UK Tax System 2025: Comprehensive Guide on Income, VAT, Corporate, and Other Taxes

Income Tax

Personal Allowance and Tax Bands

In the UK, income tax is applied through a progressive system based on individuals' earnings. As of the 2025/26 tax year, the personal tax allowance is £12,570. Income above this amount is taxed according to the following bands:

• Basic Rate: 20% on income between £12,571 - £50,270

• Higher Rate: 40% on income between £50,271 - £125,140

• Additional Rate: 45% on income over £125,141

Note: The personal allowance gradually reduces for incomes over £100,000 and is completely eliminated at an income of £125,140.

Income Tax in Scotland

In Scotland, income tax rates and bands differ from those in England. For the 2025/26 tax year, the tax bands in Scotland are as follows:

• Starter Rate: 19% on income between £12,571 - £14,667

• Basic Rate: 20% on income between £14,668 - £25,296

• Intermediate Rate: 21% on income between £25,297 - £43,662

• Higher Rate: 42% on income between £43,663 - £125,140

• Top Rate: 48% on income over £125,141

National Insurance Contributions (NIC)

National Insurance Contributions play an important role in funding the social security system in the UK. As of 2025, the NIC rates for employees are as follows:

• Employees: 8% on earnings over £242 per week

• Employers: 13.8% on earnings over £175 per week

For self-employed individuals, Class 2 and Class 4 contributions apply.

Value Added Tax (VAT)

In the UK, VAT is applied to most goods and services. As of 2025, the VAT rates are as follows:

• Standard Rate: 20%

• Reduced Rate: 5% (for areas such as domestic energy)

• Zero Rate: 0% (for most food and children's clothing)

VAT registration threshold: £90,000

Corporation Tax

Companies pay corporation tax on their profits. As of 2025, the corporation tax rate is 25%.

Capital Gains Tax (CGT)

Individuals pay CGT on profits from the sale of assets. As of 2025, the CGT rates are as follows:

• Basic Rate Taxpayers: 10% (for non-residential assets), 18% (for residential assets)

• Higher Rate Taxpayers: 20% (for non-residential assets), 28% (for residential assets)

Annual exemption: £3,000

Inheritance Tax (IHT)

Inheritance tax is levied on the estate left behind after a person's death. As of 2025, the IHT rate is 40% and applies to estates over £325,000.

Tax Year and Filing Processes

In the UK, the tax year starts on April 6 and ends on April 5 of the following year. Individuals and companies must submit their tax returns digitally through HM Revenue and Customs (HMRC). As part of the “Making Tax Digital” (MTD) program, the goal is to digitize tax processes.

Manage Your Tax Processes with ORTAC

The complex tax system in the UK can pose various challenges for individuals and companies. As ORTAC, we provide professional support in areas such as tax planning, return preparation, and communication with HMRC.

👉 To manage your tax processes in the UK safely, contact us