| UK Income Tax Rates UK Tax rates for Individual Income and taxable bands 2009 - 2010
Starting rate for savings: 10%* ..... £0-£2,440
Basic rate: 20% ..... £0-£37,400
Higher rate: 40% ..... Over £37,400
* From 2008-09 there is a 10 per cent starting rate for savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.
The amount of tax you pay to HMRC (formerly Inland Revenue Department) is calculated using different tax rates and a series of tax bands after your allowable expenses and any tax-free allowances have been taken into account.
Because UK tax rates for Income Tax you pay to HM Revenue & Customs on savings in the UK is worked out after any non-savings income has been taken into account, if your non-savings income is less than the starting rate for savings limit (£2,440) - or if savings and investments are your only source of income - your savings income will be taxed at the 10 per cent starting rate up to the limit. But if you already have non-savings income which takes you above the starting rate, all of your savings will be taxed at the 20 per cent basic rate.
Remember, the tax band applies to your income after your tax allowances and any reliefs have been taken into account - you're not taxed on all of your income.
'Non savings income' includes income from employment or self-employment, most pension income and rental income.
'Dividends' means income from shares in UK companies.
Savings and dividend income is added to your other taxable income and taxed last. This means you pay tax on these sorts of income based on your highest Income Tax band.
The rates available for dividends are the 10 per cent ordinary rate and the 32.5 per cent dividend upper rate.
Income Tax allowances in United KingdomPersonal Allowance: £6,475
Personal Allowance for people aged 65-74 (1): £9,490
Personal Allowance for people aged 75 and over (1): £9,640
Married Couple's Allowance (born before 6th April 1935 but aged under 75) (1)(2)(3): Not applicable
Married Couple's Allowance - aged 75 and over (1)(2): £6,965
Income limit for age-related allowances: £22,900
Minimum amount of Married Couple's Allowance: £2,670
Blind Person's Allowance: £1,890
(1) These allowances reduce where the income is above the income limit – by £1 for every £2 of income above the limit. However they will never be less than the basic Personal Allowance or minimum amount of Married Couple's Allowance.
(2) Tax relief for the Married Couple's allowance is given at the rate of 10 per cent.
(3) In the 2009-10 tax year all Married Couple's Allowance claimants in this category will become 75 at some point during the year and will therefore be entitled to the higher amount of the allowance - for those aged 75 and over.
Nearly everyone who is resident in the UK for tax purposes receives a 'Personal Allowance', which is an amount of taxable income you're allowed to earn or receive each year tax-free.
This tax year (2009-10) the basic Personal Allowance - or tax-free amount - is £6,475. You may be entitled to a higher Personal Allowance if you're 65 or over.
If you're registered blind, or are unable to perform any work for which eyesight is essential, you can also claim the tax-free Blind Person's Allowance.
UK Income Tax is only due on taxable income that's above your tax-free allowances.
If you're due to pay Income Tax, there are a number of deductible allowances and reliefs that can reduce your tax bill. These include:
Allowances and reliefs that can reduce your Income Tax bill:
Married Couple's Allowance - the husband, wife or civil partner has to be born before 6 April 1935
Maintenance Payment Relief - either you or your former spouse or civil partner must have been born before 6 April 1935
Unlike the tax-free allowances, these aren't amounts of income you can receive tax-free. Rather they're amounts that can reduce your tax bill.
Tax allowances and reliefs for employees or directors: If you're an employee or director you might be able to get tax relief for business expenses you've paid for.
Tax on company benefits
If you're employed and you receive non-cash benefits from your employer you will have to pay tax on them.
Taxable benefits
Benefits that you might have to pay tax on include:
- company cars or vans
- fuel provided for your vehicle
- medical insurance
- living accommodation
- loans at low interest rates
How you pay Income Tax in the UKIncome Tax is collected in different ways depending on the type of income and whether you're employed, self-employed or not working. The different ways Income Tax is collected include:
- PAYE (Pay As You Earn)
- Self Assessment
- tax deducted 'at source' whereby tax is deducted from bank/building society interest before the interest is paid to you
in some cases, one-off payments
- If you're an employee or you receive a company or private pension, your employer or pension provider will deduct tax through PAYE. If you're self-employed, you'll be responsible for filling in a Self Assessment tax return and paying your own tax to HM Revenue (HMRC).
