UK Income Tax & National Insurance

Correct answer: B. It is reduced by £1 for every £2 of adjusted net income above £100,000, cutting the standard £12,570 allowance to £7,570

HMRC reduces the Personal Allowance by £1 for every £2 of adjusted net income above £100,000; at £110,000 of adjusted net income, that is £10,000 over the threshold, producing a £5,000 reduction that brings the standard £12,570 allowance for 2026/27 down to £7,570, which is exactly what the second option describes. The first option is wrong because £125,140 is the point where the allowance reaches zero, not where the taper begins; tapering starts at £100,000. The third option wrongly assumes an all-or-nothing cliff edge rather than the gradual £1-per-£2 withdrawal HMRC actually applies as income rises. The fourth option is wrong because there is no marginal relief that increases the allowance in this income range; rather, the interaction of the withdrawn allowance with the underlying 40% tax band is precisely what creates the well-known 60% effective marginal tax rate that applies to income between £100,000 and £125,140.

Source: GOV.UK: Income Tax rates and Personal Allowances — how the Personal Allowance is reduced

Correct answer: B. 40%, the higher rate

For 2026/27, income from £50,271 up to £125,140 falls within the higher rate band and is taxed at 40%, making the second option correct. The basic rate of 20% applies only to income from £12,571 up to £50,270, a lower band that ends well before £125,140, so describing the £50,271-£125,140 range as basic rate misapplies the wrong band's rate to it. The additional rate of 45% only applies to income above £125,140, so applying it to income that tops out at £125,140 overstates the rate for this range. The Personal Allowance covers only the first £12,570 of income before any taper; income in the £50,271-£125,140 range is far above the allowance and is fully taxable, so treating it as covered by the allowance is incorrect.

Source: GOV.UK: Income Tax rates and Personal Allowances — current rates and thresholds

Correct answer: A. Earnings above the UEL are charged at 2%, a lower rate than the 8% charged between the Primary Threshold and the UEL

Class 1 employee National Insurance for 2026/27 charges 0% below the Primary Threshold, 8% on earnings between the Primary Threshold and the Upper Earnings Limit of £967 per week, and only 2% on any earnings above the UEL, so the rate actually falls rather than rises for the top slice of pay, which the first option correctly states and which often surprises people who expect National Insurance to keep increasing like a conventional progressive tax band. The second option is wrong because earnings above the UEL remain subject to National Insurance, just at the lower 2% rate, rather than being exempt altogether. The third option is wrong because the rate drops to 2% above the UEL rather than staying at 8%. The fourth option is wrong because UK National Insurance, like income tax, is calculated on a marginal, slice-by-slice basis across the relevant thresholds, not by pushing an entire week's pay into one single rate once any threshold is crossed.

Source: GOV.UK: National Insurance rates and categories — Class 1 employee National Insurance rates

Correct answer: B. Because profits are below the relevant threshold, no National Insurance credit is given automatically unless they choose to pay voluntary Class 2 contributions

Since compulsory Class 2 National Insurance was removed for the lower-profits band, self-employed individuals with profits at or above the relevant threshold of £7,105 have their National Insurance record treated as paid automatically at no cost, but those below it, like this individual at £6,000, receive no automatic credit and must actively choose to pay voluntary Class 2 contributions if they want that year to count towards their state pension and other contributory benefits, which is what the second option correctly describes. The first option is wrong because Class 2 is no longer compulsory at any profit level under the current rules. The third option is wrong because Class 4 is a separate charge that only applies to profits above its own lower profits limit and has no mechanism for crediting the basic National Insurance record in place of Class 2. The fourth option is wrong because profits below the threshold do not generate an automatic credit; a voluntary payment is required to secure it.

Source: GOV.UK: Self-employed National Insurance rates — Class 2 contributions and voluntary payment