Last modified: 13/04/2024 06:54

Corporate taxation

	Rate
Corporate income tax rate	251, 2, 3
Branch income tax rate	25
Corporate chargeable gains tax rate	251

1. A “small profits rate” of 19% applies to many UK companies where profits are no more than £50,000, with marginal relief (resulting in an effective rate of between 19% and 25%) applying where profits are between £50,000 and £250,000. These profit limits are reduced in accordance with the total number of associated companies.
2. Banking companies pay a surcharge of 3% on profits in excess of £100 million.
3. Ring fence profits of companies involved in the exploration for, and production of, oil and gas are subject to tax at a main rate of 30% (but these companies will also have to take account of the supplementary charge  and the Energy Profits Levy)

Residence: A company is resident in the UK if it is incorporated in the UK or has its place of central management and control in the UK.

Basis: A UK resident company is subject to Corporation Tax on its worldwide income and gains, with the option to exclude income and gains from foreign permanent establishments (PEs). Non-UK resident companies are subject to Corporation Tax on profits of a UK PE, profits arising from a trade of dealing in or developing UK land, profits of a UK property business, gains on assets used in a UK PE, and gains made in respect of UK land and UK property rich entities. Other UK-sourced income of non-UK resident companies is subject to Income Tax at a rate of 20%.

Taxable income: Broadly speaking, taxable income is based on profits calculated under GAAP, with certain adjustments. Capital expenditure is not generally deductible but capital allowances (a form of tax depreciation) are available for qualifying expenditure on certain asset classes as a deduction from taxable profits.

Significant local taxes on income: None

Alternative minimum tax: No

Taxation of dividends: Dividend income of a UK company is by default subject to Corporation Tax although exemptions apply in many cases. It should be noted that dividends receivable by ‘small’ companies can only be exempt from Corporation Tax if the payer is resident in the UK or in a jurisdiction with which the UK has a Tax Treaty with a non-discrimination provision.

Capital gains: Chargeable gains form part of a UK-resident company’s taxable profits. A gains from a ‘substantial shareholding’ in a trading company or the holding company of a trading group can be exempt where certain conditions are met. Non-UK resident companies are subject to Corporation Tax on chargeable gains on the disposal of assets used in a UK PE, and of UK land and UK property rich entities.

Losses: Trading losses may generally be offset against total profits of the same period, carried back and offset against total profits of the preceding 12 months, or carried forward for offset against future profits. Brought forward trading losses can be offset against total profits, but the amount that can be used each year is limited to 50% of profits above a group-wide allowance of GBP 5 million. Different rules apply to trading losses incurred before 1 April 2017 and to non-trading losses. Subject to details rules, current year and brought forward losses can be surrendered to other members of a corporate group.

Foreign tax relief: The UK regime generally gives foreign tax relief by way of the credit method, although there is an option for relief by deduction.

Participation exemption: See ‘Taxation of dividends’ and ‘Capital gains’

Holding-company regime: See ‘Taxation of dividends’ and ‘Capital gains’. In addition, since 1 April 2022 the UK has had a Qualifying Asset Holding Regime that provides various exemptions and benefits for certain investment companies.

Tax-based incentives: Incentives include: *Enhanced deductions or expenditure credits in respect of R&D expenditure *An effective 10% rate of Corporation Tax on patent-box profits *Creative-industry tax reliefs for qualifying expenditure on film production, TV production, video-game development, theatrical productions, orchestral concerts and museum & gallery exhibitions.

Group relief/fiscal unity: Subject to details rules, current year and brought forward losses can be surrendered to other members of a corporate group, and fixed assets may be transferred between group members on a no gain/no loss or tax-neutral basis.

Small company/alternative tax regimes: As noted above, UK companies with profits of up to £250,000 (reduced on the basis of the total number of associated companies) may be subject to a rate of corporation tax which is below the main rate of 25%.

Corporate taxation: compliance

Tax year: Chargeable Accounting Periods for Corporation Tax purposes are based on the company’s period of account. UK companies are generally free to choose their accounting reference dates (subject to some restrictions).

Consolidated returns: Consolidated returns are not prepared (although for the purposes of some specific aspects of the corporation tax regime some information does need to be provided to the tax authorities on a group wide basis)

Filing and payment: The UK has a self-assessment regime. Corporation Tax Returns must be prepared and filed electronically (along with supporting computations and accounts) within 12 months of the end of the period of account. Corporation Tax is by default due to be paid within 9 months of the end of the chargeable accounting period, but ‘large’ and ‘very large’ companies (defined with reference to the level of taxable profits) must make quarterly instalment payments.

Penalties: The failure to file a Corporation Tax Return can give rise to fixed and tax-geared penalties. Tax-geared penalties can be charged for incorrect returns.

Rulings: A statutory clearance procedures exists for certain anti-avoidance provisions. A restricted non-statutory clearance procedure exists to allow taxpayers to ask the UK tax authority to provide its interpretation of the legislation in certain circumstances.

