Value Added Tax (VAT) is applicable to a wide range of businesses and individuals involved in the supply of goods and services. This guide will give you a deeper understanding on VAT registration thresholds, rates, and rules which may vary depending on factors such as the type of business, the nature of supplies, and the volume of turnover.

 

What is taxable turnover?

The total sales of goods and services subject to VAT.

 

VAT Registration Exemption threshold

 

Tax Year 2024-25 £85,000

 

Who must file VAT?

  1. Businesses with a total taxable turnover for the last 12 months exceeding the VAT registration threshold must register for VAT and file VAT returns. 
  2. Businesses with a taxable turnover below the VAT registration threshold can choose to register for VAT voluntarily. 
  3. Some businesses are required to register for VAT regardless of their turnover. This includes businesses that:

 

  1. Receive goods from other EU countries worth over £85,000.
  2. Expect to exceed the VAT threshold in the next 30 days.
  3. Take over a business that is already registered for VAT.
  4. Join a VAT group or division.

 

  1. Non-established-taxable-persons (NETPs) must register for VAT if they make any taxable supplies in the UK. NETP is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated in the UK. 

 

Once registered for VAT, businesses must charge VAT on their taxable sales (output tax) and can reclaim VAT on their eligible business purchases (input tax). They must then file VAT returns with HMRC, typically on a quarterly basis, reporting the amount of VAT collected and paid during the reporting period.

 

What will happen if you do not register for VAT?

 

Failure to register for VAT when required or to file VAT returns correctly and on time can result in penalties and interest charges from HMRC. The amount of penalties are based on the net VAT due from the time you should’ve registered to the time HMRC received your application or realized you needed to register.

 

Situation Penalty rate
If you registered less than 9 months late 5%
If you registered 9-18 months late 10%
If you registered more than 18 months late 15%

 

VAT Compliance Rules to follow:

Once you are registered for VAT, you’ll need to comply with VAT rules, including:

 

  1. Charging VAT: You must charge VAT on your sales at the appropriate rate (standard rate, reduced rate, or zero rate), and issue VAT invoices to your customers.
  2. Claiming VAT: You can reclaim VAT on your business expenses, known as input tax, subject to the usual rules and restrictions.
  3. Filing VAT Returns: You’ll need to file regular VAT Returns with HMRC, usually on a quarterly basis, even if you have no VAT to pay or reclaim.
  4. Making Payments: If your VAT taxable turnover exceeds the VAT registration threshold, you’ll need to pay any VAT due to HMRC by the deadline specified on your VAT Return.

 

If your turnover exceeds the VAT registration threshold, you must notify HMRC within 30 days and register for VAT accordingly.

 

How to Calculate taxable turnover?

 

Let’s say you run a small retail business selling clothing. Over the past 12 months, your sales are as follows:

 

# Sale Record VAT Rate Charged Total Sale

(including the VAT charged to customer)
1 Sales of clothing (subject to standard rate VAT) 20%

(Standard Rate)

 £70,000
2 Sales of children’s shoes (subject to reduced rate VAT 5%

(Reduced Rate)

 £10,000
3 Sales of books (subject to zero rate VAT) 0%

(Zero Rate)

 £5,000
4 Exempt sales (not subject to VAT)

e.g., sales of second-hand clothing

 – £15,000

 

To calculate your taxable turnover, you would add up the total value of your taxable sales subject to VAT:

Total Taxable Turnover  =   Sales of clothing + Sales of children’s shoes

         =   £70,000 + £10,000

         =   £80,000

 

In this example, your total taxable turnover is £80,000.

 

What should be done if total taxable turnover is above VAT registration threshold (£85,000)?

 

Let’s assume your total taxable turnover is £100,000. 

 

With a total taxable turnover of £100,000, you’ll need to calculate the total VAT collected on your sales. This is done by applying the appropriate VAT rate to your taxable turnover.

 

Total VAT Collected = Total Taxable Turnover × VAT Rate

 

Assuming all your sales are subject to the standard rate of VAT (20%), the total VAT collected would be:

 

Total VAT Collected = £100,000 × 0.20 = £20,000

 

You’ll be required to pay the HMRC, the total VAT collected, deducting any VAT you’ve paid on your business expenses (input tax) by the deadline specified on your VAT return. 

