAR Annex A rates and allowances published the same day, checked on 28 October 2026. Measures in the Finance Bill can change before Royal Assent, and your own position may differ. Confirm it on GOV.UK or with a qualified adviser before acting.
Related reading
- →Autumn Budget 2026 preview: The five things a salaried professional with a second income should watch on 28 October
- →The £1,000 trading allowance explained, and the £3,000 allowance from April 2027
- →How employed and self-employed tax work together in the UK
- →The high income child benefit charge: Why a pay rise from £60,000 to £80,000 is worth half what it looks
- →Sole trader or limited company: which to choose for a UK side income
- →Redundancy pay calculator UK 2026: How to work out exactly what you are owed
- →Second income vs pay rise: the tax maths nobody shows you
- →What £30k, £50k and £80k actually leave you: UK take-home pay, broken down
- →Making Tax Digital for income tax: what a UK side income needs to know
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