United Kingdom: Business Environment
Hotel, tourism and accommodation were subject to a reduced rate of 12.5% from 1 October 2021 to 31 March 2022.
Some goods and services are zero-rated: books, newspapers and periodicals (also in a digital format; 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 (an exempt-with-credit supply); etc.
There are several environmental taxes, including: a Landfill tax, a Climate change levy and an Aggregates levy.
Individuals leaving the United Kingdom by air are required to pay a duty, which is generally included in the cost of the air ticket.
An R&D tax credit is available at 13% of R&D expenditure for large companies (such credit is taxable so that the net benefit to the company is 10.5%), while SMEs can claim a tax deduction of up to 230% of their R&D expenditure. A patent box regime is gradually being introduced over 5 years to allow companies to apply an effective 10% rate to all profits derived from qualifying patents. Special tax reliefs are available for expenditures on the production of movies, animation, video games, high-end TV shows and orchestral concerts.
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 carryforward is capped at 50% of profits above an intra-group limit of GBP 5 million per year.
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).
Profits that arise from oil or gas extraction, or oil or gas rights, in the United Kingdom and the UK Continental Shelf ("ring-fence profits") are subject to tax in the United Kingdom (a full rate of 30% for profits over GBP 300,000 and a reduced rate of 19% for profits below that amount). Such activities also attract 100% capital allowances on most capital expenditure. A supplementary tax charge of 10% applies to "adjusted" ring-fence profits in addition to ordinary corporate income tax.
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 3,800 for a property valued at GBP 500,000 (minimum value for 2022/23).
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 an 8% supplementary tax charge on profits above GBP 25 million.
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.
Social security contributions made by the employer amount to 13.8% on all earnings above GBP 169 per week (the first GBP 3,000 being exempt). For 2022/23, the national insurance contributions rates for earnings and/or profits that are subject to employee, employer, or self-employed contributions are temporarily increased by 1.25%, so that employers will pay at a rate of 15.05% on all income in excess of GBP 175 per week.
Employers are required to pay 0.5% of their total payroll in excess of GBP 3 million to create a fund to support apprenticeships (with an annual allowance of GBP 15,000 to offset against payment of the levy).
The stamp duty land tax (SDLT) is charged in England and Northern Ireland on transfers of real property, with rates varying between 0% and 12% for residential properties (15% if the property is valued at more than GBP 500,000) and 0% to 5% for non-residential properties.
Similar taxes - the land and buildings transaction tax (LBTT) and land transaction tax (LTT) - are charged on Scottish and Welsh property, respectively.
A stamp duty payable by the transferee is charged at 0.5% on instruments effecting sales of shares.
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.
A diverted profits tax, at a rate of 25%, applies where multinational companies use artificial arrangements to divert profits overseas to avoid UK tax.
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.
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.
Income tax rate 2023/24 |
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 tax free dividend allowance for the 2023/24 financial year has been halved from GBP 2,000 in 2022/23 to GBP 1,000. |
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% |
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.
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.
Rates can be lower as part of a tax treaty.
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Latest Update: May 2023