 

Let’s suppose you incurred £25,000 in business expenses, on which you paid £4,100 VAT.

 

You need to pay net VAT liability to the HMRC, which is:

Net VAT Liability = Total VAT collected via sales – Total VAT paid on business expenses

Or                           = Output VAT – Input VAT

                               = £20,000 – £4,100

                           = £15,900

 

So, the total tax to paid to the HMRC for the above scenario is £15,900. In layman’s term, if your input tax is less than your output tax, you’ll need to pay the difference to HMRC. If your input tax exceeds your output tax, you may be eligible for a VAT refund.

 

Review Exempt and Non-Taxable Supplies: Remember that certain supplies, such as certain financial services, insurance, and exempt sales, are not included in your taxable turnover for VAT registration purposes. Make sure to exclude these from your calculations.

 

In addition to VAT, you’ll also need to consider other taxes such as income tax and National Insurance contributions on your business profits, depending on your business structure and personal circumstances.

 

What should I do, if I am registered as VAT, I am charging VAT to the customer and the net revenue is less than the VAT registration threshold (£85,000)?

 

If you voluntarily register for VAT and your net revenue is below the VAT registration threshold, you are still subject to VAT obligations. 

  • You won’t be required to pay VAT to HMRC unless your VAT taxable turnover exceeds the registration threshold and,
  •  you must remit the collected VAT to HMRC, regardless of whether your turnover exceeds the threshold.

 

Example: 

Let’s suppose you run a small business and is registered for VAT. Every quarter you collect VAT from the customers on sales transactions and your total taxable amount is £50,000. In a quarter, you collected £5,000 VAT from the customers. Then you are required to file VAT returns with HMRC, report the VAT collected from the customers and pay this amount (£5,000) to HMRC. You must pay Net VAT liability amount to HMRC, deducting the amount incurred on the business expenses.

 

Who should Deregister from VAT?

 

If the total taxable turnover falls below the deregistration threshold (£83,000), then one may consider deregistering for VAT with HMRC. This would relieve them from the administrative burden of VAT compliance, but you must ensure that you meet the criteria for deregistration.

 

You should maintain accurate records of her sales, purchases, and VAT transactions to ensure compliance with VAT regulations and facilitate the preparation of VAT returns.

 

What is the deadline for submitting a VAT Return?

The deadline for submitting a VAT return and paying any VAT due to HMRC depends on the VAT accounting period chosen by the business. In general, the deadline for submitting a VAT return and paying VAT is usually one month and seven days after the end of the VAT accounting period.

 

For example:

If a business has a quarterly VAT accounting period ending on 31st March, the deadline for submitting the VAT return and paying any VAT due would typically be 7th May.

 

What you should do if you become insolvent, i.e., insufficient to pay VAT?

 

Insolvency in the context of VAT refers to a situation where a business is unable to pay its VAT liabilities to HM Revenue & Customs (HMRC) due to financial difficulties or an inability to meet its financial obligations. 

 

You should cancel your VAT registration and organise payment of your outstanding VAT to HMRC. 

  • Businesses can engage in discussions with HMRC to negotiate payment plans or arrangements to settle outstanding VAT liabilities. HMRC may be willing to agree to a time-to-pay arrangement or offer other solutions to help the business manage its VAT debts.
  • Businesses may be eligible for government support schemes or initiatives designed to assist struggling businesses, such as grants, loans, or tax relief measures. It’s advisable to research and explore available support options that may help alleviate financial difficulties.

 

HMRC may take action to recover unpaid VAT from an insolvent business through various means, such as issuing demands for payment, pursuing legal action, or appointing a liquidator or administrator to collect assets and settle debts. HMRC may impose penalties and interest charges on the outstanding amounts. These additional charges can exacerbate the financial burden on an insolvent business.

 

VAT debts must be settled before other creditors can receive payments from the insolvent estate.

 

You’re still responsible for your VAT if you:

  • are declared bankrupt and continue to trade.
  • set up a voluntary arrangement to pay off your debts (sometimes known as a ‘trust deed’ in Scotland)

If you set up a voluntary arrangement, HMRC will send you 2 paper VAT Returns. These are for the following periods:

  • your current VAT period up to the day before the arrangement
  • the date of the arrangement up to the end of your next VAT period

After this, you can continue to use your online VAT account to send your VAT Returns.

