Tax Rate In UK

What is the tax rate in UK?

The tax system in UK is made up of corporation tax, income tax, national insurance, value added tax (VAT). Please note that UK Income tax is applied by earnings brackets and is influenced by your age. British taxes generally change each year with the Budget. The taxes below are set for 2013-14.

Tax type Tax rate
Corporation Tax 20-23%
Income Tax 0-45%
Value Added Tax (VAT) 20%
National Insurance

12% (employees) and 13.8% (employers)

Capital Gains Tax 18-28%
Stamp Taxes 0-7%

Tax Rate In UK

UK Corporation Tax Rates

Corporate tax or company tax in UK is the tax that companies pay on their annual profit. UK corporations can expect to pay 20% for annual profits under £300000 and 23% for annual profits over £300000 (this will decrease to 21% in 2014). From 2015 corporation tax will be charged at a single rate of 20%. How corporation tax is charged will depend on the declared profits which can often be offset against expenses and liabilities to reduce the overall corporate tax rate. It is highly advisable to use a specialist company accountant to make the most of this.

Income Tax Rate in UK

UK Income tax in UK is charged by employers under the Pay As You Earn (PAYE) system for anyone earning more than £182 per week. Contractors who are getting PAYE by their end client or recruitment agency will handle their taxes this way - even if the Contactor Calculator shows it doesn't deliver the highest net returns. For 2013-14 your first £9440 is called your "personal allowance" and is tax free. Earnings from £9441 to £32010 are taxed at 20%, from £32011 to £150000 is taxed at 40% and then any earnings over £150001 are taxed at 45%. 

Tax Rate Earnings From Earnings To
0% 0 £9440
20% £9441 £32010
40% £32011 £150000
45% £150001

Note that PAYE is charged as if each monthly amount is the same for the remainder of the year. So if you earn £10000 in a month, you will be taxed as though you earn £120000 per year - even if you don't earn anything else during that tax year. You will be eligible to a tax rebate after your tax return is lodged and processed.

There is also a national insurance (social security) contribution made by employees. This is uncapped but has 3 charge rates. You don't pay Employees National Insurance (EE NI) until you earn more than £149 per week / £5668 per year, then you pay 12% on the next £648 per week / £33696 per year. Earnings over £797 per week / £41450 per year attract EE NI at 2%.

Payroll Tax Rate in UK - aka Employers National Insurance (ER NI)

The UK doesn't have a Payroll tax per se, but employers do have to pay an uncapped National Insurance contribution for their staff. This effectively includes social security and public health insurance - although employers are also being eased onto compulsory pension contributions as well which also adds to the total cost of employment. As with most taxes in the UK ER NI is dependent on income levels. Employers national insurance is 13.8% for all earnings above the secondary threshold of £148 per week. Employers national insurance doesn't apply for earnings below £148 per week.

Compulsory Pension Contributions in the UK

Since 2012 UK employers have been required to automatically enrol staff (earning more than £9440 per year) in a pension scheme and make contributions on their behalf. Employers are being gradually moved over between 2012 and 2018 with the largest companies moving first. Employees can opt-out if they wish but employers are not allowed to force employees to do this. Contributions are based on banded earnings which will change each year. For 2013-14 the minimum salary level for compulsory contributions is £9440. The contribution is composed of 3 elements - employers contribution, employees contribution and tax relief. It will be introduced in a staged manner as seen in the table below

Phased introduction of Pension
Year Company Employee Tax Relief
2012 1% 0.8% 0.2%
2018 3% 4% 1%


Value Added Tax (VAT) - aka Sales Tax in UK

Sales tax in UK is applied to products you purchase using your already-taxed income. The rate of VAT in UK (value-added tax) is 20% Standard Rate, 5% Reduced Rate for home energy and renovations, 0% Zero Rate for life necessities - (groceries, water, prescription medications, medical equipment and supplies, public transport, children clothing, books and periodicals), depending on the type of product being purchased. Companies can offset VAT from purchases against the VAT they collect on invoices which can be a handy way to save a little on your limited company tax bill.

How to Get the Best Tax Rates in UK

You are always going to pay more tax as your income rises, but there are lots of ways to reduce your tax burden in the UK. There are lots of ways to get paid including PAYE, Self Employed, Limited Company and Umbrella Companies. With all these options you will benefit from getting expert advice from an accountant or tax specialist. We recommend utilising contractor management or umbrella companies as the most tax efficient way to keep more of your earnings whilst reducing headaches and administration. You can net 82% of gross earnings whilst using a totally HMRC approved solution.

How We Help With UK Taxation

We’re partners with a few select UK umbrella companies based on extensive research into the best providers. If you have any questions about the UK tax system ask us - if we don't know, we’ll check with the experts. You'll get the best advice and our services are completely free. We have helped hundreds of UK contractors pay less tax by going through a contractor management company. We’ll suggest the best options to you, and can help you determine the best course of action. 

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