Introduction
Understanding the tax system is crucial for professionals in the United Kingdom. This article provides a comprehensive overview of the various taxes, including income tax, National Insurance contributions, and other relevant levies, along with their respective rates.
1. Income Tax
Income tax is levied on earnings such as salaries, bonuses, and pensions. The UK uses a progressive tax system with several bands:
- Personal Allowance: Up to £12,570 – 0%
- Basic rate: £12,571 to £50,270 – 20%
- Higher rate: £50,271 to £150,000 – 40%
- Additional rate: over £150,000 – 45%
2. National Insurance Contributions (NICs)
NICs are payments made by employees and employers to fund various state benefits. The rates are:
- Class 1 (Employees): Earnings up to £184 to £967 per week – 12%, and over £967 per week – 2%
- Class 2 and 4 (Self-Employed): Varied rates based on profits
3. Value Added Tax (VAT)
Professionals offering goods and services may need to register for VAT. The standard VAT rate is 20%, with reduced rates for certain goods and services.
4. Corporation Tax
If operating as a limited company, you’ll be subject to Corporation Tax on profits. The current rate is 19%.
5. Capital Gains Tax
This tax applies to the profit when you sell (or ‘dispose of’) an asset that has increased in value. The rates for individuals are 10% and 20%, depending on the total taxable income and gains.
6. Dividend Tax
Tax on dividends received from shares is charged at different rates based on your Income Tax band – 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate taxpayers.
7. Stamp Duty and Other Taxes
Other taxes like Stamp Duty Land Tax on property purchases and Inheritance Tax may also be relevant, depending on your circumstances.
Conclusion
This overview provides a basic understanding of the taxation landscape for professionals in the UK. Always consult with a tax professional for advice tailored to your specific situation.