 

Taxes on individuals and businesses are levied based on their income. They are collected by the HMRC and used to fund public services and government expenditure. To assess the income tax liability, one must understand the income tax-filing obligations and sources of income of the broad categories of income taxpayers, including individuals, small businesses, large businesses, investors, pensioners, and non-residents.

 

The UK tax system has different tax bands for each taxpayer category. The below figure depicts the taxpayer categories.

 

Understanding the type of tax, you need to file is the first step in navigating the UK tax system. Identifying the specific tax type relevant to your circumstances lays the foundation for fulfilling your tax obligations accurately and efficiently.

 

Tax-Payer and Tax-Type

 

Before proceeding with any tax-related activities, take the time to determine the appropriate tax type applicable to your situation (click link to article 1) and, complete the required forms, and comply with HM Revenue & Customs (HMRC) regulations.

 

A detailed description of each tax type applicable under each tax-payer category is provided in this section. 

 

Tax-Payer: Individual

 

Employees, Self-employed Individuals, Landlords, Company Directors, Investors, Pensioners, High-Earners, and Non-Residents file tax as individuals. The different tax types that they might need to file are:

 

  1. Income Tax: Individuals typically need to file income tax returns and pay taxes on their earnings from employment, self-employment, rental income, investments, pensions, and other sources of income.
  2. Capital Gains Tax: Individuals may need to report and pay tax on any capital gains made from selling or disposing of assets such as property, investments, and personal possessions.
  3. Inheritance Tax: Individuals may need to plan for and pay inheritance tax on the value of their estate upon their death, depending on the value of their assets and any exemptions or reliefs available.
  4. Council Tax: Individuals who own or occupy residential properties may need to pay council tax to local authorities based on the value of their property.
  5. Value Added Tax (VAT): Individuals who are VAT-registered businesses may need to charge VAT on goods and services provided and submit VAT returns to HMRC.

 

Tax-Payer: Small Scale Businesses

 

Self-employed Individuals, Sole Traders, Freelancers, and Small Business Owners file tax as small-scale businesses. The different tax types that they might need to file are:

 

  1. Income Tax: Sole traders, freelancers, and small business owners typically need to file income tax returns and pay taxes on their business profits.
  2. National Insurance Contributions (NICs): Self-employed individuals may need to pay Class 2 and Class 4 NICs on their self-employed earnings.
  3. Value Added Tax (VAT): Small businesses with taxable turnover above the VAT threshold may need to register for VAT, charge VAT on goods and services provided, and submit VAT returns to HMRC.
  4. Corporation Tax: Small businesses operating as limited companies may need to file corporation tax returns and pay taxes on their profits.

 

Tax-Payer: Large Scale Businesses

 

Company Directors, Corporations, Limited Companies, Partnerships (depending on size and structure), Organizations with significant turnovers and complex financial structures file tax as large-scale businesses. The different tax types that they might need to file are:

 

  1. Corporation Tax: Large corporations and companies need to file corporation tax returns and pay taxes on their profits.
  2. Value Added Tax (VAT): Large businesses may need to register for VAT, charge VAT on goods and services provided, and submit VAT returns to HMRC.
  3. Employment Taxes: Large businesses with employees need to deduct and pay taxes such as Pay As You Earn (PAYE) income tax and National Insurance Contributions (NICs) on their employees’ earnings.
  4. Business Rates: Large businesses with commercial properties may need to pay business rates to local authorities based on the rateable value of their properties.

 

Tax-Payer: Investors

 

Individuals or entities earning income from investments such as dividends, interest, or capital gains file tax as investors. The different tax types that they might need to file are:

 

  1. Income Tax: Investors may need to report and pay taxes on their investment income, including dividends, interest, and rental income.
  2. Capital Gains Tax: Investors may need to report and pay tax on any capital gains made from selling or disposing of investments.

 

Tax-Payer: Pensioners

 

Retired individuals receiving income from pensions, annuities, or retirement benefits file tax as pensioners. The different tax types that they might need to file are:

  1. Income Tax: Pensioners may need to report and pay taxes on their pension income, annuities, and other retirement benefits.

