United Kingdom: Business Environment

United Kingdom flag United Kingdom: Business Environment

Business Environment

Tax Rates

Consumption Taxes

Nature of the Tax
Value-Added Tax (VAT)
Tax Rate
20%
Reduced Tax Rate
A reduced VAT rate of 5% applies to fuel and power supplied to domestic users and charities, installation of certain specified energy-saving materials in residential buildings in GB before 1 April 2022 and in NI before 1 April 2022 until 30 April 2023 (from 1 April 2027, the 5% rate will apply again in NI and GB), building materials for certain residential conversions, sanitary protection products, children’s car seats, smoking cessation products, grant-funded installation of heating appliances and qualifying security goods, certain larger holiday caravans, small, cable-based passenger transport systems.

Some goods and services are zero-rated: books, newspapers and periodicals (also applies to digital formats), certain foodstuffs, children’s clothing and footwear, drugs and medicines supplied by prescription, new housing, transport services, exports of goods and related services, certain international services, intra-Community supplies of goods, services supplied to customers outside the EU, installation of certain energy-saving materials in residential accommodation in GB from 1 April 2022 to 31 March 2027 and in NI from 1 May 2023 to 31 March 2027, women’s sanitary products, etc.

Other Consumption Taxes
Excise duties are chargeable on wine and made-wine; beer; cider and perry; spirits; imported composite goods containing alcohol; tobacco products; hydrocarbon oil; Climate Change Levy; and biofuels.

The Soft Drinks Industry Levy (Sugar Tax) is applied at two rates: GBP 0.18 per litre of drink if it contains between 5–8 grams of sugar per 100 millilitres, GPB 0.24 per litre of drink if it contains 8 grams of sugar per 100 millilitres or more.

Environmental taxes in the UK include the Landfill tax, which is levied on waste disposal in landfills. The standard rate rose to GBP 103.70 per tonne from April 1, 2024. Additionally, there's a reduced rate for inert waste. The Climate change levy taxes energy use, varying by fuel type, with exemptions for certain sectors and renewable sources. The Aggregates levy taxes sand, gravel, and crushed rock extraction or importation, increasing to GBP 2.03 per tonne from April 1, 2024, and GBP 2.08 per tonne from April 1, 2025. The Carbon Reduction Commitment targets large businesses' energy efficiency, and the plastic packaging tax, introduced in April 2022, applies to plastic packaging with less than 30% recycled content, rising to GBP 217.85 per tonne from April 1, 2024.

Individuals leaving the United Kingdom by air are required to pay a duty, which is generally included in the cost of the air ticket.

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Corporate Taxes

Company Tax
  • 25% standard rate
  • 19% for companies whose profits do not exceed GBP 50,000

UK resident companies with profits falling between GBP 50,000 and GBP 250,000 face a main tax rate of 25%, reduced by marginal relief. These thresholds are adjusted proportionally for accounting periods shorter than 12 months and account for associated companies.

Tax Rate For Foreign Companies
Resident companies are taxable in the United Kingdom on their worldwide income.
Non-resident companies are liable for UK corporation tax on profits generated by a UK permanent establishment, as well as trading profits related to UK land dealings or development, and income from UK property rental businesses. Gains from direct and certain indirect disposals of UK property are also subject to UK corporation tax. Additionally, non-resident companies are taxed at the basic rate of 20% on any other UK-source income received, such as rental income, with no allowances provided unless specified by a Double Taxation Treaty (DTT). The UK operates a Non-Resident Landlord (NRL) scheme, where letting agents or tenants withhold income tax at 20% unless the NRL has permission to receive gross rents.
Capital Gains Taxation
Capital gains are included in a company's taxable profits. Gains or losses on the disposal of substantial shareholdings in both UK and foreign companies can be exempt if certain conditions are met. These conditions generally require the selling company to have owned at least 10% of the shares in the company being sold for at least 12 continuous months within the six years before the disposal. The company being sold must be a trading company or the holding company of a trading group for at least 12 months before the disposal, and in some cases, immediately after the disposal. A broader exemption applies to companies held by qualifying institutional investors.

Nonresident companies are generally not taxed on capital gains unless (i) the asset is held through a UK permanent establishment (PE), or (ii) UK land/property or a UK real estate-related asset is disposed of. If a UK company elects to exclude the profits of its PEs, this exclusion may also apply to the gains and losses on certain capital assets of the PE.
Main Allowable Deductions and Tax Credits
For company taxation purposes, total profits are the total of (i) the company's net income from each source (trade, property business, interests, dividends, etc.) and (ii) the company's net chargeable gains arising from the sale of capital assets. The rules governing expense deductibility vary according to the type of income the expenses relate to.
In general, all expenses that are not capital in nature and that are used for trading purposes are deductible. Local municipal taxes are generally deductible. Interest is deductible within the debt cap rules that apply to companies that are members of large groups. Most donations to charities are tax-deductible. Provisions for future costs can be deducted for tax purposes under certain conditions.

