Types of taxes in the UK

The UK has had one of the longest tax codes in the world since 2009, making it seem highly complex. However, the tax system is re­l­at­ively straight­for­ward for most in­di­vidu­als. One notable aspect of UK taxation is that spouses are taxed as in­di­vidu­als, although there are some al­low­ances for transfers of unused personal tax al­low­ances. This article explains what types of taxes there are and which type applies to whom.

When paying taxes in the UK, con­tri­bu­tions may go to multiple levels of gov­ern­ment, including His Majesty’s Revenue and Customs (HMRC), devolved gov­ern­ments (such as in Scotland and Wales), and local gov­ern­ment au­thor­it­ies. It’s also important to note that the UK tax year, also referred to as the Fiscal Year, runs from April 6th to April 5th of the following year.

Main types of taxes in the UK

Income Tax

Income tax is levied on personal income and depends on two key factors:

• How much of your income exceeds your Personal Allowance
• How much of your income falls within each tax band

In England, Wales, and Northern Ireland, the Personal Allowance is set at £12,570 (correct as of February 2025), meaning income below this threshold is not taxed.

• Basic rate: 20% on income between £12,571 and £50,270
• Higher rate: 40% on income between £50,271 and £125,140
• Ad­di­tion­al rate: 45% on income above £125,140

Scotland has a different tax system with multiple bands.

Some in­di­vidu­als may qualify for income tax reliefs, which reduce taxable income. More details can be found on GOV.UK.

National Insurance Con­tri­bu­tions (NICs)

National Insurance (NI) con­tri­bu­tions help in­di­vidu­als qualify for certain state benefits, including the State Pension.

• Employees (Class 1 NICs) must con­trib­ute if they earn over £242 per week (£12,570 per year).
• Self-employed in­di­vidu­als (Class 4 NICs) pay 9% on profits between £12,570 and £50,270 and 2% on profits above £50,270.

Those earning below these thresholds may not need to con­trib­ute but can choose to make voluntary con­tri­bu­tions to avoid gaps in their NI record.

GOV.UK has more in­form­a­tion on National Insurance.

Value Added Tax (VAT)

VAT is a con­sump­tion tax on goods and services, making it one of the largest sources of gov­ern­ment revenue.

• Standard VAT rate: 20%
• Reduced rate (5%): Certain goods such as energy-saving materials
• Zero-rated or exempt: Most food, books, children’s clothing

Busi­nesses must register for VAT if their taxable turnover exceeds £85,000 per year.

Excise Duties

Excise duties are applied to specific goods, often as a deterrent for harmful or socially sensitive activ­it­ies. These include:

• Alcohol and tobacco – taxed to reduce health risks
• Fuel duty – aimed at curbing en­vir­on­ment­al damage
• Betting and gambling taxes – to regulate socially sensitive in­dus­tries

Cor­por­a­tion Tax

Busi­nesses operating in the UK must pay Cor­por­a­tion Tax on their profits.

Since April 2023, the Cor­por­a­tion Tax rate is:

• 25% for busi­nesses with profits over £250,000
• 19% for busi­nesses with profits below £50,000
• Marginal relief applies to profits between £50,000 and £250,000, resulting in a gradually in­creas­ing tax rate.

More details on Cor­por­a­tion Tax can be found on GOV.UK.

Stamp Duty Land Tax (SDLT)

SDLT is charged on property purchases in England and Northern Ireland.

• No SDLT is charged on prop­er­ties up to £250,000
• First-time buyers pay no tax on homes up to £425,000, provided the total property value is below £625,000
• Higher SDLT rates apply to second homes and buy-to-let prop­er­ties

Scotland uses the Land and Buildings Trans­ac­tion Tax (LBTT), while Wales applies the Land Trans­ac­tion Tax (LTT).

For more details on this tax, visit the Stamp Duty Land Tax page on the GOV.UK website.

What happens if you don’t file taxes correctly?

If you don’t file your taxes correctly in the UK, HMRC may impose penalties, interest charges, and even legal con­sequences. A late filing results in an immediate £100 fine, in­creas­ing with further delays—ad­di­tion­al penalties apply at 3, 6, and 12 months.

If you don’t submit a return, HMRC may issue an estimated tax bill, which might be incorrect. In­vest­ig­a­tions and audits can occur if dis­crep­an­cies are found, and in cases of fraud or de­lib­er­ate evasion, penalties can reach 100% of unpaid tax, with potential criminal charges. To avoid issues, ensure you file on time (by January 31st for online Self As­sess­ment), keep accurate records, pay promptly, and contact HMRC if you need as­sist­ance or a payment plan.

Please refer to the legal dis­claim­er for this article.