 

Tax-Payer: Non-Residents

 

Individuals or entities not residing in the UK but earning income from UK sources file tax as non-residents. The different tax types that they might need to file are:

  1. Income Tax: Non-residents earning income from UK sources may need to report and pay taxes on their UK income, including rental income, employment income, and capital gains.
  2. Non-Resident Landlord Scheme: Non-resident landlords renting out UK property may need to register for the Non-Resident Landlord Scheme and have tax deducted at source from their rental income.

 

Navigating the complexities of income tax can be challenging, especially for businesses and individuals with complex financial arrangements. It is advisable to seek professional advice from qualified accountants or tax advisors to ensure compliance with tax laws and regulations and to optimize tax planning strategies.

 

Click here to understand the income tax bands, allowances, rates, and how to calculate income tax liability for individuals and businesses.

 

The tax system collects money from individuals, businesses, and other entities so the government can function properly. To meet the tax obligations and make informed financial decisions, it’s crucial for individuals and businesses to understand the UK tax system. You can optimize your finances and manage your tax affairs if you know what kinds of taxes, tax bands, allowances, and tax planning strategies you need.

 

In the UK, taxes are the primary source of revenue for government services and expenditures. Revenue generated from taxes pays for essential public services like healthcare, education, infrastructure, transportation, and law enforcement. These services are vital to maintaining society’s well-being and functioning. Also, taxes fund social welfare benefits aimed at helping the poor and vulnerable. For example, welfare assistance, unemployment benefits, housing support, disability benefits, and retirement pensions are funded. By imposing higher taxes on people with higher incomes or wealth, taxation helps redistributing wealth within society. Taxes in the UK are administered by HM Revenue & Customs (HMRC), which is responsible for collecting taxes, enforcing tax laws, and providing guidance and support to taxpayers.

 

The UK tax year runs from April 6th to April 5th the following year and you are required to file a tax return and pay any tax owed by specific deadlines, usually in January following the end of the tax year. For example, for the tax year ending on April 5, 2024, the tax return deadline would be January 31, 2025. It’s important to note that this deadline applies to most taxpayers, including those who file online or by paper. However, if you’re filing your tax return for the first time or if you want HM Revenue & Customs (HMRC) to collect tax through your tax code, you may need to submit your tax return earlier, typically by October 31st following the end of the tax year. It’s essential to be aware of the specific deadlines and requirements for your individual circumstances to avoid penalties for late filing.

 

It’s possible for individuals to file several types of taxes in the United Kingdom. Individuals can identify their tax obligations and ensure compliance with applicable tax laws and regulations by understanding various types of taxes in the UK and considering their sources of income, assets, and employment status. Based on individual circumstances and sources of income, the main groups of people that file tax in the UK are:

  1. Employees: Individuals who are employed by a company or organization typically have taxes deducted from their salary through the Pay As You Earn (PAYE) system.
  2. Self-Employed Individuals: Self-employed individuals who run their own businesses, work as freelancers, or provide services as sole traders are required to file tax returns and pay taxes on their business profits. They must report their income and expenses to HM Revenue & Customs (HMRC) through a self-assessment tax return.
  3. Landlords: Individuals who own rental properties and receive rental income are required to declare this income to HMRC and pay tax on their rental profits.
  4. Company Directors: Directors of limited companies have specific tax obligations, including filing annual accounts and corporation tax returns for their company. They may also need to report personal income from the company, such as salaries, dividends, or benefits in kind, on their personal tax return.
  5. Investors: Individuals who earn income from investments, such as dividends from shares, interest from savings accounts, or capital gains from selling assets, may need to report this income to HMRC and pay tax on it.
  6. Pensioners: Retired individuals who receive income from pensions, annuities, or other retirement benefits may need to report this income to HMRC and pay tax on it.
  7. High Earners: Individuals with high incomes may fall into higher tax brackets and may have additional tax obligations, such as paying higher rates of income tax or contributing to additional taxes like the High-Income Child Benefit Charge or the Annual Tax on Enveloped Dwellings (ATED).
  8. Non-Residents: Individuals who are not resident in the UK but have UK income, such as rental income from UK properties or income from UK investments, may still have tax obligations in the UK and may need to file a non-resident tax return.