The actual and deemed costs incurred by an employing company for providing shares or options to employees are usually deductible, depending on the nature of the share plan and the accounting treatment. This generally allows a subsidiary company to claim a deduction when its employees receive shares or options in the parent company.
Provisions for future costs can be tax-deductible if they involve allowable revenue expenditure, align with acceptable accounting practices, comply with statutory timing rules, and are accurately estimated. This includes bad debts on trading accounts, typically handled under 'loan relationships' rules for financing costs and income. If a bad debt meets UK accounting standards for a specific provision, it should be deductible.

Operating losses can be offset by the profits of the current fiscal year while the exceeding loss can be carried forward to the previous year. Operating losses incurred prior to 1 April 2017 can be carried forward indefinitely and offset by operating profits from future tax years. Operating losses incurred after 1 April 2017 can be offset by any type of profit. In both cases, the maximum carried forward loss offset is broadly limited to GBP 5 million plus 50% of the current year's profits in excess of that amount.
Capital losses can only be offset by capital gains and their carryback is prohibited. For accounting periods ending on or after 1 April 2020, the use of carried-forward capital losses is limited to 50% of gains above a groupwide GBP 5 million allowance per year (shared between capital and non-capital losses).

Large companies can claim a 20% "above the line" R&D credit. SMEs receive an enhanced 186% tax deduction for certain R&D expenditures, but starting 1 April 2024, this merged into the large company scheme, offering a 20% R&D credit instead. Loss-making companies will face a notional tax rate of 19% on the credit. Additionally, a separate enhanced deduction for "R&D intensive" loss-making SMEs has beene introduced retroactively from 1 April 2023.

The patent box regime allows a 10% corporation tax rate on profits from qualifying patents. Creative industry tax reliefs provide up to an additional 100% deduction for qualifying expenditures in film, animation, video gaming, high-end TV, children's TV, orchestral concerts, and theater. New legislation in 2024 will replace current audiovisual and video game expenditure credits, effective 1 January 2024, but existing regimes can be applied until 31 March 2027 for productions starting before 1 April 2025.

Businesses in designated Freeport tax and customs sites benefit from additional tax reliefs, including exemptions from SDLT and business rates, and simplified customs procedures.

Other Corporate Taxes
The main corporation tax rate for ring fence companies involved in oil rights and extraction is 30%, with a 19% rate for small profits, plus a 10% supplementary charge. An additional energy profits levy of 35% applies to relevant profits. Qualifying investment expenditure can receive enhanced deductions through investment allowances.

A 45% electricity generator levy applies to "exceptional generation receipts" of certain low-carbon wholesale electricity generators with annual output exceeding 50 gigawatt hours, subject to a GBP 10 million groupwide allowance.

The diverted profits tax, at 31%, targets multinational companies diverting profits overseas to avoid UK tax. A 4% residential property developer tax is imposed on UK residential property development profits exceeding a GBP 25 million groupwide annual allowance.

An annual tax on enveloped dwellings (ATED) is charged on the acquisition and holding of high-value residential properties (property over GBP 500,000) through a company or other "non-natural" person. The minimum charge is GBP 4,400 for a property valued at GBP 500,000 (minimum value for 2024/25).

A bank levy is applied at 0.1% for short-term chargeable liabilities and 0.05% for long-term chargeable equity and liabilities (does not apply to overseas branches and subsidiaries held by the UK business). The first GBP 20 million or chargeable liabilities is exempt. Bank profits are also subject to a 3% supplementary tax charge on profits above GBP 100 million (reduced from 8% as of April 2023).
Most insurance premiums are taxed at 12% (life assurance and other long-term insurance are exempt).

There are several environmental taxes, including: a Landfill tax, a Climate change levy and an Aggregates levy.

Weekly paid employees contribute 10% in national insurance (NIC) on weekly income between GBP 242 and GBP 967, and 2% on income above this. Employers pay 13.8% NIC on income over GBP 175 per week. Employers must withhold and remit NIC along with employee payroll deductions. Self-employed individuals pay 8% NIC on annual income between GBP 12,570 and GBP 50,270, and 2% on income above this threshold.
Employers must pay 0.5% of their total payroll exceeding GBP 3 million to fund apprenticeships.

Stamp duty of 0.5% applies to UK share transfers and is paid by the transferee. Stamp Duty Land Tax (SDLT) is charged on property transfers in England and Northern Ireland, with rates for residential property ranging from 0% to 12%, and up to 15% for certain properties. Nonresidential property rates range from 0% to 5%. Companies purchasing residential property over GBP 500,000 are subject to a 15% rate, with some reliefs available. Non-UK residents face a 2% surcharge on residential property acquisitions. Scotland and Wales have their own property taxes: Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively, with different rates and bands. Certain intra-group transfers may be exempt from stamp taxes.

