A lot of people are aware that the UK has different forms of tax, but the details may not be known so well. This guide talks about the main six types of taxes in the UK: income tax, national insurance contributions (NICs), value added tax (VAT), corporation tax, capital gains tax (CGT) and inheritance tax (IHT). Here’s what you need to know about each one.
Income Tax
This is the tax payable on all of our ‘earnings’ which can be derived from a number of different sources.
Personal Allowance
Our personal allowance is the amount that can be earned without having to pay any income tax. This will depend on your earning levels but below £100,000 earnings it’s £12,570 and over £100,000 you effectively lose £1 your allowance for every £2 earned over the £100,000 threshold until the threshold reaches zero.
Tax Brackets for England & NI
See below tax brackets and rates payable for those earninging in England & NI
| Tax Bracket | Thresholds | Payable Rate |
| No tax payable | Under Personal Allowance e.g. £12,570 | 0% |
| Basic Rate | Personal Allowance-£37,700 | 20% |
| Higher Rate | £37,701-£150,000 | 40% |
| Additional Rate | £150,001+ | 45% |
| Tax rate is payable between each threshold, not the rate on the entire annual earnings |
Recommended Expert: Chartered Accountant will often manage NICs for Self-Employed and work with your employes on managing employees income tax and NICs at source
National Insurance Contributions (NICs)
National Insurance Payments are payments to establish entitlement to state benefits including state pensions for workers and families.
Who makes NICs contributions?
If you are over 16, employed and earning over £242 per week OR self-employed earning a net profit of £6725
What are the NICs contributions classes?
| National Insurance Class | Who makes contributions |
| Class 1 | Employees earnings over £242 per week, these are automatically dedicated by your employer |
| Class 1a or 1b | Employees pay these on benefits or expenses from their company |
| Class 2 | Self-employed workers earnings profits of £6725 or more |
| Class 3 | These are voluntary contributions to fill-in any gaps of NICs contribution e.g. if earning less than the required minimum earnings |
| Class 4 | Self-employed workers earning profits over £11,909 |
What is the amount you pay in National Insurance Contributions?
Employees
- £242-£967 per week the rate is 13.25% Class 1 National Insurance
- Over £967 per week employees pay a reduced rate of 3.25%
These payments are deducted by your employer from your payslips
Self-Employed
For self-employed the rates are more complex, check-out the following reference guides directly via HMRC
- Self-Employed Sole traders or partnerships: https://www.gov.uk/self-employed-national-insurance-rates
- Limited Company Directors https://www.gov.uk/employee-directors
Recommended Expert: Chartered Accountant will often manage NICs for Self-Employed and work with your employes on managing employees income tax and NICs at source
Value Added Tax (VAT)
Value added Tax is generally known as a good or services tax. VAT is included in the price of many day-day goods and services.
Majority of goods are taxed at 20%,
Some good are taxed at 5% e.g. home energy
Other goods are taxed at 0% e.g. children’s clothing
Full list can be found on HMRC website https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services
Recommended Expert: Chartered Accountant can support with managing VAT
Corporation Tax
Corporation tax is similar to income tax; however this tax is based on ‘net profits or earnings’ or a Limited Company. There is no company tax allowance on corporation tax but expenses or costs are dedicated prior to the accountant reaching ‘net profit’ figure, this is the table ‘earnings’ of the limited company.
In UK corporation tax is currently charged at 19%
Capital Gains Tax (CGT)
Capital Gains Tax is a tax payable at the point an asset is disposed of and has increased in value and therefore a ‘gain’ has been made on the asset. The ‘gain’ is the taxable element.
Capital Gains Personal Allowance is £12,300 which means you can sell and dispose of assets with a gain(s) of up to £12,300 without a tax liability.
Any disposals of assets above £12,300 are taxed at 20% but 28% on residential properties (main residence is excluded)
Recommended Expert: Chartered Tax Planner or Financial Planner can help plan and mitigate tax liabilities.
Inheritance Tax (IHT)
Inheritance tax is a tax that is liable to those inheriting money, possessions or property from someone that has died.
Allowance is £325,00; beyond this IHT tax allowance tax is payable at 40%.
Recommended Expert: Chartered Tax Planner or Financial Planner can help plan and mitigate tax liabilities.