Personal Taxation

UK Income tax constitutes the largest source of tax revenues for the government. Employed individuals pay PAYE (Pay As You Earn) which is basically the UK salary tax. Individuals also pay tax on their wealth when they die (Inheritance Tax) and pay Income Tax during their life time on income from savings, business, property and other sources. For income tax purposes tax year runs from 6th April this year to 5th April next year. The starting rate for personal income tax (also applicable for PAYE) for the tax year 2010-11 is 20% up to an earning threshold of £37,400 p.a. and beyond this level high rate of tax @40% would be applicable. For those earning above £150,000 p.a. there is a higher rate of tax of 50%. Persons aged below 65 years of age are eligible for a personal allowance of £6,475 annually.

UK Corporation Tax

Companies resident in the UK pay corporation tax. Corporation tax is the fourth largest source of revenue for the government in the UK. A company is resident in the UK if it is incorporated in the UK or if its management and control are exercised in the UK. Since the UK has one the largest networks of tax treaties around the world double taxation of income and gains could be avoided. Companies are divided in to three categories for corporation tax purposes; small, medium and large. Small companies pay 21% tax on their taxable profits where as the larger ones pay 28%. Medium sized companies pay a lower rate of corporation tax.

Value Added Tax

Value Added Tax is an indirect tax charged at 17.50% on supplies of goods and services and is the third largest source of revenue for the government. Certain goods and services are exempt from VAT whilst some could be subject to a lower rate (e.g. 5% on domestic gas supplies) or 0% (zero-rated) such as food and children's clothing.

National Insurance Contributions (NIC)

NIC is paid by employers, employees and the self-employed. It is the second largest source of revenue for the government. For the tax year 2010-11 employees earning up to £5,715 p.a. do not pay any NIC, and above this threshold level of earnings the employees pay NIC of 11% whilst for employers it is 12.80%. Self-employed persons normally pay a flat rate Class 2 NIC and earnings-related Class 4 NIC.

Capital Gains Tax

Individuals and companies pay capital gains tax on gains from disposal of a capital asset. Gains are calculated to mean the difference between the disposal proceeds and the ‘base cost’ of the asset. Different rates and reliefs on chargeable gains are available to individuals and companies. Individuals pay 18% capital gains tax on the gains whilst companies pay their marginal rate of corporation tax. The base cost for companies gets ‘indexed’ to inflation rates measured by a retail price index. Individual entrepreneurs can take advantage of a special relief on the first £1 million of the gains.
Tax administration is generally tax-payer friendly and the UK tax return is one easier to file online in almost all cases.