More about personal taxation in the UKTaxable persons comprise resident or ordinarily resident individuals, trustees and executors as well as non-resident individuals, trustees and executors on their UK-source income. Resident or ordinarily resident and UK domiciled persons are subject to income tax on their worldwide income as it arises. Non-residents are normally only subject to income tax on income arising in the UK.
Broadly, UK resident or ordinarily resident individuals are liable to capital gains tax whilst non-residents are not.
Residence has historically been determined by physical presence in the UK for at least 183 days in any one tax year (6 April - 5 April), or if visits (or intended visits) for four consecutive years average 91 days or more. However, recent tax cases have shown a change in HMRC policy in using the number of days as the determining factor. Instead a more 'qualitative' approach is being used which looks at other factors such as availability of UK accommodation, location of family and the maintenance of social or business interests in the UK.
A person is normally regarded as ordinarily resident if he has been in the UK for three years or it is clear from the date of arrival that his intention is resident if he becomes resident and has a UK property available for his use.
Broadly, an individual is domiciled in the country or state which he regards as his permanent home. He acquires a domicile of origin at birth, normally that of his father, and retains it until he acquires a new domicile of choice. To acquire a domicile of choice, a person must sever his ties with his domicile of origin and settle in another country with the clear intention of making his permanent home there.
An individual who is resident but not ordinarily resident in the UK, or any individual who is resident (whether ordinarily resident or not) but not domiciled in the UK, can make a claim to have his foreign income taxable on the remittance basis. A charge of £30,000 per annum applies to certain individuals making a claim to apply the remittance basis.
An employee who is resident but not ordinarily resident in the UK is only subject to UK tax on the part of his emoluments related to duties performed abroad in so far as they are remitted to the UK. However, individuals who are resident or ordinarily resident are taxed on all remuneration paid under a single contract of employment even if some of the duties of that employment are carried out overseas. It may be possible for foreign domiciled employees to continue to get relief if there are separate contracts of employment covering UK and overseas duties. The contract for the foreign duties should be with an overseas employer.
Husbands and wives are taxed separately and each is entitled to a personal allowance (£6,035 for the year to 5 April 2009, £6,475 for the year to 5 April 2010). The income of a minor unmarried child is also taxed separately, unless it originates from funds given to the child by the parent and it is in excess of £100.
Donations to UK registered charities are made net of basic rate tax. For each £80 donated by an individual, the charity receives a total of £100. Higher rate tax relief is given by extending the basic rate band by the grossed up amount of the gift.
A UK resident individual under the age of 75 may join a personal pension scheme and make contributions. Tax relief for all contributions in a tax year is given on the higher of 100% of relevant UK earnings and £3,600 (gross), and is further restricted to the annual allowance (£235,000 for 2008/09 and £245,000 for 2009/10). The total amount an individual may contribute into a pension over his lifetime is determined by the lifetime allowance (£1,650,000 for 2008/09 and £1,750,000 for 2009/10).
Interest on loans taken out for wholly and exclusively for business purposes qualify for tax relief and these include interest on loans taken out to:
(a) acquire shares in a close company
(b) acquire shares in an employee-controlled company
(c) acquire interest in a partnership or to acquire machinery or plant for use in a partnership or employment.
Individuals are entitled to get a tax credit of up to 20% of the value invested in qualifying shares in the enterprise investment scheme (EIS) up to £500,000 per annum; and 30% of the amount subscribed on venture capital trusts (VCT) companies up to £200,000 per year. In addition, dividends received from ordinary VCT shares are exempt from income tax. EIS shares also qualify for capital gains deferral relief and there is no upper limit.
