Tax in the United Kingdom: VAT, income tax, company tax, capital gains

VAT in United Kingdom

Value-added: output VAT less input VAT, filed digitally under MTD.

Standard rate

20%

Local name

VAT — Value Added Tax

Type

VAT

Reduced rates

5%

Registration threshold

GBP 90,000 turnover/yr

Filing

Quarterly (Making Tax Digital)

Authority

HM Revenue & Customs

Current rate since

4 January 2011

Company tax in United Kingdom

The headline corporation tax rate is 25%, with 19% for qualifying smaller companies. In effect since 1 April 2023.

Main rate 25% (profits over £250k). Small-profits rate 19% (profits under £50k), with marginal relief in between.

United Kingdom company tax calculator →

Did you know? United Kingdom tax facts

• The UK adopted VAT largely because a value-added tax was a requirement of joining the European Economic Community in 1973.

  With Edward Heath's government set on EEC entry, VAT (legislated by the Finance Act 1972) replaced Purchase Tax and the Selective Employment Tax on 1 April 1973 at a single 10% rate set by Chancellor Anthony Barber - then the lowest standard VAT rate in Europe.

  Source: ICAEW - A brief history of VAT in Europe and the UK ↗

• In a 1991 tribunal, McVitie's defended Jaffa Cakes as cakes (not chocolate biscuits) by baking a giant 12-inch Jaffa Cake and arguing that cakes go hard when stale while biscuits go soft.

  VAT is charged on chocolate-covered biscuits but cakes of any kind are zero-rated; the tribunal ruled Jaffa Cakes had 'sufficient characteristics of cakes' and kept them tax-free, making it Britain's most famous tax-classification case.

  Source: Wikipedia - Jaffa Cakes ↗

• HMRC treats a gingerbread man with chocolate eyes as tax-free, but add chocolate trousers or buttons and it becomes 20% more expensive.

  HMRC's official VAT Food manual lists 'gingerbread men with chocolate eyes' among items not considered wholly or partly chocolate-covered (so zero-rated); a biscuit figure with further chocolate decoration is partly covered and becomes standard-rated confectionery.

  Source: GOV.UK - HMRC VAT Food manual VFOOD6240 ↗

• Marks & Spencer fought a roughly 13-year legal battle, all the way to the European Court of Justice, to win back £3.5 million of VAT it had wrongly paid on chocolate teacakes since 1973.

  HM Customs & Excise admitted by letter on 30 September 1994 that the teacakes were zero-rated cakes, not biscuits, but resisted a full refund on 'unjust enrichment' grounds; the ECJ finally ruled in M&S's favour in 2008 on grounds of equal treatment / fiscal neutrality.

  Source: Accountancy Age - M&S feasts on £3.5m teacake windfall ↗

• The 1991 VAT hike from 15% to 17.5% was made mainly to help pay down Margaret Thatcher's unpopular 'poll tax'.

  Chancellor Norman Lamont raised the rate, with the extra revenue used to fund a reduction in the deeply unpopular community charge; the 17.5% rate then held for 17 years, until 2008.

  Source: Wikipedia - Value-added tax in the United Kingdom ↗

• Britain's income tax was born in 1799 as William Pitt the Younger's war tax against Napoleonic France — 2 old pence in the pound on incomes over £60, rising to 2 shillings (10%) above £200.

  Wikipedia: 'Income tax was announced in Britain by William Pitt the Younger in his budget of December 1798 and introduced in 1799.' Addington abolished it in 1802 during the Peace of Amiens and reintroduced it in 1803 when war resumed; 'it was again abolished in 1816, one year after the Battle of Waterloo', before Sir Robert Peel's Income Tax Act 1842 brought it back to tackle a budget deficit.

  Source: Wikipedia — Income tax in the United Kingdom · checked 10 October 2026 ↗

• National Insurance dates from the National Insurance Act 1911 and was expanded by the Attlee government in 1948 into a single stamp covering the new welfare state; today it is the UK's second-biggest source of revenue.

  Wikipedia: the employee Class 1 rate is 8% on weekly earnings between £242.01 and £967 (2026/27), and 'The employer rate was increased from 13.8% to 15%' from 6 April 2025.

  Source: Wikipedia — National Insurance · checked 10 October 2026 ↗

• The UK tax year starts on 6 April because of a calendar quirk: the old year began on Lady Day, 25 March, and when Britain dropped 11 days in September 1752 to adopt the Gregorian calendar, the year-end slid to 5 April.

  Wikipedia's Fiscal year article: the 5 April year end 'reflects the old civil and ecclesiastical calendar under which New Year began on 25 March (Lady Day)', and 'The difference between the two dates is accounted for by the eleven days omitted in September 1752' under the Calendar (New Style) Act 1750.