A Digital services tax (DST) is levied at a rate of 2% on the revenues of large businesses that provide a social media platform, search engine, or online marketplace to UK users. The tax applies to companies with an annual turnover above GBP 500 million, of which more than GBP 25 million is linked to the participation of UK users.

Shipping companies can choose to pay tonnage tax in lieu of the normal corporation tax.

For further details, consult the dedicated page on the official governmental portal.
Other Domestic Resources
HM Revenue & Customs

Country Comparison For Corporate Taxation

  United Kingdom OECD United States Germany
Number of Payments of Taxes per Year 9.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 114.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 30.6 41.6 36.6 48.8

Source: Doing Business, Latest available data.

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Individual Taxes

Tax Rate

Income tax rate 2024/25 (England, Northern Ireland and Wales)
Progressive rate up to 45%
GBP 0 - 12,570 0%
GBP 12,570 - 37,700 20% (Basic rate)
GBP 37,701 - 125,140 40% (Higher rate)
Over GBP 125,140 45% (Additional rate)
Dividend income The first GBP 500 for 2024/25 of dividend income  (1,000 for 2023/24) is taxable at 0%
GBP 0 - 12,570 0%
GBP 12,571 - 37,700 8.75%
GBP 37,701 - 125,140 33.75%
Over GBP 125,140 39.35%
Income tax rate 2024/25 (Scotland)
GBP 0 - 12,570 0%
GBP 12,570 - 14,732 19% (Starter rate)
GBP 14,732 - 25,688 21% (Intermediate rate)
GBP 25,688 - 43,662 40 % (taux le plus élevé)
GBP 43,662 - 125,140 42% (Higher rate)
Over GBP 125,140 47% (Top rate)
Allowable Deductions and Tax Credits
Tax relief can be claimed on personal allowances (the standard amount is GBP 12,570 for the 2024-25 tax year, which can be reduced for total income over GBP 100,000, or increased in case of a marriage allowance), work or business expenses and certain pension contributions, charity donations, maintenance payments and time spent working on a ship outside the UK. Contributions for pension schemes can be deducted, provided they respect certain conditions.
Income tax reliefs not subject to a specific restriction are capped at GBP 50,000 or 25% of an individual’s income, whichever is greater.

For tax years 2023/24 and 2024/25, the initial GBP 1,000 of dividend income (reduced to GBP 500 for 2024/25) falls under the "dividend allowance" and is taxed at 0%. The "personal savings allowance" provides a 0% tax rate on "savings income," with allowances of GBP 1,000 for basic rate taxpayers, GBP 500 for higher rate taxpayers, and none for additional rate taxpayers. Individuals are allotted GBP 1,000 allowances for both property and trading income, exempting income up to these thresholds from taxation. If gross receipts exceed these amounts, recipients can opt to deduct the GBP 1,000 allowance from gross income instead of actual expenses when determining taxable income, with certain exceptions applying.

Necessary business expenses can be deducted from employment income and are not taxable if paid for or reimbursed by the employer.
Expenses that do not qualify for tax relief include: alimony, medical expenses, social security contributions, council tax and other UK taxes, most insurance premiums, mortgage interest payments (some relief for commercially let properties), fines and penalties (except for fines, such as parking penalties, incurred in the course of a trade), contingent liabilities.

For further information, consult the guide of the UK Government.

Special Expatriate Tax Regime
Where an individual is resident and domiciled in the UK, he or she is subject to UK income tax and capital gains tax on worldwide income and gains. Where an individual is resident but not domiciled in the UK, he or she is also subject to UK income tax on worldwide income but may choose to pay tax on foreign income and capital gains on a remittance basis, subject to a supplementary charge. Non-resident individuals are taxed on UK-sourced income and capital gains realized from the disposal of UK residential property.

Residents who are not domiciled or deemed domiciled in the UK may make a claim for the remittance basis of taxation to apply to overseas income, in exchange for an additional tax liability of GBP 30,000 per annum for taxpayers who have been UK residents for seven out of the previous nine tax years, rising to GBP 60,000 once resident for twelve out of the previous fourteen tax years. Click here for more information.
Expatriate allowances are included in taxable income but may be available for exemption for certain subsistence expenses.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
List of UK Tax Treaties
Withholding Taxes
Dividends: 0% (20% for dividends paid by a real estate investment fund on its tax-exempt rental income), Interest: 0% (residents)/20% for non-residents, Royalties: 0% (resident company)/20% (resident individual and non-residents).

Rates can be lower as part of a tax treaty.

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Latest Update: April 2024

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