Up to £7,200 annually may be invested in individual savings accounts (ISA) of which no more than £3,600 may be invested as cash deposit (the rest must be invested in shares). Any income or gains from investments in an ISA is tax free.
Capital gains chargeable on taxpayers other than companies are subject to capital gains tax at a rate of 18%. There is an annual exemption from tax on capital gains available per individual which for the year ended 5 April 2009 is set at £9,600. Capital gains derived from assets outside the UK will not be subject to UK tax in the hands of a foreign domiciled individual unless remitted to the UK provided the remittance basis has been claimed for that tax year. Individuals who leave the UK and become not resident and not ordinarily resident for a period of less than five complete tax years may still be liable to tax on their return on any capital gains realised on assets owned prior to departure from the UK. This rule applies to those individuals who were resident and ordinarily resident for at least four out of seven tax years immediately proceeding the year of departure.
UK Inheritance tax (IHT): A UK domiciled or deemed domiciled individual is potentially subject to inheritance tax on the transfer of any property owned by him whilst a non-UK domiciled individual may only be subject to inheritance tax on the transfer of property situated in the UK. Inheritance tax is a combination of gift and death tax. The first £312,000 in 2008/09 and £325,000 in 2009/10 is free of inheritance tax (the 'nil rate band'). It normally only arises on death but, in certain circumstances, lifetime gifts can also be chargeable to inheritance tax. The rate on lifetime chargeable transfers is 20% and property passing on death is charged at 40%. On death, inheritance tax may also be levied on gifts made within the previous seven years at the death rate. Special rules apply to inheritance tax on trusts.
With effect from 6 April 2006, there have been major reforms on trusts. In short, most transfers into trust will be potentially subject to a lifetime charge to inheritance tax.
A foreign domiciled individual automatically acquires a 'deemed' domiciled in the UK for inheritance tax purposes if he has been resident in the UK for 17 out of the previous 20 tax years, unless he is excluded from this rule under the terms of a double taxation treaty.
There are also some lifetime exemptions such as an annual exemption of £3,000; small gifts exemption, £250 per donee; wedding gifts to a child £5,000, grandchild, £2,500 or remoter issue £1,000. Transfers between spouses are exempt from IHT except when the transfer is made to a foreign domicile spouse by a UK-domiciled spouse, when the exemption is limited to £55,000.
What counts as taxable income in the UK?UK taxable income includes:
- earnings from employment
- earnings from self-employment
- most pensions income (State, company and personal pensions)
- interest on most savings
- income from shares (dividends)
- rental income
- income paid to you from a trust
UK Corporate Tax ratesUK Corporate Tax Rates for financial year starting on 1 April 2009:
Main rate of Corporation Tax: 28%
Special rate for unit trusts and open-ended investment companies: 20%
Small Companies Tax Rate *: 21%
Small Companies Rate can be claimed by qualifying companies with profits at a rate not exceeding: £300,000
Marginal Small Companies Relief Lower Limit: £300,000
Marginal Small Companies Relief Upper Limit: £1,500,000
Marginal Small Company Relief (MSCR) Fraction: 7/400
UK Corporate Tax Rates for financial year starting on 1 April 2010:
Main rate of Corporation Tax: 28%
Other Corporate tax rates: To be advised
The main rate of Corporation Tax applies when profits (including ring fence profits) are at a rate exceeding £1,500,000, or where there is no claim to another rate, or where another rate does not apply.
* For companies with ring fence profits (income and gains from oil extraction activities or oil rights in the UK and UK Continental Shelf) these rates differ. The small companies' rate of tax on those profits is 19 per cent and the MSCR fraction is 11/400 for financial years starting 1 April 2007, 2008 and 2009. The main rate is 30 per cent for financial years starting on 1 April 2008 and 2009.
In his April 2009 Budget, the Chancellor announced that the main rate of Corporation Tax for the financial year beginning 1 April 2010 will be 28 per cent. The main rate of Corporation Tax for companies with ring fence profits will be 28%.
