Articles

United Kingdom’s Taxation System

By Celestine Loh, Last updated: 2021-10-25 (originally published on 2020-11-30)

Everything you need to know about how United Kingdom’s taxation system works

london flowers

The United Kingdom’s taxation system might seem complicated initially as there are different levels and bands of tax levels. This article has distilled it down to include only the important points to make filing taxes a breeze for you in the UK. 

The governing body that oversees all tax-related matters in the UK is the HM Revenue and Customs authority. For anyone that is required to pay taxes within the UK system, he/she needs a national insurance number, you can sign up for one here. In the UK, taxes are payable on at least 3 different levels. The first being HMRC, second are the devolved governments (Scotland, England, Wales, etc) and third being the local government council tax levels. The taxation year follows from 6th April to the following year 5th April. 

Residency qualifications:

Under the UK system, there are a number of residency tests that determine the status of a person’s residency for taxation purposes. In the UK, the status of your residency determines the type of income that must be declared while filing for taxes. The tax rates remain the same regardless of whether you are a UK resident or not. 

1. Automatic Overseas Test

Under this test, if one of the following conditions is applicable, you are considered a non-resident:

  • You are not a resident of the UK for the past 3 tax years and have spent less than 46 days cumulative in the UK within a tax year 
  • Your UK residency is eligible for 1 or more of the 3 previous tax years and you will spend less than 16 days cumulative in the UK within a tax year
  • You work full-time abroad for the past tax year or work less than 31 days in the UK and will spend less than 91 days in the UK 
2. Automatic UK Residence Test:

Under this test, if one of the following conditions is applicable, you are considered a resident:

  • You have resided in the UK for more than 183 days cumulative within the tax year
  • Your main residential address is in the UK and you have lived in/ owned/ rented it for at least 91 days within the tax year
  • You work full-time in the UK for 365 days, without any break of more than 31 days
3. Connections to the UK Test:

If you do not meet the conditions of the other two tests, your connections to the UK can also determine the status of your residency. In general, the more ties you have with the UK, the more likely you are to qualify for UK residency. The outcome is determined and is subjective to the individual. It can be done here.

Example of UK ties:

  • Family Ties
  • Accommodation 
  • Work
  • Substantial Visits
  • Favoured Country 
Personal Tax Allowance:

In the UK, there is a “personal allowance” given to almost every person, this personal allowance enables a person to be exempted from taxes up to a certain income level.

The personal allowance tax band is £12,500 for the fiscal year 20/21. The level of personal allowance can change from year to year. Additionally, there are certain conditions that adjust the level of personal allowance a person receives. 

Devolved Government Rates:

For England, Wales or Northern Ireland:

Level of Income (in Pounds)

Tax Rate

Up to 12,500

0%

Over 12,500 to 50,000

20%

Over 50,000 to 150,000

40%

Above 150,000

45% 

 

For Scotland:

Level of Income (in Pounds)

Tax Rate

Up to 12,500

0%

Over 12,500 to 14,585

19%

Over 14,585 to 25,158

20%

Over 25,158 to 43,430

21% 

Over 43,439 to 150,000

41%

Above 150,000

46%

 

Personal Income Tax: 

Level of Income (in Pounds)

Tax Rate

Up to 12,500

0%

Over 12,500 to 50,000

20%

Over 50,000 to 150,000

40%

Above 150,000

45% 

Corporate Income Tax: 

The UK has a flat corporate tax rate of 19%.

In a nutshell, this is how the United Kingdom’s taxation system works. Now you can get yourself set up to do business in Blighty. 

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

Start managing your legal needs with Zegal today

READ MORE: A Guide to Singapore’s Taxation System

FURTHER READING: Guide to Cayman Island’s Taxation System

Tags: Corporate Tax | legal | personal income tax | taxation system | united kingdom

Like what you just read?


Subscribe to our newsletter and be the first to hear of the latest Zegal happenings, tips and insights!