  Source: Wikipedia — Fiscal year · checked 10 October 2026 ↗

• Earn over £100,000 in the UK and your tax-free Personal Allowance of £12,570 shrinks by £1 for every £2 of extra income — disappearing entirely at £125,140.

  GOV.UK (tax year 6 April 2026 to 5 April 2027): basic rate 20% on £12,571 to £50,270, higher rate 40% to £125,140, additional rate 45% above; 'Your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000', so 'your allowance is zero if your income is £125,140 or above'.

  Source: GOV.UK — Income Tax rates and Personal Allowances · checked 10 October 2026 ↗

• Scotland runs its own income tax on earnings with six bands — from a 19% starter rate to a 48% top rate — where the rest of the UK has three.

  GOV.UK lists the 2026 to 2027 Scottish rates: starter 19% (£12,571–£16,537), basic 20% (to £29,526), intermediate 21% (to £43,662), higher 42% (to £75,000), advanced 45% (to £125,140) and top 48% above that.

  Source: GOV.UK — Scottish Income Tax · checked 10 October 2026 ↗

• ISAs launched on 6 April 1999 with a £7,000 annual limit, replacing PEPs and TESSAs; the allowance reached £20,000 in 2017–18 and is still £20,000 for 2026–27.

  Wikipedia: ISAs 'were introduced on 6 April 1999, replacing the earlier personal equity plans', with TESSAs the cash-account predecessor; the limit was £7,000 from 1999/2000 to 2007/08 and reached £20,000 in 2017/18. The Lifetime ISA, from 6 April 2017, pays 'a 25% bonus on contributions of up to £4,000 a year'.

  Source: Wikipedia — Individual savings account · checked 10 October 2026 ↗

• Britain had no capital gains tax until 1965, when Labour Chancellor James Callaghan introduced it at 30%; the rates today are 18% and 24%, set on 30 October 2024.

  Wikipedia: 'The capital gains tax (CGT) system was introduced by Labour Chancellor James Callaghan in 1965'; most gains were taxed at 30% until 1988; Gordon Brown 'changed the rate to 18% for all taxpayers' in 2008; Rachel Reeves 'increased the lower and higher rates from 30 October 2024 to 18% and 24%'.

  Source: Wikipedia — Capital gains tax in the United Kingdom · checked 10 October 2026 ↗

• The UK's tax-free capital gains allowance was cut by three-quarters in two years: £12,300 in 2022–23, £6,000 in 2023–24 and just £3,000 from 2024–25.

  Wikipedia: the annual exempt amount was 'reduced to £6,000 for the tax year 2023-24, and further reduced to £3,000 for the tax year 2024-25'. Private residence relief 'brings an individual's principal residence out of scope of the tax'.

  Source: Wikipedia — Capital gains tax in the United Kingdom · checked 10 October 2026 ↗

• English student loans come in 'Plans' by start date: Plan 1 for courses before September 2012, Plan 2 for 2012–2023 and Plan 5 for courses starting on or after 1 August 2023 — while every Scottish graduate is on Plan 4.

  GOV.UK: Plan 1 covers England and Wales courses started before 1 September 2012 and all Northern Ireland loans; Plan 2 covers England from 1 September 2012 to 31 July 2023 (Wales from 2012 onward); Plan 4 is Scotland 'whether you studied an undergraduate course or a postgraduate course'; Plan 5 is England from 1 August 2023; master's and doctoral loans sit on a separate Postgraduate Loan plan. You cannot choose your plan.

  Source: GOV.UK — Repaying your student loan: which repayment plan you are on · checked 10 October 2026 ↗

• UK graduates repay 9% of income above their plan's threshold — £25,000 on Plan 5, £26,900 on Plan 1, £29,385 on Plan 2, £33,795 on Plan 4 — and 6% above £21,000 on a Postgraduate Loan.

  GOV.UK: 'You repay 9% of your income over the threshold if you're on Plan 1, 2, 4 or 5' and '6% of your income over the threshold if you're on a Postgraduate Loan plan'; the figures are the annual thresholds published for the current (2026–27) tax year.

  Source: GOV.UK — Repaying your student loan: what you pay · checked 10 October 2026 ↗

• UK Corporation Tax has two rates again: 25% for profits over £250,000 and a 19% 'small profits rate' under £50,000, with marginal relief in between — after eight years (2015–2023) of a single rate for every company.

  GOV.UK: 'If your company made more than £250,000 profit, you'll pay the main rate of Corporation Tax' of 25%; 'If your company made a profit of £50,000 or less, you'll pay the small profits rate, which is 19%'; 'From 1 April 2015 to 31 March 2023, a single rate of Corporation Tax applied to all companies.'

  Source: GOV.UK — Corporation Tax rates and reliefs · checked 10 October 2026 ↗

More stories, for every country that has one, on the tax facts page.