Taxation of individuals

	Rate (%)
	UK1,2 Income Tax
First GBP 37 700	203,4
Next GBP 87 440	405
Remainder above GBP 125 140	456

1. Different rates and bands apply to certain income of Scottish taxpayers
2. All rates are applied after the deduction of certain allowances where these are available. All individuals by default have a personal allowance of £12 570, although this allowance is tapered gradually down to zero for incomes above £100 000. Some taxpayers have a savings allowance (which gives a rate of 0% on savings income) of £500 or £1 000. There is a dividend allowance (which gives a rate of 0% on dividend income) of £500 (in the 2024/25 tax year). 
3. The first £5,000 of savings income may in certain circumstances be taxed at a rate of 0%
4. For dividends falling (as top slice) within this band the rate is 8.75%.
5. For dividends falling (as top slice) within this band the rate is 33.75%.
6. For dividends falling (as top slice) within this band the rate is 39.35%.

Residence: Individuals are UK tax resident if they are present in the UK for more than 183 days in a tax year, and in various other circumstances (in accordance with the detailed Statutory Residence Test).

Basis: All taxpayers are taxed on an individual basis, with no aggregation for spouses or civil partners. UK-tax resident individuals are subject to UK tax on their worldwide income and gains. However, individuals who are tax resident but not domiciled in the UK may be able to elect for their non-UK income and gains to be taxable in the UK only if remitted to the UK (the ‘remittance basis’).

A charge of GBP 30 000 per year is payable for this basis if the individual has been UK tax resident for at least 7 of the previous 9 tax years; this rises to GBP 60 000 if the individual has been UK tax resident for at least 12 of the previous 14 years. An individual’s ‘domicile’ is, broadly, the jurisdiction of their ultimate belonging or their permanent home. Non-UK tax resident individuals are subject to UK tax on UK-sourced income, gains made in respect of assets used in a UK PE, and gains made in respect of UK land and UK property rich entities.

Taxable income: Taxable income of an individual may broadly comprise (1) employment (including pension) income; (2) income from a trade, profession or vocation; (3) property income; (4) savings and investment income; and (5) miscellaneous income. Separate calculation and deduction rules apply to each class of income.

Capital gains: UK tax resident individuals are subject to capital gains tax (at rates of 10%, 18%, 20%, 24% or 28%) on gains made on the disposal of chargeable assets, wherever situated. Non-UK tax resident individuals are subject to capital gains tax on gains made in respect of assets used in a UK PE, and gains made in respect of UK land and UK property rich entities. For individuals who are tax resident but not domiciled in the UK, see under ‘

Basis’. There are several exemptions and reliefs. By default individuals have an annual exemption of GBP 3 000 (in the 2024/25 tax year). In addition, general exemptions apply to certain assets, including an individual’s principal private residence. Reliefs include Business Asset Disposal Relief, which subject to detailed provisions provides for a 10% rate of capital gains tax for the disposal of certain business assets and shares in trading companies. Transfers between spouses and civil partners take place on a no gain/no loss basis.

Deductions and allowances: For details of various allowances, see under ‘Rates’. Contributions to registered pension schemes receive tax relief to an annual limit of GBP 60 000 (reduced in certain circumstances). Pension benefits are generally taxable when they are drawn.

Foreign tax relief: The UK regime generally gives foreign tax relief by way of the credit method.

Taxation of individuals: compliance

Tax year: The UK tax year runs from 6 April to 5 April.

Filing and payment: Tax and social security (‘National Insurance’) contributions on employment income are withheld by the employer under the PAYE system. Returns must be made in respect of the disposal of interests in UK residential property within 60 days of disposal, with a payment on account of the expected capital gains tax due by the same date.

Certain individuals are required to prepare and file tax returns under a self-assessment regime. Personal tax returns are due to be filed by 31 January following the end of the tax year (or by 31 October following the end of the tax year if they are being filed on paper). The final tax liability calculated on a personal tax return is payable by 31 January following the end of the tax year.

Certain taxpayers have to make payments on account, and where this is the case payments are due on 31 January within the tax year and 31 July following the end of the tax year, with a balancing payment if necessary being payable by 31 January following the end of the tax year.

Penalties: The failure to file a personal tax return can give rise to fixed and tax-geared penalties. Tax-geared penalties can be charged for incorrect returns.

Rulings: See under ‘Corporate taxation’.

Withholding taxes

Type of Payment	UK resident recipients		Non-UK resident recipients
	Company	Individual	Company	Individual
Dividends	0%	0%	0%	0%
Interest	0%	20%	20%1	20%1
Royalties	0%	20%	20%1	20%1
Capital gains	0%	0%	0%	0%

1. Subject to the provisions of any applicable Tax Treaty

Branch remittance tax: Not applicable

Anti-avoidance legislation

Transfer pricing: In outline terms, the UK transfer pricing regime follows OECD principles. Various exemptions apply to small and medium-sized enterprises.

Interest restriction: Restrictions may apply to the tax deductibility of interest and other financing costs where individual companies or groups have net financing costs of more than GBP 2 million in a 12-month period.