 

The different factors one could consider identifying the type of tax a person has to file are:

  1. Review Sources of Income and Assets: Individuals should assess their sources of income, including employment income, investment earnings, rental income, and other sources, to determine if they are subject to income tax, CGT, or other taxes.
  2. Understand Employment Status: Different tax obligations may apply depending on an individual’s employment status, such as being employed, self-employed, or a company director. Understanding one’s employment status can help determine tax filing requirements.
  3. Review Property Ownership: Property owners should be aware of their obligations regarding council tax, SDLT, and potentially CGT upon the sale of property. Understanding the tax implications of property ownership can help individuals comply with their tax obligations.
  4. Consult HM Revenue & Customs (HMRC): HMRC provides guidance and resources to help taxpayers understand their tax obligations and filing requirements. Individuals can visit the HMRC website or contact HMRC directly for assistance with tax-related queries.

 

Most of the taxes come from three main sources of tax type:

  1. Income Tax: Income tax is the tax on income earned by individuals, including wages, salaries, pensions, and rental income. It is calculated based on taxable income and is subject to different tax bands and rates.
  2. National Insurance Contributions (NICs): NICs are contributions paid by individuals and employers to fund state benefits, including the state pension and healthcare. NICs are based on earnings and are collected alongside income tax.
  3. Value Added Tax (VAT): VAT is a consumption tax levied on the sale of goods and services.

 

The further categories of tax type are:

  1. Corporation Tax: Corporation tax is imposed on the profits of UK-resident companies and non-UK companies with a permanent establishment in the UK.
  2. Capital Gains Tax (CGT): CGT is imposed on the profit earned from the sale of assets, such as property, stocks, and other investments. Individuals are required to report capital gains and pay tax on the gain above the annual exempt amount.
  3. Inheritance Tax (IHT): Inheritance tax is levied on the value of an individual’s estate upon their death.
  4. Stamp Duty Land Tax (SDLT): SDLT is payable on the purchase of land and property in England and Northern Ireland above certain thresholds.
  5. Council Tax: Council tax is a local tax collected by local authorities to fund services such as schools, waste collection, and policing.
  6. Business Rates: Business rates are a tax on non-domestic properties, such as shops, offices, and warehouses. They are paid by the occupiers or owners of the properties and are calculated based on the rateable value of the property.
  7. Customs Duties and Import Taxes: Customs duties and import taxes are levied on goods imported into the UK from other countries. They are typically paid by the importer and are calculated based on the value of the goods and their classification under the UK’s customs tariff.
  8. Car, Road, and Airport Taxes: In the UK, taxes related to cars, roads, and airports fall under various categories and are designed to fund infrastructure, maintenance, and environmental initiatives. The different categories of tax applicable under this tax type are Vehicle Excise Duty (VED) or Road tax, Fuel Duty, Vehicle Insurance Premium Tax (IPT), Congestion Charge, Vehicle Registration Tax (VRT), and Airport Passenger Duty (APD). These taxes play a vital role in funding transportation infrastructure, environmental initiatives, and public services in the UK while also promoting sustainable travel practices and reducing environmental impact.

 

If you need help navigating the tax system and filing taxes, you can also talk to an accountant or tax advisor. 

 

Tax bands and allowances play a significant role in determining the amount of tax individuals are required to pay on their income. To calculate your taxable income, subtract any allowable deductions, reliefs, and allowances (such as personal allowances, pension contributions and charitable donations) from your total income. The remaining amount is your taxable income, which is then subject to income tax at the applicable rates.

 

To understand in depth about the tax bands and allowances in the UK, click here.

Income tax is a fundamental aspect of the UK’s tax system, impacting both individuals and businesses. Read through this post to enhance your understanding on income tax bands, allowances, rates, and how to calculate income tax liability for individuals and businesses.

 

Let’s delve into the intricacies of tax bands and explore the various tax types that shape the UK’s fiscal landscape. These rates are as for the year 2024-2025.

