United Kingdom Tax Overview

United Kingdom Tax Overview

United Kingdom Tax Overview

Like all other countries, the United Kingdom has its own set of tax rules that affect its residents — both personal and corporate. Before relocating or opening a business in the United Kingdom, it is important to know what the tax rules are so you can decide whether they are a good fit for you and your company.

This tax overview will look at the three most important categories of tax laws in the United Kingdom: personal taxes, corporate taxes, and value-added taxes.

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United Kingdom Personal Taxes

Here’s everything you need to know about personal taxes in the United Kingdom:

Who Is Taxed?

Both residents and non-residents are subject to personal income taxes if certain requirements are met.

You are automatically a resident of the United Kingdom for tax purposes if you spend more than 183 days per year there or if you have a home there for longer than 90 days and live there for at least 30 days. You can also be considered to be a resident if you work in the United Kingdom full-time for at least 365 days.

Non-residents are subject to tax on income earned from United Kingdom sources.

What Is the Tax Rate?

There are four tax rate bands in the United Kingdom for FY 2021-2022. These rates include the following:

  • 0% — savings income up to GBP 5,000
  • 20% — income from GBP 0 to GBP 37,700
  • 40% — income from GBP 37,701 to GBP 150,000
  • 45% — income above GBP 150,001

Non-residents are subject to the same rates on UK-sourced income.

National vs. International Income

Personal income earned within the UK is taxable for both residents and non-residents.

Income earned from a source abroad is taxable within the UK for residents. However, if tax is paid outside of the UK, the earner may claim relief from tax if the country has a double taxation agreement with the UK. If a UK resident has changed their domicile, they may not owe tax on income earned internationally.

Non-residents do not owe personal tax on income earned outside the country.

Capital Gains, Exemptions, and Other Considerations

Capital gains for individuals in the 40% or 45% tax brackets are taxed at a rate of 28% for gains related to residential property and 20% from other chargeable assets.

Individuals who are in the 20% income tax bracket are charged a rate of 18% on capital gains and 10% from other chargeable assets.

United Kingdom Corporate Taxes

Here’s everything you need to know about corporate taxes in the United Kingdom:

Who Is Taxed?

Limited companies registered in the UK, foreign companies with a UK branch or office, and clubs or unincorporated associations all must pay corporation tax.

What Is the Tax Rate?

The normal corporate income tax rate is 19%. If taxable income can be attributed to patents, the tax rate is 10%.

What Is Taxable Income?

A UK resident company is taxed on its total worldwide profits, including trading income, interest receivable or payable, dividends, and changes in the value of intangible assets.

Tax Incentives and Deductions

The United Kingdom has a variety of tax incentives and deductions available to companies. The country has a number of Double Tax Treaties (DTT’s) that allow foreign tax credits for taxes paid overseas. There are also a number of incentives available related to R&D, such as a 100% tax credit for certain R&D activities.

United Kingdom VAT Taxes

Value-added taxes, better known as VAT taxes, are a common form of consumption tax. The value-added portion is the difference between a company’s sales and its cost of purchasing services or goods from another business. Here’s what you need to know about VAT taxes in the United Kingdom:

Who Is Taxed?

VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the UK.

What Is the Tax Rate?

The VAT tax rate in the UK is 20% on most goods and services. There is a reduced rate of 5% for certain items, such as children’s car seats and home energy.

No VAT is charged on most food and children’s clothing items.

Is the United Kingdom Right for Your Business?

SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in the United Kingdom.

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