Taxation in the UK funds public services like healthcare, education, and infrastructure. This blog explains the main taxes, how they’re applied, and their impact on individuals and businesses.

Income tax is levied on earnings, including wages, self-employment income, and pensions. The UK uses a progressive system, with higher earners paying a higher percentage. For 2025/26, the rates are:

For example, earning £40,000 means paying 20% on £27,430 after the allowance, totalling about £5,486. Allowances like the Marriage Allowance or pension contributions can reduce taxable income.

NICs fund benefits like the NHS and State Pension. Employees pay:

Self-employed individuals pay a flat rate (Class 2) and a percentage of profits (Class 4). Employers also contribute NICs.

VAT is a 20% tax on most goods and services. Some items, like children’s clothing, are zero-rated or exempt. Businesses with turnover above £90,000 must register, charging VAT on sales and reclaiming it on purchases. Consumers see VAT included in prices, e.g., a £100 item includes £16.67 VAT.

Businesses pay corporation tax on profits. For 2025, the rate is 25% for profits over £250,000, 19% for profits under £50,000, with a sliding scale in between. This applies to limited companies, not sole traders, who pay income tax.

CGT applies to profits from selling assets like property (not your main home) or shares. The 2025/26 tax-free allowance is £3,000. Rates are:

A £10,000 profit on shares (after allowance) costs £1,400 in CGT for a higher-rate taxpayer.

Council tax funds local services, based on property value (assessed in 1991, or 2003 in Wales). Properties fall into bands (A–H), with charges varying by council. A Band D property might cost £2,000 yearly, with discounts for single occupants.

HMRC manages most taxes. Employees’ income tax and NICs are deducted via PAYE. Self-employed individuals file Self Assessment returns. Businesses handle VAT and corporation tax filings. Council tax is paid to local authorities, often monthly.

Taxes fund essential services but affect your finances. Understanding allowances and deductions, like pension contributions, helps manage your tax bill. Check with HMRC or a tax professional for tailored advice. Staying informed ensures compliance and optimizes your finances.