  1. Income Tax: Income Tax is the tax on income earned by individuals, including wages, salaries, pensions, and rental income. It is calculated based on taxable income and is subject to different tax bands and rates. Income tax is applied on individual’s earnings above certain threshold. The tax band based on individual’s income is:

 

# Main Rates Income Tax Rate Income tax band Note
1 Personal Allowance 0% Upto £12,570 Tax-free income. One can increase allowed personal allowance by claiming Marriage or Blind person allowances (if eligible).
2 Basic Rate 20% £12,570 to £50,270
3 Higher Rate 40% £50,270 to £125,140 Allowed Personal allowance decrases, if taxable income over £100,000
4 Additional Rate 45% Above £125,140 Allowed Personal allowance is zero, if taxable income over £125,140

 

  1. National Insurance Contributions (NICs): NICs are contributions paid by individuals and employers to fund state benefits, including the state pension and healthcare. NICs are based on earnings and are collected alongside income tax. There are 4 main types of classes in NICs.

 

# Classes Sub-class Description NIC Rate
1 Class 1 Primary Class 1 Contribution made by employees based on their earnings.
  1. Earnings < £9,880 per year are not subject to NICs.
  2. Earnings between £9,881 and £50,270 per year are subject to NICs at the primary threshold rate of 8%.
  3. Earnings above £50,270 per year are subject to NICs at the higher rate of 2%.
Secondary Class 1 Contributions made by employers based on their employees’ earnings.
  1. Employers are required to pay NICs at the secondary threshold rate of 13.8% on earnings above £9,880 per year.
2 Class 2 Contributions paid by self-employed individuals who earn above a certain threshold.
  1. Self-employed individuals with earnings above £6,515 are required to pay Class 2 NICs at a flat weekly rate.
3 Class 3 Voluntary contributions paid by individuals to fill gaps in their National Insurance record, such as when they are not working or earning below the threshold for paying NICs.
4 Class 4 Contributions paid by self-employed individuals based on their profits.
  1. Profits between £9,880 and £50,270 per year are subject to NICs at the main rate of 9%.
  2. Profits above £50,270 per year are subject to NICs at the additional rate of 2%.

 

Read through the post to gain more insight on how to register for NIC and NIC category letters.

 

  1. Value Added Tax (VAT): VAT is a consumption tax levied on the sale of goods and services. There are three main VAT rates:

 

# Rates % of VAT Rate Rate Applies to
1 Standard Rate 20% Most goods and services, including electronics, clothing, furniture, and professional services like consulting and accounting.
2 Reduced Rate 5% Certain essentials such as children’s car seats, domestic fuel and power, and renovations to residential properties.
3 Zero Rate 0% Most food and drink (excluding alcohol and certain luxury items), books and newspapers, certain financial and insurance services, public transport fares, and prescription medications.

 

Note: Businesses that are registered for VAT must charge the appropriate rate of VAT on their sales, collect VAT from their customers, and pay this VAT to HM Revenue & Customs (HMRC) through regular VAT returns. Conversely, businesses can reclaim VAT on their purchases and expenses, reducing their overall VAT liability.

 

Read through this post to understand who and under what circumstances one should file VAT tax.

 

  1. Corporation Tax: Corporation tax is imposed on the profits of UK-resident companies and non-UK companies with a permanent establishment in the UK.

 

# Rates Tax Rate Who will fall under this category?
1 Small Profit Rates 19% Companies with profits under £50,000.
2 Main Rate 25% Companies with profits over £250,000.
3 Marginal Relief Pay tax at Main rate, reduced by a marginal relief. Companies with profits between £50,000 and £250,000.

 

Different cooperation tax rate is applied to companies that make profits from oil extractions or oil rights in the UK, these are called ring fence companies. Learn more on this.

 

Read through the post to learn more about the marginal relief and who can claim it.

 

Companies can deduct certain capital expenditures, known as capital allowances, from their taxable profits before calculating corporation tax. Capital allowances may include expenses for machinery, equipment, vehicles, and certain types of building renovations.

 

Loss Relief: Companies can carry forward losses from previous years to offset against future profits, reducing their corporation tax liability. Loss relief can help companies manage their tax liabilities during periods of financial difficulty.

 

  1. Capital Gains Tax (CGT): CGT is imposed on the profit earned from the sale of assets, such as property, stocks, and other investments. Individuals are required to report capital gains and pay tax on the gain above the annual exempt amount. Capital gains above the annual exempt amount (£3,000) are subject to CGT at various rates depending on the individual’s income tax band.
    1. 10% for basic rate taxpayers.
    2. 20% for most assets for individuals at higher rate and additional rate taxpayers.
    3. 28% for residential property and carried interest (profits from certain types of investment funds) for individuals at higher rate and additional rate taxpayers.
    4. Additional rate taxpayers, those with taxable income above the additional rate threshold, may pay capital gains tax at the higher rate of 28% for most assets and 36% for residential property and carried interest.

