Taxation in the United Kingdom may involve payments to a minimum of two different levels of government: The
central governmentHer Majesty's Government is the government of the United Kingdom. Under the Constitution of the United Kingdom, executive authority notionally lies with the monarch but is exercised in practice by her ministers...
(
Her Majesty's Revenue and CustomsHer Majesty's Revenue and Customs is a non-ministerial department of the British Government primarily responsible for the collection of taxes and the payment of some forms of state support....
) and
local governmentThe pattern of local government in England is complex, with the distribution of functions varying according to the local arrangements. Legislation concerning local government in England is decided by the Parliament and Government of the United Kingdom, because England does not have a devolved...
. Central government revenues come primarily from
income taxAn income tax is a tax levied on the income of individuals or business . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax,...
,
National InsuranceNational Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
contributions,
value added taxValue added tax , or goods and services tax is a consumption tax levied on any value that is added to a product...
,
corporation taxCorporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...
and
fuel dutyHydrocarbon oil duty is the name given to the excise duty levied on oils in the United Kingdom. It is also commonly known as fuel duty and fuel tax....
. Local government revenues come primarily from grants from central government funds, business rates in England and Wales,
Council TaxCouncil Tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge...
and increasingly from fees and charges such as those from
on-street parkingDecriminalised Parking Enforcement is the name given in the United Kingdom to the civil enforcement of car parking regulations, carried out by civil enforcement officers.-Background:...
. In the fiscal year 2007-08, total government revenue was 39.2 per cent of GDP, with net taxes and National Insurance contributions standing at 36.9 per cent of GDP—approximately £606,661,000,000 (using 2008 nominal GDP measured in dollars, and converting using 2009 conversion rate).
Overview
Income taxAn income tax is a tax levied on the income of individuals or business . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax,...
forms the bulk of revenues collected by the government. The second largest source of government revenue is
National Insurance ContributionsNational Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
. The third largest source of government revenues is
value added taxValue added tax , or goods and services tax is a consumption tax levied on any value that is added to a product...
(VAT), and the fourth-largest is corporation tax.
Residence and domicile
UK source income is generally subject to UK taxation no matter the
citizenshipCitizenship is the state of being a citizen of a particular social, political, or national community.Citizenship status, under social contract theory, carries with it both rights and responsibilities...
nor the place of residence of the individual nor the place of registration of the company.
For individuals this means the UK income tax liability of one who is neither resident nor ordinarily resident in the UK is limited to any tax deducted at source on UK income, together with tax on income from a trade or profession carried on through a permanent establishment in the UK and tax on rental income from UK real estate.
Individuals who are both resident and domiciled in the UK are additionally liable to taxation on their worldwide income and gains. For individuals resident but not domiciled in the UK (a "non-dom"), foreign income and gains have historically been taxed on the remittance basis, that is to say, only income and gains remitted to the UK are taxed (for such people the UK is sometimes called a
tax havenA tax haven is a country or territory where certain taxes are levied at a low rate or not at all.Individuals and/or Corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments...
). However from 6 April 2008, a non-dom wishing to retain the remittance basis is required to pay an annual tax of £30,000.
http://www.hmrc.gov.uk/cnr/res-dom-faqs.htm
DomicileIn Conflict of Laws and for purposes of diversity jurisdiction, domicile is the basis of the choice of law rule operating in the characterisation framework to define a person's status, capacity and rights. The international term for this as a connecting factor is the lex domicilii, i.e. the law of...
here is a term with a technical meaning. Very roughly (and this is a considerable simplification) an individual is domiciled in the UK if it is his or her permanent home.
A company is resident in the UK if it is UK-incorporated or if its central management and control are in the UK (although in the former case a company could be resident in another jurisdiction in certain circumstances where a tax treaty applies).
Double taxation of income and gains may be avoided by an applicable
double tax treatyTax treaties exist between many countries on a bilateral basis to prevent double taxation . In some countries they are also known as double taxation agreements, double tax treaties, or tax information exchange agreements . In fact these are Double Taxation Avoidance Treaties i.e...
