Taxation of individuals

The income tax is applied to the total income shown by individuals on the basis of the so-called world-wide principle. This tax applies to different types of income such as, for example, income from employment, income from self-employment, income from pensions, dividends, rental income, income received from trusts, capital gains. On the other hand, income deriving from child support allowances is exempt; from interest on tax refunds; maternity benefits, war widows' pensions, invalidity pensions for the disabled.
The tax period in the United Kingdom, for the purposes of determining income tax, runs from 6 April of each year to 5 April of the following year.
The tax is subject to progressive rates, by income brackets, from a minimum of 20% up to a maximum of 45%. For each income category, specific rules for determining the total income must be applied, considering, as a starting point, the gross remuneration received to which the personal deductions granted by law will be applied.
Furthermore, all those who are tax resident in the United Kingdom are entitled, for each tax year, to a so-called Personal Allowance which consists of a deduction of personal income tax depending on both the level of overall income declared and age.

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Social Contribution  

In the UK, payments made to the social security system are called "national insurance contributions" (NICs). They are payable by employers, employees and those who have their own business (the self-employed).

The NIC Class 1 principal rate applies to employee salaries (excluding benefits in kind) from £ 184 (the "prime cut") up to £ 967 per week for 2021/22 (the "upper pay limit" ). No contribution is payable on the first GBP 184 per week; thereafter, between GBP 184.01 and GBP 967 per week, the contributions amount to 12%. Earnings above the maximum limit incur a 2% charge.

Employers pay NICs on their employees' salary at 13.8%. The 13.8% employer-paid NICs also apply to employee benefits in kind (such as company cars).

All self-employed workers pay 9% contributions on income above £ 9,568 up to £ 50,270 per year. Profits above the upper limit discount a 2% contribution. Self-employed also pay a flat rate Class 2 contribution of 3.05 GBP in 2020/21 per week.

Income tax exemption is generally not available to NIC.

Taxation of legal persons

Corporate tax is a tax imposed on the profits of corporations (i.e. entities with "full" legal personality under the Company Act), permanent establishments of companies not resident in the United Kingdom (for the share of profits attributable to them), of cooperatives, as well as on profits generated by charities or other entities without legal personality. Capital gains as well as any profits deriving from trading and investing activities (with the exception of dividends) are also taxable for the purposes of applying the corporate tax. For companies, the fiscal year runs from April 1st of each year to March 31st of the following year. As often happens, it is possible that the accounting period of a company does not coincide with the fiscal year. In this case, considering that the taxpayer is required to pay the tax within nine months of the end of the accounting period while the tax return must be submitted within twelve months of the same date, it will be necessary to divide the profits for the year between the two tax years.

The standard corporate tax rate is 19% for the financial year starting April 1, 2021 and will be maintained at that rate for the financial year starting April 1, 2022.

Where taxable profits are attributable to the exploitation of patents, a tax rate of 10% is applied.

 
Value Added Tax - VAT

Value added tax was introduced in the United Kingdom in 1973 following the country's entry into the European Community. For the sale of goods and the provision of services, the ordinary VAT rate is applied from 1 January 2011, also confirmed for 2022, is 20%, but reduced or subsidized rates equal to:

• 0% - e.g. on advertising services for charities, supply of goods at charity events, services for the construction of infrastructures for the disabled, supply of equipment for the blind or visually impaired, products for children, editorial products (books and newspapers);

• 5% - e.g. on the purchase of mobility aids for the elderly, purchase of energy-saving equipment to be installed in residential buildings, medical products for quitting smoking (nicotine patches), energy services (electricity, gas or fuel) for domestic or residential use .

Other types of operations are "exempt" for the purposes of applying the tax, such as operations relating to financial services, the leasing of land and buildings, education and education services, medical services, burial services, postal services provided by Royal Mail.
From a procedural point of view, the system is based on the institution of VAT reimbursement relating to purchases which is opposed to the tax due on active transactions carried out, while for taxable persons the obligation to register for VAT purposes occurs when the volume of business, achieved in the previous 12 months and relating to taxable transactions carried out within the United Kingdom, exceeds the limit of 73 thousand pounds. If the taxpayer considers that exceeding the aforementioned limit is a completely exceptional and temporary circumstance, the same may request an exemption from the obligation to register for VAT purposes by submitting a specific application to the HMRC where it will be indicated and motivated in details the exceptional and temporary nature of the transactions carried out.

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Declarations, instrumental obligations and payment of taxes

Tax collection can take place in different ways, depending on the type of income received or depending on whether the declarant is an employee, a self-employed person or belongs to none of these first two categories. The different ways of collecting taxes can be as follows:

• PAYE (Pay As You Earn) - in this case the employee receives their remuneration periodically, net of withholding taxes withdrawn by the employer, while the final balance, credit or debit, will be determined annually on the occasion of the presentation of the tax return. The same criterion is applied for retirement income;

• Self-assessment - this method, mainly envisaged for self-employed workers or in the case of complex tax transactions, involves the compilation and submission to the HMRC (also in electronic format) of one's tax return;