 

Read the post to gain insight on CGT reliefs and taxable amount calculations.

 

  1. Inheritance Tax (IHT): Inheritance tax is levied on the value of an individual’s estate upon their death.

 

# Rates Threshold value Tax Rate Who will fall under this category?
1 Nil Rate Band £325,000 0% No tax if value of estate asset is below the threshold or 

If you leave everything above the threshold to your spouse, civil partner, a charity, or a community amateur sports club
2 Residence Nil Rate Band £500,000 0% If you leave your main residence to the direct descendants (e.g., children or grandchildren), then no tax below the threshold value.
3 Inheritance Tax Rate 40% Applicable on the value of the taxable estate above the eligible threshold.
36% If you leave 10% or more of the ‘net value’ to charity in your will. 

 

  1. Taxable Estate Calculation: The taxable estate is calculated by adding up the value of all assets owned by the deceased, including property, investments, savings, and personal possessions. Any liabilities, debts, funeral expenses, and certain exemptions or reliefs can be deducted from the total value of the estate to arrive at the taxable estate.

 

However, certain gifts made during the deceased’s lifetime may be subject to lower rates or exemptions, depending on when the gifts were made and to whom they were given. Learn more about exemptions you could apply for inherited estates.

 

  1. Council Tax: Council tax is a local tax collected by local authorities to fund services such as schools, waste collection, and policing. Council Tax bands are labelled from A to H (and sometimes I or J in Wales), with B and A representing properties with the lowest value and H representing properties with the highest value. Each band corresponds to a specific range of property values.
    1. Certain properties may be eligible for discounts or exemptions from Council Tax. For example, single occupants may be entitled to a 25% discount on their Council Tax bill. Other exemptions may apply to properties occupied by full-time students, certain disabled persons, or properties that are unoccupied and undergoing major repairs.
    2. Council Tax Support: Low-income households may be eligible for Council Tax Support, which provides financial assistance to help with Council Tax payments.

             

Explore through the post to understand more about various exemptions you could look for Council tax.

 

  1. Stamp Duty Land Tax (SDLT): SDLT is payable on the purchase of land and property in England and Northern Ireland above certain thresholds.

 

# Rates Rate Band Tax Rate Who will fall under this category?
1 Standard Residential Property Rates Zero-Rate Band 0% No tax if value of property price is below £250,000.
Higher Rate Band 5% Portion of the property price above £250,000 and up to £925,000
Additional Rate Band 10% Portion of the property price above £925,000 and up to £1.5 million
12% Portion of the property price above £1.5 million
First-Time Buyer Relief
  • 0% up to £425,000
  • 5% on the portion of the property price above £425,001 and up to £625,000
  • No exemption if property is above £625,000.
2 Additional Property Rate 3% higher than the standard rates for each band. Purchases of additional residential properties, such as second homes and buy-to-let properties.
3 Commercial Property Rates Rates vary depending on the purchase price and the nature of the property.

 

There are various exceptions, reliefs, and exemptions available for certain types of property transactions, such as transfers between spouses or civil partners, purchases of agricultural land, and transactions involving charities or public bodies. Read through the post to learn more on the same.

 

Individuals or businesses can apply for tax credits and reliefs. Read through the post to learn more about the various options available under tax credits and reliefs.

 

NICs are contributions paid by individuals and employers to fund state benefits, including the state pension and healthcare. You need to apply for National Insurance number to start paying National Insurance Contributions. National Insurance number never changes and could be found in your Payslip, P60 form, tax letter, pension letter, or benefits letter. Keep it safe to avoid any fraudulent.

 

You must pay National Insurance, when:

  1. You are 16 or older, and
  2. An employee earning more than £242/week from one job or self-employed and making a benefit of more than £12,570/year.

 

Apply for National Insurance Number:

You can apply for NI if you live in the UK, or work in the UK, or is looking for a work in the UK. If you are 19 or under, HMRC sends you the NI number 3 months before your 16th birthday if you live in the UK and under your name Child benefits are availed by your parents or guardians. However, if you do not receive your NI between the age of 16-19, please apply for one by contacting the HMRC.