- the UK has one of the largest networks of treaties of any country
http://www.icaew.com/index.cfm/route/154613/icaew_ga/en/Library/Links/Tax/Double_Taxation_Treaties. See
IR20 - Residents and non-residents.
The tax year
The Tax Year in the UK, which applies to income tax and other personal taxes, runs from 6 April in one year to 5 April the next (for income tax purposes). Hence the 2008-09 tax year runs from 6 April 2008 to 5 April 2009.
The odd dates are due to events in the mid-18th century. The English
quarter daysIn British and Irish tradition, the quarter days were the four dates in each year on which servants were hired, and rents and rates were due. They fell on four religious festivals roughly three months apart and close to the two solstices and two equinoxes....
are traditionally used as the dates for collecting rents (on, for example, agricultural properties). The tax system was also based on a tax year ending on
Lady DayThis article concerns the holiday. For the Lou Reed song, see Berlin . For notable women known as "Lady Day," see Billie Holiday and Bessie Smith....
(25 March). When the
Gregorian calendarThe Gregorian calendar is the internationally accepted civil calendar. It was first proposed by the Calabrian doctor Aloysius Lilius, and decreed by Pope Gregory XIII, after whom the calendar was named, on 24 February 1582 by the papal bull Inter gravissimas...
was adopted in the UK in September 1752 in place of the
Julian calendarThe Julian calendar, a reform of the Roman calendar, was introduced by Julius Caesar in 46 BC, and came into force in 45 BC . It was chosen after consultation with the astronomer Sosigenes of Alexandria and was probably designed to approximate the tropical year, known at least since Hipparchus...
, the two were out of step by 11 days. However, it was felt unacceptable for the tax authorities to lose out on 11 days' tax revenues, so the start of the tax year was moved, firstly to 5 April and then, in 1800, to 6 April.
The tax year is sometimes also called the Fiscal Year. The Financial Year, used mainly for corporation tax purposes, runs from 1 April to 31 March. Financial Year 2008 runs from 1 April 2008 to 31 March 2009, as Financial Years are named according to the calendar year in which they start.
Income tax
Income tax forms the bulk of revenues collected by the government. Each person has an income tax
personal allowanceUK residents receive the first portion of their income free from tax. This is known as their personal allowance. Earnings above the personal allowance are taxable according to how much is earned....
, and income up to this amount in each tax year is free of tax for everyone. For 2009-10 the tax allowance for under 65s is £6,475..
Above this amount there are a number of tax bands — each taxed at a different rate:
| Rate (09-10) |
Dividend Income |
Savings Income |
Other Income (inc employment) |
Band (above any personal allowance) |
| Lower rate |
N/A |
10% |
N/A |
£0 - £2440
applies only if total income falls in this band |
| Basic rate |
10% |
20% |
20% |
£0 - £37,400 |
| Higher rate |
32.5% |
40% |
40% |
over £37,400 |
This table reflects the removal of the 10% starting rate from April 2008, which also saw the 22% income tax rate drop to 20%.
Alistair DarlingAlistair Maclean Darling is a British Labour politician, who has been the Member of Parliament for Edinburgh South West since 1987, and was appointed Chancellor of the Exchequer on 28 June 2007. Prior to this, he held a number of Cabinet positions.-Early life:Alistair Darling was born in London...
announced in the 2009 budget (22 April 2009) that, from April 2010 there would be a new 50% income tax rate for those earning more than £150,000.
The taxpayer's income is assessed for tax according to a prescribed order, with income from employment using up the personal allowance and being taxed first, followed by savings income (from interest or otherwise unearned) and then dividends.
Exemptions on Investment
Certain investments carry a tax favoured status including:
- UK Government Bonds (Gilts)
Gilts are bonds issued by the governments of the United Kingdom, South Africa, or Ireland. The term is of British origin, and refers to the debt securities issued by the Bank of England, which had a gilt edge. Hence, they are called gilt-edged securities, or gilts for short...
While all income is taxable, gains are exempt for income tax purposes.
- National Savings and Investments
National Savings and Investments , formerly called the National Savings Bank, is a state-owned savings bank in the United Kingdom. It is an executive agency of HM Treasury...