About Company Tax in the UKA UK resident company is liable to company tax on all its sources of income and capital gains, wherever arising. A company is deemed resident in the UK if it is incorporated in the UK or has its central management and control located in the UK.
A non-resident company carrying on a trade in the UK through a permanent establishment located in the UK is liable to corporation tax on all income and gains attributable to that establishment.
Corporation tax rates are fixed for each financial year ended 31 March. If the company's accounting period does not coincide with the financial year, its profits must be time-apportioned and the corporation tax rate is applied accordingly.
Marginal relief applies to companies with profits between £300,000 and £1,500,000.
The tax thresholds may be reduced where the UK company has associated companies worldwide or an accounting period of less than 12 months.
Large companies (broadly, those with profits taxed at 28%) are required to pay their tax to HM Revenue (HMRC) in instalments (generally in four equal instalments). The first payment is due six months and 14 days from the first day of the accounting period. There is a de minimis limit which enables companies with an annual corporation tax liability of £10,000 or less to avoid making such payments.
For companies not required to pay their tax in instalments to HMRC, corporation tax is due for payment nine months and one day after the end of the company's accounting period.
UK Capital gains tax: Capital gains are taxed at the appropriate corporation tax rate in the UK. Non-resident companies are only taxed on capital gains from the sale of assets used in, or for the purposes of, a trade which is carried on through a permanent establishment located in the UK. There are special provisions allowing tax deferrals by UK resident and nonresident companies. Capital losses can only be offset against capital gains or carried forward indefinitely but cannot be carried back.
In addition, disposals of qualifying shareholdings after 1 April 2002 are exempt. A capital gain or loss accruing on the disposal of shares in a trading company may be exempt where at least 10% of the share capital has been held for a minimum of 12 months.
Branch profits tax: There is no branch profits tax in the UK. Foreign branch profits of a UK company will be liable to UK company tax. A UK branch of a non-resident company is taxable on its profits and gains in the same way as a UK resident company.
Fringe benefits tax (FBT): No FBT is payable by the employer as the employees are normally taxed on benefits provided by virtue of their employment. However, National Insurance may be payable by the employer on the cash equivalent of the benefit provided.
Other taxes in the UK: REgarding other UK tax rates, stamp duty, at a rate of 0.5%, is payable by the purchaser (whether or not UK resident) on the transfer of shares in a UK incorporated company. Stamp duty on property transactions was largely replaced on 1 December 2003 by stamp duty land tax (SDLT) which is payable on UK land and buildings transactions and the rates are between 1% and 4%. Special provisions apply to leases.
For the year to 5 April 2009, social security contributions are broadly charged on employees at a rate of 11% on earnings over £453 per month up to earnings of £3,337 per month and 1% thereafter. There is no upper limit to the employer's contribution which is broadly charged at 12.8% of an employee's earnings over £453 per month.
United Kingdom Value Added Tax (VAT) RatesThere are three rates of VAT in the UK, depending on the goods or services the business provides. The rates are:
- standard: 15%
- reduced: 5%
- zero: 0%
UK Value Added Tax (VAT) is a tax that's charged on most goods and services that VAT-registered businesses provide in the UK. It's also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.
VAT is charged when a VAT-registered business sells to either another business or to a non-business customer. When VAT-registered businesses buy goods or services they can generally reclaim the VAT they've paid.
There are also some goods and services that are:
- exempt from VAT
- outside the UK VAT system altogether
Examples of reduced-rated items
These are some examples of goods and services that may be reduced-rated, depending on the product itself and the circumstances of the sale (This isn't a complete list of reduced-rated items and services):
- domestic fuel and power
- installing energy-saving materials
- sanitary hygiene products
- children's car seats
Examples of zero-rated items
These are examples of goods and services that may be zero-rated, depending on the product itself and the circumstances of the sale (This isn't a full list of zero-rated items):
- food - but not meals in restaurants or hot takeaways
- books and newspapers
- children's clothes and shoes
- public transport
More about UK Tax Rates
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