UK tax essentials

Millennium Bridge and St Pauls Cathedral
With tax incentives and low corporation tax, the UK is a very affordable place to do business. Here’s an overview of what you need to know.

The essentials

Corporation Tax

What is it?

UK-incorporated or tax-resident companies with UK offices pay corporation tax to the UK government on their worldwide income, and the amount is based on tax-adjusted profits.

If you’re an overseas entity trading in the UK through a UK branch or “permanent establishment”, you will be subject to Corporation Tax on profits relating to UK activities.

How much do you pay?

Corporation Tax is paid on the UK business's tax-adjusted profits. For example, your company will calculate how much money they make and then take away their costs (of employees, premises, etc) to show the profit. 

Companies are currently taxed 25% of profits. But there are some exceptions. A lower rate of 19% will continue to apply to smaller companies with no associated companies which have profits of less than £50,000. In addition, special rates will continue to apply to companies in the oil and gas, banking, insurance or shipping sectors. 

In addition, several favourable reliefs and exemptions are available to UK companies. For example, until April 2026, businesses are allowed to fully expense certain capital expenditure for tax purposes, including IT equipment, fixtures, plant and machinery, etc. 

Who works it out?

UK companies must calculate their tax liability and file an annual Corporation Tax return under a self-assessment regime.

Corporation tax is typically payable nine months after the end of the relevant accounting period. However, certain larger groups must pay Corporation Tax on an instalment basis.

What do you need to do?

It’s important to know that you will not receive a Corporation Tax bill reminding you to make a payment. Therefore, you should proactively calculate, report and pay it.

If your company is subject to UK Corporation Tax (as mentioned above), you are required to register with the UK tax authorities (HM Revenue & Customs): Using your business tax account, you’ll need the company Government Gateway user ID, password and 10-digit Unique Taxpayer Reference (UTR).

You must also prepare a Corporation Tax return and tax computation each year, which will be filed with HMRC, together with a copy of the company’s accounts tagged in iXBRL language.

Similar obligations apply to UK branches of overseas companies, with regard to profits attributable to such branches.  

Income Tax

What is it?

Everyone who works in the UK or earns income in the UK is usually required to pay income tax, which falls under HMRC. You may also be required to pay income tax on a pension if you exceed the personal allowance (which is £12,570 for the 2023/24 tax year).

Income Tax is generally deducted from an employee’s salary monthly through an employer-run system known as “Pay As You Earn” (PAYE) and paid monthly to HMRC.

Employer responsibilities

As an employer, it’s essential that you calculate income tax liabilities (and National Insurance Contributions) for your UK workforce and any overseas workers you are hosting. Don’t forget to consider items such as workplace pensions, social security and any benefits provided.

Ideally, you will set up an employee payroll and other local requirements, such as workplace pensions, to manage income and tax. Payroll requires careful planning to ensure smooth operation in terms of paying your employees, deducting relevant taxes and paying these to HMRC.

How much do employees pay?

Payment amounts depend on individual employee circumstances, but for the tax year beginning 6 April 2023, they are: 

Annual taxable income

% of salary

The first £12,570 (personal allowance) Tax-free
The next £37,700 Basic rate of 20%
Between £50,271 and £125,140 Higher rate of 40%
Exceeds £125,140 45%

It’s also worth noting that if an employee’s income exceeds £100,000, the personal allowance is tapered at £1 for each £2 over this limit.

National Insurance Contributions (NICs)

NICs are the UK’s social security mechanism, and both employers and employees are subject to NICs as a percentage of the gross salary paid to an employee.  

As an employer, you must calculate this amount for your workforce and the company itself and pay these amounts to HMRC monthly along with income tax.

Current rates of NICs 

NIC rates for employees

Salary range (£) per month % of salary
Between £1,048 and £4,189 per month 12%
Above £4,189 per month A further 2%

NIC rates for employers

This NIC cost should be factored into budgeting for UK staff in addition to basic salary and any benefits provided. In addition, in certain circumstances, overseas nationals may be exempt from paying UK National Insurance; however, it’s important to seek advice to ensure the correct approach.

Total salary (£) per month % of salary
Above £1,048 per month 13.8%

With the right advice from London & Partners, with tax incentives and low corporation tax, the UK is a very affordable place to do business.
Brit Services Technology

Value Added Tax (VAT)

When setting up a UK business, it’s essential to understand Value Added Tax (VAT) to allow you to register correctly and help your business to benefit from this tax relief.  

It’s also worth seeking expert advice to check if you should be paying VAT in the UK, whether your goods and services are exempt or partly exempt, and to ensure that you are paying the correct VAT rate.   

Rich Holm, Indirect Tax Partner at RSM, shares insights into Value Added Tax (VAT) in the UK. 

What is VAT?

VAT is consumption tax on goods and services in the UK. The standard rate is currently 20% and is applied to most taxable goods or services. A reduced rate (5%) or a rate of 0% can apply.

You may also be charged UK VAT on goods and services that are supplied to you, but if you are a UK VAT registered business you can recover these payments by paying (or reclaiming) the net amount via your next VAT return.


Get help with UK tax

Contact us for more information on tax requirements and incentives.

Tax incentives

Research and development (R&D) tax credits

R&D can be costly, but the UK has some of the most effective tax reliefs available in the form of R&D tax credits. There are two R&D tax credit schemes in the UK:

  • SME scheme: delivers between 26% to 33% of qualifying expenditure as refundable tax credits.
  • Large company scheme (RDEC): delivers a 12% boost to earnings before tax, in the form of a taxable above the line tax credit.

However, if the company has no tax liability, it can seek payment of the post-tax credit in cash subject to certain limits.

Qualifying R&D expenditure

The six types of expenditure that can qualify for R&D relief, subject to certain limitations, are:

  • Staffing costs.
  • Subcontracted R&D.
  • Externally provided workers (EPWs).
  • Consumable and transformable materials.
  • Software, data licences and cloud computing services.
  • Payments to clinical trial volunteers.

Creative sector tax relief

The creative industry plays a significant role in the UK economy. The government has introduced eight targeted tax credits designed to encourage development and production activities in the UK. These can result in a cash refund of up to 20% of eligible expenditure.

The tax credits are:

  • Film Tax Relief (FTR).
  • Animation Tax Relief (ATR).
  • High-end Television Tax Relief (HTR).
  • Children’s Television Tax Relief (CTR).
  • Video Games Tax Relief (VGTR).
  • Theatre Tax Relief (TTR).
  • Orchestra Tax Relief (OTR).
  • Museums and Galleries Exhibition Tax Relief (MGETR).

Employee share plans and incentives

Retaining and incentivising your people is an important objective for most employers and companies. Structuring your cash and share-based incentive arrangements to achieve that goal as effectively and efficiently as possible will give you a competitive advantage.

A quick guide to Patent Box

A scheme allowing companies to apply a 10% rate of Corporation Tax to profits attributable to qualifying patents, whether realised as royalties or embedded in the sale price of products.

A broad range of sectors, including electronics, defence, pharmaceuticals, life sciences and manufacturing can benefit.

To incentivise companies to retain and commercialise existing patents and to develop new, innovative patented products.

And not forgetting…
The regime also applies to some other IP rights such as plant variety rights, regulatory exclusivity rights and supplementary protection certificates (SPCs).

Content provided by BDO, Blick Rothenberg and Taylor Wessing. This information is intended for general guidance only. You should always seek professional advice.

Last updated: March 2024

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