Certain investments via the state owned National Savings scheme are not subject to tax including Index linked Certificates (up to £15,000 per issue) and Premium Bonds a scheme that issues monthly prizes in place of interest on individual holdings up to £30,000.
- Individual Savings Account
An Individual Savings Account is a financial product available to residents in the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status.-Introduction of ISAs:...
s.
These permit up to £7,200. Maximum of £3,600 in cash funds, and the balance being allocated either to
mutual fundA mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis...
s (Units Trusts and OEICs) or individual self-selected shares. No tax is deducted, although the 10% tax withheld on UK dividends cannot be reclaimed.
- Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income...
Funds
These have the same tax treatment as
ISAsAn Individual Savings Account is a financial product available to residents in the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status.-Introduction of ISAs:...
in terms of growth. Full tax relief is also given at the individual's marginal rate on contributions or, in the case of an employer contributions, it is treated as an expense and is not taxed on the employee as a benefit in kind. Aside from a tax free lump sum of 25% of the fund, benefits taken from pension funds are taxable.
- Venture Capital Trust
A Venture Capital Trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies and capital gains for investors...
s
These are investments in smaller companies or funds of holdings in such companies over a minimum term of five years. These are not taxable and qualify for 30% tax relief against an individual's income.
- Enterprise Investment Scheme
The Enterprise Investment Scheme is a series of tax reliefs designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.-Purpose:...
s
A non taxable investment into smaller company shares over three years that qualifies for 20% tax relief. The facility also allows an indiviudal to defer capital gains liabilities (these gains can be stripped out in future years using the annual CGT allowance.)
- Insurance bond
An insurance bond is a single premium life assurance policy for the purposes of investment.Due to tax laws they are a common form of investment in the UK and some offshore centres....
s
These include offshore and onshore investment Bonds issued by insurance companies. The main difference between the two is that corporation tax onshore means that gains are treated as if basic rate tax has been paid (this cannot be reclaimed by zero or starting rate tax payers). With both versions up to 5% for each complete year of investment can be taken without an immediate tax liability (subject to a maximum total of 100% of the original investment. On this basis, investors can plan an income stream while deferring any chargeable withdrawals until they are on a lower rate of tax, are no longer a UK resident, or their death.
History
The income tax was first implemented in
BritainThe Kingdom of Great Britain, also known as the United Kingdom of Great Britain, was a sovereign state in northwest Europe, in existence from 1707 to 1801...
by
William Pitt the YoungerWilliam Pitt, the Younger was a British politician of the late eighteenth and early nineteenth centuries. He became the youngest Prime Minister in 1783 at the age of 24 . He left office in 1801, but was Prime Minister again from 1804 until his death in 1806...
in his budget of December 1798 to pay for weapons and equipment in preparation for the
Napoleonic WarsThe Napoleonic Wars were a series of conflicts declared against Napoleon's French Empire and changing sets of European allies by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionized European armies and played...
. Pitt's new
graduated (progressive) income taxA progressive tax is a tax by which the tax rate increases as the taxable amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. It can be...
began at a levy of 2 old pence in the
poundThe pound sterling , often simply called the pound, is the currency of the United Kingdom, its Crown dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands and British Antarctic Territory...
(1/120) on incomes over £60 (2007:£48,700)and increased up to a maximum of 2
shillingThe shilling is a unit of currency used in current and former English Commonwealth countries and still used in countries which have become republics, such as Kenya. The word shilling comes from schilling, an accounting term that dates back to Anglo-Saxon times where it was deemed to be the value of...
s (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million.
Income tax was levied under five schedules—income not falling within those schedules was not taxed. The schedules were:
- Schedule A (tax on income from UK land)
- Schedule B (tax on commercial occupation of land)
- Schedule C (tax on income from public securities)
- Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income)
- Schedule E (tax on employment income)
Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.
Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as
prime ministerA prime minister is the most senior minister of cabinet in the executive branch of government in a parliamentary system. The position is usually held by, but need not always be held by, a politician. In many systems, the prime minister selects and can dismiss other members of the cabinet, and...
in 1801, after Pitt's resignation over
Catholic EmancipationCatholic Emancipation or Catholic Relief, was a process in Great Britain and Ireland in the late 18th century and early 19th century which involved reducing and removing many of the restrictions on Roman Catholics which had been introduced by the Act of Uniformity, the Test Acts and the Penal Laws...
. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the
Battle of WaterlooIn the Battle of Waterloo forces of the French Empire under Napoleon Bonaparte and Michel Ney were defeated by those of the Seventh Coalition, including an Anglo-Allied army under the command of the Duke of Wellington and a Prussian army under the command of Gebhard von Blücher...
. The UK income tax was reintroduced by Sir
Robert PeelSir Robert Peel, 2nd Baronet was the Conservative Prime Minister of the United Kingdom from 10 December 1834 to 8 April 1835, and again from 30 August 1841 to 29 June 1846...
in the
Income Tax Act 1842The Income Tax Act 1842 was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which re-introduced an income tax in Britain, at the rate of 7 pence in the pound on all annual incomes greater than £150. It was the first imposition of income tax in Britain...
. Peel, as a
ConservativeThe Conservative and Unionist Party, more commonly known as the Conservatives, the Conservative Party, or Tory Party is a conservative political party in the United Kingdom...
, had opposed income tax in the 1841
general electionIn a parliamentary political system, a general election is an election in which all or most members of a given political body are up for election...
, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150(2007:£111,800).
UK income tax has changed over the years. Originally it taxed a person's income regardless of who was beneficially entitled to that income, but now a person owes tax only on income to which he or she is beneficially entitled. Most companies were taken out of the income tax net in 1965 when
corporation taxCorporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...
was introduced. Also the Schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003. For income tax purposes, the remaining schedules were superseded by the Income Tax (Trading and Other Income) Act 2005, which also repealed Schedule F completely. The Schedular system and Schedules A and D still remain in force for corporation tax. The highest rate peaked in the Second World War at 99.25% and remained at about 95% till the late 1970s.
In 1974 the top-rate of income tax increased to its highest rate since the war, 83%. This applied to incomes over £20,000, and combined with a 15% surcharge on 'un-earned' income (investments and dividends) could add to a 98% marginal rate of personal income tax. In 1974, just 750,000 people were liable to pay the top-rate of income tax.
Margaret ThatcherMargaret Hilda Thatcher, Baroness Thatcher LG, OM, PC, FRS served as Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party from 1975 to 1990. She is the only woman to have held either post....
, who favoured indirect taxation reduced personal income tax rates during the 1980s. In the first budget after her election victory in 1979, the top-rate was reduced from 83% to 60% and the basic rate from 33% to 30%. The basic rate was also cut for three successive budgets - to 29% in the 1986 budget, 27% in 1987 and to 25% in 1988. The top-rate of income tax was cut to 40% in the 1988 budget.
The
Finance Act 2004The Finance Act 2004 is an Act of the United Kingdom Parliament prescribing changes to Excise Duties; Value Added Tax; Income Tax; Corporation Tax; and Capital Gains Tax...
introduced an income tax regime known as "pre-owned asset tax" which aims to reduce the use of common methods of
inheritance taxInheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died...
avoidance.
Inheritance tax
Inheritance taxInheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died...
is levied on "transfers of value", meaning:
- the estates of deceased persons;
- gifts made within seven years of death (known as Potentially Exempt Transfers or "PETs");
- "lifetime chargeable transfers", meaning transfers into certain types of trust. See Taxation of trusts (United Kingdom)
The taxation of trusts in the United Kingdom is governed by a different set of principles to those tax laws which apply to individuals or companies.-Inheritance tax:...
. Legislation announced in the 2006 budget but not yet enacted will extend this category to many more trusts than previously.
The first slice of cumulative transfers of value (known as the "nil rate band") is free of tax. This threshold is currently set at £312,000 (tax year 2008-09) and, although it is raised annually, it has recently failed to keep up with house price inflation with the result that some 6 million households currently fall within the scope of inheritance tax. Over this threshold the rate is 40% on death. Any inheritance tax must be paid by the executors or administrators of the estate (the burden falling upon the beneficiaries) before
probateProbate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under the valid will. A surrogate court decides the validity of a testator's will...
is granted.
