, 2025
This content is for general informational purposes only. It is explained through England/Wales/Northern Ireland; Scotland income tax bands are different.
How Does the UK Tax System Work?
The tax system in the UK is managed by HMRC and includes different obligations for individuals/companies. Main items: income tax, corporation tax, VAT, and National Insurance.
Income Tax Bands (2025/26)
(General framework for England/Wales/Northern Ireland)
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Up to £12,570: No tax (Personal Allowance)
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£12,571 - £50,270: 20% (Basic Rate)
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£50,271 - £125,140: 40% (Higher Rate)
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Over £125,140: 45% (Additional Rate)
Note: Personal Allowance gradually decreases for income over £100,000.
Corporation Tax
Levied on company profits. General framework for 2025/26:
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Profits up to £50,000: 19% (Small Profits Rate)
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Profits over £250,000: 25% (Main Rate)
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Profits in between: Gradual transition with Marginal Relief
VAT
Basic VAT rates in the UK
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Standard: 20%
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Reduced: 5%
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Zero: 0%
VAT registration threshold: annual (rolling) £90,000 turnover.
National Insurance
National Insurance is a social security contribution system paid by employees and employers (depending on status). It runs alongside payroll (PAYE), and rates/thresholds are updated according to the tax year.
Declaration and Compliance with HMRC
Late/incorrect declarations to HMRC can create serious penalty risks.
Who Can Be Exempt from Taxes?
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Income tax may not be charged on low incomes under the Personal Allowance.
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Some investment income/charities may be covered by special exemptions.
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Non-dom status can provide advantages under certain conditions.
Frequently Asked Questions (FAQ)
When is VAT registration required in the UK?
If your taxable turnover exceeds the £90,000 threshold in the last 12 months, registration is generally required.
When is Corporation Tax registration required?
Registration with HMRC is required when your company starts commercial activity (in practice, it runs parallel to your company formation process).
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