A Guide to UK Taxation

UK Taxation guide

The UK is an interesting place. With so much to do and see, it’s easy to forget about tax when you are busy planning your trip. However, it pays to be well-informed before traveling, as the system can be complex – especially for the more sophisticated traveler.

UK taxation has become more complicated recently, with a range of new taxes implemented. 

If you require assistance, you should always take the help of specialist tax solicitors in the UK because they can guide you in the best direction.

Here are the five main taxes in the UK:

1. Income Tax

The government levies income tax on all taxable income and is one of the major sources of revenue for the government.

Income tax is the most important of all UK taxes because it’s the one everyone pays. It applies to earned income from employment or self-employment and is charged at 20% for basic rate taxpayers and 40% for higher rate taxpayers.

The personal allowance for this tax is £11,500 for those who pay income tax at the basic rate. Again, £33,000 for those who pay it at 40%. Earnings over this amount and then taxed at up to 45%.

2. National Insurance Contributions

National Insurance contributions are a tax on your earnings, paid by your employer and deducted from your pay. Your pay depends on whether you’re employed full-time or part-time and how much you earn.

National Insurance contributions (NICs) are the main tax in the UK. These comprise of:

a) Payroll Taxes

Payroll taxes include employee national insurance contributions (NICs) and employer national insurance contributions (NICs).

National Insurance contributions are a tax on your earnings, paid by your employer and deducted from your pay. Your pay depends on whether you’re employed full-time or part-time and how much you earn.

b) Self-employment

Employers pay employer NICs to contribute to a fund that pays out benefits in certain circumstances (e.g., maternity leave).

3. Council Tax

Council Tax is the UK’s main tax levied on homes, apartments, and some commercial properties. It was as a result of the Local Government Finance Act 1988.

Council Tax is a local government tax based on the value of the property rather than its use or ownership. 

The rates are set annually by councils (councils for a single authority area) and are intended to cover their needs for services such as street lighting, refuse collection, libraries, and public transport.

The tax applies to all residential properties, including houses, flats, and apartments, but not business premises.

4. VAT (Value Added Tax)

VAT (Value Added Tax) is the UK’s main tax, and the government charges it on all goods and services, including those imported from abroad. The rate of VAT depends on the product or service.

The law states that all businesses must register for VAT when they begin trading and must pay it each month. If you don’t register or pay your VAT on time, you can face up to £5,000 daily as a fine.

You can’t pass through VAT to customers if you are VAT registered and trading as a sole trader or partnership. You may be able to claim back any VAT that’s due from HMRC if your customers can prove they’ve paid it themselves.

5. Inheritance Tax

Inheritance Tax is a tax on the transfer of assets by an individual or their estate to another party. In most cases, the inheritance tax liability will get imposed on the recipient of an asset.

However, they may carry the liability if it is transferable to someone with special access. That is why people must ensure that they have all their affairs in order before dying.

Inheritance tax can apply to anyone holding an asset at any time during the seven years before death or within six months after death. 

Must Read: What is the Role of a Financial Planner?

In Conclusion

If you do, your next step would be to talk to professional advisers specializing in this field.  

Hopefully, after reading this article, you have a basic understanding of how to calculate this tax in UK tax and how it applies to your employee /contractor situation. 

We have provided a list of information that should help you understand the UK Tax system. Remarkably, you can learn something new and interesting or simply brush up on your knowledge. 

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