Transfers of value between UK-domiciled spouses are exempt from tax. Recent changes to the tax mean that nil-rate bands will be transferable between spouses to reduce this burden - something which previously could only be done by setting up complex trusts.
Gifts made more than seven years prior to death are not taxed; if they are made between three and seven years before death a tapered inheritance tax rate applies. There are some important exceptions to this treatment: the most important is the "reservation of benefit rule", which says that a gift is ineffective for inheritance tax purposes if the giver benefits from the asset in any way after the gift (for example, by gifting a house but continuing to live in it).
Council Tax
Council tax is the system of local taxation used in
EnglandEngland is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west and the North Sea to the east, with the English Channel to the south separating it from continental...
,
ScotlandScotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
and
WalesWales is a country that is part of the United Kingdom, bordered by England to its east, and the Atlantic Ocean and Irish Sea to its west. It is also an elective region of the European Union...
to part fund the services provided by local government in each country. It was introduced in 1993 by the
Local Government Finance Act 1992The Local Government Finance Act 1992 includes obligations of the occupants or the owners of properties in the United Kingdom to pay council tax.- External links :*...
, as a successor to the unpopular
Community ChargeThe Community Charge, popularly known as the "poll tax", was a system of taxation introduced in replacement of the rates to part fund local government in Scotland from 1989, and England and Wales from 1990. It provided for a single flat-rate per-capita tax on every adult, at a rate set by the...
("poll tax"), which had (briefly) replaced the Rates system. The basis for the tax is residential property, with discounts for single people.
As of 2008, the average annual levy on a property in England was £1,146.
Value added tax
The third largest source of government revenues is
value added taxValue added tax , or goods and services tax is a consumption tax levied on any value that is added to a product...
(VAT), charged at the standard rate of
17.5% (temporarily cut to
15% between 1 December 2008 and 31 December 2009) on supplies of goods and services. It is therefore a tax on consumer expenditure. A document posted on the Parliament website on November 25 2008 suggested that the government was planning a higher 18.5% VAT after this time elapsed, but the Treasury has said this was "an option that was considered and rejected."
Certain goods and services are exempt from VAT, and others are subject to VAT at a lower rate of 5% (the reduced rate, such as domestic gas supplies) or 0% ("zero-rated", such as most food and children's clothing). Exemptions are intended to relieve the tax burden on essentials while placing the full tax on luxuries, but disputes based on fine distinctions arise, such as the notorious "Jaffa Cake Case" which hinged on whether Jaffa Cakes were classed as (zero-rated) cakes—as was eventually decided—or (fully-taxed) chocolate-covered biscuits. Until 2001, VAT was charged at the full rate on women's sanitary towels.
Excise duties
Excise dutiesExcise tax, sometimes called an excise duty, is a type of tax. In the United States, the term "excise" means: any tax other than a property tax or capitation , or a tax that is simply called an excise in the language of the statute imposing that tax...
are charged on, amongst other things,
motor fuelHydrocarbon oil duty is the name given to the excise duty levied on oils in the United Kingdom. It is also commonly known as fuel duty and fuel tax....
,
alcoholIn chemistry, an alcohol is any organic compound in which a hydroxyl group is bound to a carbon atom of an alkyl or substituted alkyl group. An important group of acohols is formed by the simple acyclic alcohols, the general formula for which is C
nH
2n+1OH...
,
tobaccoTobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...
, betting and
vehiclesVehicle Excise Duty is a British excise duty, which has to be paid to acquire a vehicle licence for most types of motor vehicle. A vehicle licence is usually required if a vehicle is to be legally used on the public roads...
.