Controlled foreign companies: Under certain circumstances, the profits of a non-UK company that is controlled by UK residents may be apportioned among its shareholders, with UK companies owning at least 25% of the non-UK company being subject to Corporation Tax on their shares of the profits. There are various exceptions and limitations within the regime.

Hybrid mismatches: Complex rules are in place to ensure that deductions are denied or that income is brought into account to counteract mismatches arising under various different scenarios.

Disclosure requirements: Certain UK companies and groups are required to publish details of their Tax Strategy.

Exit taxes: Immediately before a company ceases to be UK tax resident, it is deemed to have disposed of and reacquired at market value its chargeable assets (subject to certain exclusions and reliefs). Individuals who cease to be UK tax resident are not subject to an exit charge, but will be subject to capital gains tax where gains are made whilst non-UK resident on the disposal of chargeable assets held at the time of their departure if they become UK tax resident again within 5 years.

General anti-avoidance rule: A general anti-abuse rule applies in respect of most UK taxes, and allows the counteraction of tax advantages arising from abusive tax arrangements.

Digital services tax and Other significant anti-avoidance legislation: For businesses with revenues above certain levels, a Digital Services Tax of 2% applies to revenues that derive from UK users of search engines, social media services, and online marketplaces.

Value-added tax/Goods and services tax

Type of tax: The UK has a Value Added Tax (VAT) regime which is based on the EU model. VAT applies to the supply of most goods and services and to imports, although various supplies are exempt, zero-rated, or subject to a reduced rate.

Standard rate: 20%

Reduced rates: 0%, 5%

Registration: UK businesses must register for VAT where the value of their taxable supplies exceeded the registration threshold (GBP 90 000 from 1 April 2024) in the previous 12 months or where it is expected to do so within the next 30 days. Voluntary registration is possible. There is no registration threshold for non-established taxable persons who make taxable supplies in the UK.

Filing and payment: VAT returns must (typically) be filed on a quarterly or monthly basis, with payment being made of any excess of the amount of output tax charged over recoverable input tax incurred. Penalties can arise for late filing and late payment. VAT returns must generally be filed electronically directly from accounting software.

Social security contributions

(Standard rates from 6 April 2024)

Employees

First GBP 242 per week	–
Next GBP 725 per week	8.0%
Above GBP 967 per week	2.0%

Employer

First GBP 175 per week	0
Next GBP 792 per week	13.8%
Above GBP 967 per week	13.8%

Self-employed

The rates from 6 April 2024 are as follows: First GBP 12 570 per year – 0% Next GBP 37 700 per year – 6% Above GBP 50 270 per year – 2%

Other taxes

Capital duty: Not applicable

Immovable property taxes: The Annual Tax on Enveloped Dwellings (ATED) gives rise to charges of between GBP 4 400 and GBP 287 500 on UK residential property worth over GBP 500 000 and held by certain companies, partnerships, or collective investments vehicles. Reliefs are available where the property is held for certain business or charitable purposes. Local taxes are charged on residential property (‘Council Tax’) and business premises (‘Business Rates’).

Transfer tax: Stamp Duty Land Tax is charged on the acquisition of property in England and Northern Ireland. The standard rates range from 0% to 12%, but individuals purchasing additional dwellings and non-natural persons purchasing any dwellings are subject to a 3% surcharge, and non-resident purchasers of residential property are subject to a 2% surcharge.

Certain purchases by companies, partnerships, and collective investments vehicles of residential property worth over GBP 500 000 can attract Stamp Duty Land Tax at a flat rate of 15% (17% if non-resident). Similar but distinct taxes apply to property in Scotland and Wales.

Stamp duty: Stamp Duty is charged on documents transferring title to shares and securities at 0.5% of the value of the consideration. Stamp Duty Reserve Tax is charged on certain ‘paperless’ transfers of shares and securities at 0.5% or 1.5% of the value of the consideration.

Net wealth/worth tax: Not applicable

Inheritance/gift taxes: Inheritance Tax may be charged when property is transferred on death, when certain lifetime transfers are made, and when an individual dies having made certain lifetime transfers within 7 years of death. It may also arise in respect of property held on trust. There is a nil rate of band of GBP 325 000, and an additional ‘residence nil-rate band’ (which can be available where residential property is transferred to direct descendants) of GBP 175 000.

Otherwise, the standard rate of Inheritance Tax is 40% (20% for certain lifetime transfers). Transfers between spouses and civil partners are not generally subject to Inheritance Tax. Reliefs are available for transfers of certain business and agricultural property which reduce the value on which inheritance tax is charged by either 50% or 100%. Individuals who are domiciled or deemed domiciled in the UK are subject to Inheritance Tax in respect of their worldwide assets, whilst individuals who are neither domiciled nor deemed domiciled in the UK are generally subject to Inheritance Tax only in respect of UK assets.

Other: Other taxes include the climate change levy, the aggregates levy, landfill tax, air passenger duty, insurance premium tax, excise duties, customs duties, various gambling duties, plastic packaging tax, the soft drinks industry levy, residential property developer tax, and the economic crime levy.

Tax treaties

The UK has double tax treaties with more than 130 countries. It is a signatory of the OECD Multilateral Instrument.