Understanding UK Tax
A plain-English introduction to the main taxes people and businesses may pay in the UK, and the public services tax revenue helps fund. What applies depends on your income, work, purchases, property, business and where in the UK you live.
Income Tax
Income Tax may be due on earnings from employment, profits from self-employment, pensions and some income from savings, investments or renting out property. Allowances and rules depend on the person and the type of income.
An employer or pension provider may deduct it through PAYE. Some people report income and calculate what is due through Self Assessment. PAYE and Self Assessment are ways of dealing with tax; they are not separate taxes.
Scottish Income Tax rates and bands can differ for some income. Welsh rates may also differ. Check the current official guidance for where you live rather than relying on an old figure.
Check current rules — Income Tax (opens in a new tab)National Insurance
Employees, employers and self-employed people may pay National Insurance, depending on earnings, profits and circumstances. The rules are not identical for each group.
Your National Insurance record can help you qualify for certain benefits and the State Pension. It is a contribution record, not a personal savings account containing money set aside only for you.
Check current rules — National Insurance (opens in a new tab)Value Added Tax (VAT)
VAT is included in the price of many goods and services. Businesses that are registered for VAT charge it where the rules require and account for it to HMRC.
Different VAT rates apply to different goods and services, and some are exempt. A receipt may show the VAT, but a shop price offered to the public will usually already include it.
Check current rules — VAT rates (opens in a new tab)Council Tax and domestic rates
Households in England, Scotland and Wales usually receive a Council Tax bill from their local council. The amount and available discounts or reductions depend on the home, household and local rules. Check the bill and contact the council if the details are wrong or payment is difficult.
Check current rules — Council Tax (opens in a new tab)Northern Ireland uses domestic rates instead of Council Tax. Rates are based on property and are administered under Northern Ireland rules; reductions or help may be available.
Check current rules — domestic rates in Northern Ireland (opens in a new tab)A simple everyday example
A person in employment might see Income Tax and National Insurance deductions on a payslip. When they buy something in a shop, VAT may be included in the displayed price. If they are responsible for a home, they may also receive a Council Tax bill, or a domestic rates bill in Northern Ireland.
This does not mean everybody pays all three. Their circumstances, income, purchases, home and location decide what applies.
Corporation Tax
Corporation Tax is charged on the taxable profits of companies and some organisations. It is not charged on every pound of company income: allowable costs, reliefs and tax rules are used to work out taxable profit.
A sole trader does not pay Corporation Tax on sole-trader profits. Those profits are generally dealt with through Income Tax and National Insurance rules.
Check current rules — Corporation Tax (opens in a new tab)Capital Gains Tax
Capital Gains Tax may apply to the gain made when certain assets are sold, given away, exchanged or otherwise disposed of. It is the gain, not simply the amount received, that matters. Exemptions and reliefs may apply.
Check current rules — Capital Gains Tax (opens in a new tab)Inheritance Tax
Inheritance Tax may be due from an estate after someone dies. Thresholds, exemptions, gifts and reliefs affect whether anything is payable. The estate normally deals with it rather than each beneficiary paying tax automatically.
Check current rules — Inheritance Tax (opens in a new tab)Businesses and self-employment
Businesses and self-employed people can have several responsibilities. An employer may operate PAYE to deduct Income Tax and National Insurance from pay. A business may need to register for VAT when the rules require it, and business premises may attract business rates.
A self-employed person may use Self Assessment to report income, expenses and gains and to work out tax due. Self Assessment is a reporting and payment system, not a separate tax.
Check current rules — Self Assessment tax returns (opens in a new tab)Property purchase taxes
The tax used when buying property depends on where the property is. England and Northern Ireland use Stamp Duty Land Tax. Wales uses Land Transaction Tax. Scotland uses Land and Buildings Transaction Tax. Rules can depend on the price, property type, ownership and circumstances.
Vehicle tax and fuel duty
Vehicle tax may be required to keep or use a vehicle, with the amount and exemptions depending on the vehicle and its circumstances. Fuel duty is charged on road fuels and is normally built into the pump price rather than billed separately to the driver.
Check current rules — vehicle tax (opens in a new tab)Duties and taxes included in prices
Alcohol and tobacco duties are normally reflected in retail prices. Insurance Premium Tax is charged on many insurance premiums. Air Passenger Duty is generally charged to airlines for eligible flights and may form part of the price paid by passengers.
The exact treatment depends on the product or journey. Check current official information if you need to understand a particular purchase.
Check current rules — tax on shopping and services (opens in a new tab)What does the money pay for?
Tax revenue helps fund the NHS and other health services, education, social care, benefits and the State Pension, transport, policing, courts, defence and many other public services.
Taxes generally go into public funding. A particular person's tax payment is not assigned one-to-one to a particular hospital, school or service. Council Tax and domestic rates help fund local services, but they are not the only money those services receive. Government may also borrow to meet spending needs.
Check your own tax
You can use your GOV.UK personal tax account to check information held by HMRC, including your tax code, Income Tax estimate and National Insurance record where available.
Open your personal tax account (opens in a new tab)If you are unsure, use the contact route on the relevant official page or speak to HMRC. For independent help, Citizens Advice or a suitably qualified tax adviser may be able to help. This page is general, non-partisan information and is not personalised tax, financial or legal advice.
- [1] GOV.UK. Income Tax
- [2] GOV.UK. National Insurance
- [3] GOV.UK. VAT rates
- [4] GOV.UK. Council Tax
- [5] nidirect. Guide to rates
- [6] GOV.UK. Corporation Tax
- [7] GOV.UK. Capital Gains Tax
- [8] GOV.UK. Inheritance Tax
- [9] GOV.UK. Stamp Duty Land Tax
- [10] Welsh Government. Land Transaction Tax overview
- [11] Revenue Scotland. Land and Buildings Transaction Tax
- [12] GOV.UK. Vehicle tax
- [13] GOV.UK. Tax on shopping and services
- [14] GOV.UK. Self Assessment tax returns
- [15] GOV.UK. Annual Tax Summary
- [16] HM Treasury. How public spending was calculated in your tax summary