Stamp duty
Stamp dutyStamp duty is a form of tax that is levied on documents. Historically, this included the majority of legal documents such as; cheques, receipts, military commissions, marriage licences, land transactions etc. A physical stamp had to be attached to or impressed upon the document to denote that...
is charged on the transfer of
shareIn financial markets, a share is a unit of account for various financial instruments including stocks , and investments in limited partnerships, and REITs...
s and certain
securitiesA security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities ; equity securities, e.g., common stocks; and derivative contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security...
at a rate of 0.5%. Modernised versions of stamp duty, stamp duty land tax and stamp duty reserve tax, are charged respectively on the transfer of
real estateReal estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location.
"Real estate" The American Heritage Dictionary of the English Language, Fourth Edition. Houghton Mifflin...
and shares and securities, at rates of up to 4% and 0.5% respectively.
Motoring taxation
Motoring taxes include:
fuel dutyHydrocarbon oil duty is the name given to the excise duty levied on oils in the United Kingdom. It is also commonly known as fuel duty and fuel tax....
(which itself also attracts VAT), and
vehicle excise dutyVehicle Excise Duty is a British excise duty, which has to be paid to acquire a vehicle licence for most types of motor vehicle. A vehicle licence is usually required if a vehicle is to be legally used on the public roads...
. Other fees and charges include the
London congestion chargeThe London congestion charge is a fee for some motorists travelling within those parts of London designated as the Congestion Charge Zone . The main objectives of this charge are to reduce congestion, and to raise funds for investment in London's transport system...
, various statutory fees including that for the
compulsory vehicle testThe Ministry of Transport test is an annual test of automobile safety, roadworthiness aspects and exhaust emissions which are applicable to most vehicles over three years old in the United Kingdom if they are used on public roads....
and that for
vehicle registrationThe Vehicle first registration fee is the fee charged by the Government of the United Kingdom to register a vehicle for the first time with the DVLA.In 2006 the applicable fee was £38.00.In 2008 the applicable fee was £55.00-References:...
, and in some areas on-street parking (as well as associated charges for violations).
Business rates
Business rates is the commonly used name of non-domestic rates, a
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
rateRates are a type of taxation system in the United Kingdom, and in places with systems deriving from the British one, used to fund local government....
or
taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
charged to occupiers of non-domestic property. Business rates were introduced in England and Wales in 1990, and are a modernised version of a system of rating that dates back to the
Elizabethan Poor Law of 1601"Old Poor Law" redirects here. For the Old Poor Law which existed in Scotland between 1574-1845 see Old Scottish Poor Law"
The Elizabethan Poor Law, 43rd Elizabeth or Old Poor Law was a Act of Parliament passed in 1601 which created a national poor law system for England and Wales...
. As such, business rates retain many previous features from, and follow some case law of, older forms of rating.
Business rates form part of the funding for local authorities, and are collected by them, but rather than receipts being retained directly they are pooled centrally and then redistributed. In 2005/06, £19.9 billion was collected in business rates, representing 4.35% of the total UK tax income.
Business rates are a
property taxProperty tax, or millage tax, is an ad valorem tax that an owner is required to pay on the value of the property being taxed. Property tax can be defined as "generally, tax imposed by municipalities upon owners of property within their jurisdiction based on the value of such property."There are...
, where each non-domestic property is assessed with a rateable value, expressed in pounds. The rateable value broadly represents the annual rent the property could have been let for on a particular valuation date according to a set of assumptions. The actual bill payable is then calculated using a multiplier set by central government, and applying any reliefs.
Corporation tax
The fourth largest source of government revenues is
corporation taxCorporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...
, charged on the
profitsAccounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.A key difficulty in measuring profit is in defining costs...
and
chargeable gainA capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...
s of companies. The main rate is 30%, which is levied on taxable income above £1.5m. In 2005-06, income below this level was taxed at 0% and 19%, but with marginal reliefs in between the bands. The 0% starting rate has been abolished with effect from 1 April 2006.
There is also a Supplementary charge to Corporation Tax for companies involved in petroleum exploration (for example in the
North SeaThe North Sea is a marginal, epeiric sea on the European continental shelf. The Dover Strait and the English Channel in the south and the Norwegian Sea in the north connect it to the Atlantic Ocean. It is more than long and wide, with an area of around...
) which is levied at a rate of 20% for profits arising from 1 January 2006 (previously the rate was 10%).
