UK Tax System Simplified

UK Tax System Simplified

The UK tax system is generally deemed complex, but it is relatively straight forward.

To pay taxes, one should have a national insurance number.  It treats spouses as separate entities. Non-citizens of the European Economic Area, Switzerland, or EU member nations should have a Tier 2 visa.

The tax year is from April 6 of one calendar year to April 5 of the next. Everyone pays tax at the same rate regardless of residency status although this status may determine what sources of income to be included in the tax. One is considered as a UK resident for tax purposes if one lives in the UK for at least 183 days per tax year; owns a home in the UK and stays in it for at least 91 consecutive days; or works in the UK for 356 days with no significant break during this time. There are certain exemptions.  Sufficient ties would also qualify one to be a resident.

Summary of UK tax systems

Income taxes – UK residents are taxed on their worldwide income while non-UK residents are only taxed on income earned within the UK. Many of the individual taxes (exception – VAT ) will be keyed to income taxes. The basic formula involves adding personal income and benefits, deducting personal allowance, and paying the appropriate rate on the difference.

Property taxes – Net proceeds from renting property in the UK are considered as income for both residents and non-residents. There are two forms – Stamp Duty Land Tax and Council Tax.

Capital Gains Tax’s (CGT) is charged on the difference between the sale price and purchase price on chargeable assets. It’s payable on the profitable sale of assets and must be paid on all UK assets, regardless of residency status. It’s added to other taxable income.

Inheritance tax is a one-time payment on the value of a deceased’s estate if above a set threshold.

Car and road tax has to be paid if you drive in the UK, including when registering a vehicle.

Self-employment tax and corporation tax

The rates depend on the level of company profit, applicable to profits from doing business as a limited company, as a foreign company with a UK branch or office, or clubs, co-operatives or other unincorporated associates.

Dividend tax

Those with shares in a UK company may get payments.

Commercial tax

Includes Value Added Tax (VAT) or sales tax, and is applicable to almost all goods and services.

Filing tax declarations and Applying For Tax Back Online

Employees in the UK will have their employers making regular contributions as income tax and National Insurance contributions. Residents who need to declare worldwide income will need to file self-assessment forms, which can be done online with a unique tax reference number.

Tax refunds in UK

You can be entitled to refunds (rebate) on the basis of being employed and paying too much tax on salary, stopping work, taking a pension or life annuity plan, or living in one country with income in another. If you claimed personal expenses on your tax returns, you may get a tax refund. The rules apply for Working Holiday Tax Returns too.

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