Personal Allowance
The amount you can earn each year before paying income tax — £12,570 in 2026/27.
The Personal Allowance is the amount of income you can receive in a tax year without paying any income tax. In 2026/27 it is £12,570 for most UK residents.
For umbrella contractors, the Personal Allowance is applied via your tax code (typically 1257L). It reduces the amount of your gross salary subject to income tax — saving £2,514 per year compared to having no allowance.
The Personal Allowance tapers above £100,000 of income — reducing by £1 for every £2 earned above £100,000. Once gross income exceeds £125,140, the allowance is fully withdrawn. Many higher-earning contractors face this tapering effect.
Pension contributions reduce gross income before the taper is assessed — making higher pension contributions especially valuable for contractors earning near or above £100,000.