Business and personal taxes
Some taxes are, depending on the circumstances, paid by both individuals and companies.
National Insurance contributions
The second largest source of government revenues is
National InsuranceNational Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
contributions (NIC), payable by employees, employers and the self-employed. Unlike income tax, Class 1 (non self-employed persons) NIC is paid between lower and upper thresholds, or between £105 and £770 per week for 2008-09. A zero rate of NIC applies to earnings between the lower earnings limit of £90 per week and the earnings threshold of £105 per week (in 2008-09) to protect employees' contributory benefit entitlements. National Insurance is levied at 11% (that is, 11p in the £), but can be contracted-out for persons with a qualifying pension scheme with a reduction of 1.6%. There has also been the addition of a 1% rate on income above the upper threshold in recent years. Employers pay an additional 12.8% on earnings over the lower earnings threshold (£105 per week), but without the upper threshold, so total earnings are taxed at 12.8% per employee.
Employers are additionally liable to Class 1A NIC at 12.8% on most benefits-in-kind provided to employees which are subject to income tax in the hands of the employee, and to Class 1B NIC (also at 12.8%) on the value of the tax and on certain benefits paid via a "PAYE Settlement Agreement".
There are also separate arrangements for self-employed persons (who are normally liable to Class 2 flat rate NIC and Class 4 earnings-related NIC), married women, and voluntary sector workers.
Capital gains tax
Capital gains are subject to tax at the 18% (for individuals) or at the applicable marginal rate of corporation tax (for companies).
The basic principle is the same for individuals and companies - the tax applies only on the disposal of a capital asset, and the amount of the gain is calculated as the difference between the disposal proceeds and the "base cost", being the original purchase price plus allowable related expenditure. However, from 6 April 2008, the rate and reliefs applicable to the chargeable gain differ between individuals and companies. Companies apply "indexation relief" to the base cost, increasing it in accordance with the
Retail Prices IndexIn the United Kingdom, the Retail Prices Index or Retail Price Index is a measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a basket of retail goods and services.-History:...
so that (broadly speaking) the gain is calculated on a post-inflation basis (with different rules apply for gains accrued prior to March 1982). The gain is then subject to tax at the applicable marginal rate of corporation tax. Individuals are taxed at a flat rate of 18%, with no indexation relief (but subject to a limited relief for the first £1m of gains for "entrepreneurs")
http://www.hmrc.gov.uk/cgt/cgt-reform-en.pdf.
See also
UK related
- HM Revenue & Customs
- Chartered Institute of Taxation
- Institute of Indirect Taxation
The Institute of Indirect Taxation is a professional body in the United Kingdom. Its members specialise in the study and practice of indirect taxes. The body was formed in July 1991 and formally launched in October 1991. It gained permission to call itself an institute in December of the same year...
- Income in the United Kingdom
The United Kingdom is a wealthy country in world terms, with virtually no people living on less than US $2 a day. There were over 425,000 net worth Sterling Millionaires in Britain in 2005 , and 383,000 Dollar Millionaires in 2004 . There is however significant income inequality with Britain...
- Tax credit
The term tax credit describes two different concepts:* A recognition of partial payment already made towards taxes due.* A state benefit paid to workers through the tax system, which has the effect of increasing net income....
- Starting rate of UK income tax
The starting rate of income tax, often known as the 10p rate, was the lowest rate of personal income taxation imposed in the United Kingdom from 1999 to 2008...
Local taxation
- Business rates
Business rates is the commonly used name of non-domestic rates, a tax on the occupation of non-domestic property. Rates are a property tax used to fund local services that dates back to the Elizabethan Poor Law of 1601. The Local Government Finance Act 1988 introduced business rates in England and...
- Council tax
Council Tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge...
- Local income tax
The Scottish Government planned to bring forward legislation to replace the council tax with a local income tax , as part of the funding for Scottish local authorities....
General category
- Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
- Tax haven
A tax haven is a country or territory where certain taxes are levied at a low rate or not at all.Individuals and/or Corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments...
- Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.- Major issues :Primary taxation issues facing the governments world over include;* taxes on income and wealth...
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