 

NICs are based on earnings and are collected alongside income tax. There are 4 main types of classes in NICs based on your employment status and how much you earn.

 

Class 1 : Further categorised as Class 1A and Class 1B –paid by employees’ salary and employer contribution on the basis of the employees’ salary falling under which band and employee’s NI category letter. To know in detail about how much you and your employer contributes for NI, refer to gov.uk category rate page. 

  1. If earning £123 – £242 per week from 1 job, you usually do not pay NI but still qualify for some state benefits.
  2. If earning less than £123 a week from the job , you can choose to pay voluntary Class 3 contribution to cover gaps in NI record.

Class 2 : For self-employed individuals on their profits. You deduct the expenses incurred in the tax year from your self-employed income.

  1. If profits are £6,725 or more in a year, but less than £12,570, you do not pay NI.
  2. If profits are less than £6,725, you can pay voluntary Class 2 Contribution at a rate of £3.45 a week.
  3. If profits are more than £12,570, you pay Class 4 Contribution.

 

# Classes Sub-class Description NIC Rate Benefits
1 Class 1 Primary Class 1 Contribution made by employees based on their earnings.
  1. Earnings < £9,880 per year are not subject to NICs.
  2. Earnings between £9,881 and £50,270 per year are subject to NICs at the primary threshold rate of 8%.
  3. Earnings above £50,270 per year are subject to NICs at the higher rate of 2%.
  • Basic State Pension
  • Additional State Pension
  • New State Pension
  • New Style Jobseeker’s Allowance
  • Contribution-based Employment and Support Allowance
  • Maternity Allowance
  • Bereavement Support Payment
Secondary Class 1 Contributions made by employers based on their employees’ earnings.
  1. Employers are required to pay NICs at the secondary threshold rate of 13.8% on earnings above £9,880 per year.
2 Class 2 Contributions paid by self-employed individuals who earn above a certain threshold.
  1. Self-employed individuals with earnings above £6,515 are required to pay Class 2 NICs at a flat weekly rate.
  2. You will pay 6% on profits between £12,570 and £50,270.
  3. You will pay 2% on profits over £50,270.
  • Basic State Pension
  • New State Pension
  • Contribution-based Employment and Support Allowance
  • Maternity Allowance
  • Bereavement Support Payment
3 Class 3 Voluntary contributions paid by individuals to fill gaps in their National Insurance record, such as when they are not working or earning below the threshold for paying NICs. Voluntary NIC is £17.45 a week. You can use only Direct Debit.
  • Basic State Pension
  • New State Pension
4 Class 4 Contributions paid by self-employed individuals based on their profits.
  1. Profits between £9,880 and £50,270 per year are subject to NICs at the main rate of 9%.
  2. Profits above £50,270 per year are subject to NICs at the additional rate of 2%.
  • No State Benefits.

 

Employees stop paying class 1 NI when they reach State Pension Age. Self-employed individual stop paying class 4 NI from 6 April after they reach State Pension Age. You can usually pay voluntary contributions for the past 6 years before 5 April of each year, like for the year 2023-24, you can make voluntary contribution until 5 April 2029.

 

What will happen if you do not pay NIC:

Your benefits gets affected if there’s a gap in your NI record. To avail the benefits individuals either pay:

  1. Voluntary NI, or
  2. Get credits if they cannot pay NI because they are unable to work due to illness or taking care of someone.

Exemptions or pay less NI:

  1. You are married or widow with a valid ‘certificate of election’. 
  2. You are deferring NI because you have got more than one job.

 

Company Directors NI Contribution:

Company directors are considered as the company employee and will pay Class 1 NI. They will pay NI on salary and bonuses above £12,570 and contribution is calculated on annual earning rather than earned during each pay period. However, to file the NI there are two ways:

  1. Standard Annual Earning period (AN) – Company uses payroll software to calculate director NI contribution.
  2. Alternative Method (AL) – Company calculates NI at each pay period and at the end of tax year uses payroll software to calculate the net NI contribution by the director.

At the end of tax year company could report about the director NIC calculation method while submitting Full Payment Submission (FPS).

 

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