Corporate Income Tax
The corporate income tax rate is 19%. Where the taxable profits can be attributed to patents, a tax rate of 10% applies.
Income Tax Rate
- 0 – 5,000: 0%
- 5,001 – 34,500: 20%
- 34,501 – 150,000: 40%
- 150,001+: 45%
There are no payroll taxes in the UK.
A standard VAT rate of 20% applies to most goods and services, apart from domestic fuel and power which are subject to a VAT rate of 5%. Most exports are exempt from VAT.
- Dividends: None
- Interest: 20%*
- Royalties: 20%*
(*Payments made to a resident company is free from withholding tax if the recipient is taxed on the interest or royalty).
Local taxes are levied on business property, based on a deemed annual rental (‘rateable’) value for the property concerned. These taxes are levied by local government authorities, and are deductible for corporate tax purposes.
Income Tax (Personal Allowance)
The first GBP5,000 of an individual’s income is not taxed.
Individuals may be entitled to deductions or tax concessions on assessable income for the following:
- Necessary business expenses (excluding reimbursed expenses and travel to/from work)
- Charitable contributions
- Pension scheme contributions
- Interest payments on commercially leased properties
- Fines e.g. parking penalties incurred in the course of a trade
- Expenses incurred wholly and exclusively for purposes of a trade (for self-employed individuals)
Tax Year End Date
Tax Year End Documents
P60 Form (showing earnings, tax and National Insurance paid in the tax year)
Are tax residents subject to tax on their global income
Tax residents are taxed on their global income if they are domiciled in the UK i.e. they have been a resident for 7 years or more. Otherwise, they are taxed on their UK-source income only.
Time to prepare and Pay Taxes
Employers Social Security and statutory contributions
Employers are required to contribute 13.8% of the employee’s salary above GBP702 per month to Employer’s National Insurance.
Employees Social Security and statutory contributions
Employees are required to contribute 12% of their salary above GBP680 per month and below GBP3,750 per month to Employee’s National Insurance. A 2% contribution is required for income above GBP3,750 per month.
There are specific rules for payroll and taxation in the UK that must be complied with by all types of companies. The primary concerns for a foreign company that needs to comply with tax laws in the UK are: individual income tax for employees in the UK, social security costs, payroll tax, VAT, National insurance, Employer’s liability insurance, corporation tax and permanent establishment concerns.
A remote payroll in the UK is where a foreign company, i.e. a non-resident company, payrolls a resident employee in the UK. One option for a non-resident company to payroll its employees (local and foreign) in the UK is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.
Local Payroll Administration
In some cases, a company will register their business in the UK under one of the forms available, but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Larger companies with a commitment to the UK may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a UK payroll, and can fulfill all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with UK employment laws.
Setting up payroll in United Kingdom
Employee Information Required
The following information relating to the employee is required for setting up their payroll:
- Personal details e.g. full name, gender, date of birth, address etc.
- National Insurance number
- Student Loan details (if applicable)
- Tax Code (if applicable)
Tax Registration Requirements
The employer must inform HM Revenue and Customs (HMRC) when they take on a new employee. To register an employee with HMRC, the employer include their details on a Full Payment Submission (FPS) the first time they are paid.
The FPS includes:
- Information collected from the employee (from the employee’s P45, or ‘starter checklist‘)
- Tax code and starter declaration
- Pay and deductions (e.g. tax deductions, National Insurance and student loan deductions) since they started working with the current employer)
Social Security Registration
Every employer operating a Pay-As-You-Earn (PAYE) Scheme is allocated an ‘Employer PAYE Reference’ (ERN). This is the reference number for the income tax and National Insurance contributions of their employees.
Documentation Required for New Employees
The following documents are required for new employees:
- Employment contract
- A written statement of employment particulars (if the employment contract lasts for 1 month or more)*
- Relevant workplace pension scheme documents and details**
(*The written statement is provided within 2 months of the start of employment and includes the main conditions of employment. A comprehensive list of what this statement must include can be found here).
(**Under the Pensions Act 2008, employers must put employees into a workplace pension scheme and make contributions. This is called ‘automatic enrolment’).
Standard Payroll Cycle
Standard Payment Date Per Month
28th of the month
Most small employers operate using cheques and cash. Some employers only pay salaries via electronic transfer, BACs (Bankers’ Automated Clearing Services) and direct transfer being the main methods used by larger businesses in the UK.
Frequency of Salary Payment
Outlined below are the pay frequencies which can be processed in addition to usual monthly payrolls in the UK:
- Weekly (i.e. 52 pay periods per year)
- Fortnightly (i.e. 26 pay periods per year)
- 4 weekly
- Lunar monthly
- Bi-monthly (i.e. 24 pay periods per year)
Invoice / Payslips required
Payslips must show gross wages, tax and National Insurance deductions and the employee’s earnings after deductions.
Payslips may also contain the employee’s National Insurance number and Tax Code, their pay rate and the total amount of earnings and deductions so far in the tax year.
The minimum hourly wages for different age groups are as follows. The rates in brackets will be applied from April 2019.
- Apprentice: £3.70 (£3.90)
- Under 18: £4.20 (£4.35)
- 18 to 20: £5.90 (£6.15)
- 21 to 24: £7.38 (£7.70)
- 25 and over: £8.21 (£8.21)