United KingdomTax Obligations Detailed

As of today, February 5, 2025, employers in the UK have several tax obligations for the 2024/2025 tax year and beyond. Please be advised that tax legislation and regulations can change, and these are subject to updates.

Income Tax and National Insurance Contributions (NICs)

• Employee Deductions: Employers deduct income tax and NICs from employee salaries based on individual tax codes and earnings. The standard Personal Allowance for 2024/2025 is £12,570 per year. Income tax rates are 20% for earnings up to £37,700 and 40% for earnings between £37,701 and £125,140. Above £125,140, the rate is 45%. Employee NICs are at 0% up to £12,570, 8% on earnings between £12,571 and £50,270, and 2% on earnings above £50,270.
• Employer NICs: For 2024/2025, employers pay Class 1 NICs at 13.8% on employee earnings above £9,100. From April 6, 2025, the rate increases to 15%, and the threshold reduces to £5,000. However, the Employment Allowance increases to £10,500, meaning eligible employers only pay Employer NICs when their liability exceeds this amount.
• Class 1A NICs: Paid on most benefits in kind, at a rate of 13.8% for 2024/2025. Due by July 19, 2025 (postal) or July 22, 2025 (electronic).
• Real Time Information (RTI): Report PAYE information to HMRC in real time each time you pay your employees. The information required as of today does not include detailed employee working hours.

PAYE Year-End Reporting and Filing

• Full Payment Summary (FPS) and Employer Payment Summary (EPS): Due April 19, 2025, covering the year ending April 5, 2024.
• P60 Forms: Provide to employees on payroll as of April 5, 2025, by May 31, 2025.
• P11D Forms: Report expenses and benefits by July 6, 2025.
• Employee Share Plan Reporting: Due July 6, 2025.

Other Tax Obligations

• Gender Pay Gap Reporting: For employers with 250 or more employees, reporting is due by April 4, 2025.
• Apprenticeship Levy: If your annual pay bill is over £3 million, you must pay the Apprenticeship Levy at 0.5% of your total pay bill.
• Short-Term Business Visitors Reporting: Report by May 31, 2025.
• PAYE Settlement Agreements (PSA): New or varied contracts for PSAs by July 5, 2025, and payments are due October 19, 2025.

Upcoming Legislative Changes for 2025/2026

It's important to prepare for the 2025/2026 tax year and be aware of potential changes:

• Frozen Allowances and Thresholds: The Personal Allowance and some NIC thresholds are expected to remain frozen, potentially pushing employees into higher tax brackets.
• Corporation Tax: For the financial year starting April 1, 2023, the main rate for companies with profits of £250,000 or more is 25%. For companies with profits below £50,000, the rate remains at 19%. A marginal relief provides a gradual increase in the Corporation Tax rate for profits between £50,000 and £250,000.

This overview provides a summary of key UK employer tax obligations for 2025/2026. Consult with a tax advisor or HMRC for personalized guidance tailored to your specific business circumstances.

In the UK, employers deduct various taxes, contributions, and other amounts from employee salaries, impacting net pay. This involves income tax, National Insurance contributions, and other deductions as per employee contracts or legal obligations.

Income Tax

• Personal Allowance: The standard allowance for 2025-26 is £12,570 annually (£242 weekly/ £1,048 monthly). This is the amount an employee can earn before income tax is applied.

• Tax Bands and Rates (England, Northern Ireland, and Wales):

  • Basic Rate: 20% on earnings up to £37,700 (above the Personal Allowance).
  • Higher Rate: 40% on earnings between £37,701 and £125,140.
  • Additional Rate: 45% on earnings above £125,140.

• Tax Bands and Rates (Scotland):

  • Starter Rate: 19% on earnings up to £2,827.
  • Basic Rate: 20% on earnings between £2,828 and £14,921.
  • Intermediate Rate: 21% on earnings between £14,922 and £31,092.
  • Higher Rate: 42% on earnings between £31,093 and £62,430.
  • Advanced Rate: 47% on earnings between £62,431 and £125,140.
  • Top Rate: 48% on earnings above £125,140.

• Tax Codes: Employees are assigned tax codes that determine the amount of tax-free allowance they receive. Employers use these codes to calculate the correct income tax deductions.

National Insurance Contributions

National Insurance is a contribution towards state benefits like the State Pension and the National Health Service. Both employees and employers contribute.

• Employee Contributions: Deducted from earnings above the Lower Earnings Limit. Different rates apply depending on earnings bands.
• Employer Contributions: Employers also pay National Insurance contributions based on their employees' earnings above the Secondary Threshold.
• Employment Allowance: Some employers can reduce their National Insurance liabilities through the Employment Allowance.

Other Statutory Deductions

• Pension Contributions: For employees enrolled in workplace pension schemes, contributions are automatically deducted.
• Student Loan Repayments: Repayments for student loans are deducted based on income and repayment plan.
• Court Orders and Child Maintenance: Deductions for court orders like child maintenance payments can also be made.

Non-Statutory Deductions

These are agreed upon between the employer and employee and may include:

• Union Dues
• Charitable Donations
• Private Healthcare

Key Dates and Deadlines for Employers (2025-26)

• 6 April 2025: Update employee payroll records for the new tax year.
• 19 April 2025: Submit final Full Payment Submission (FPS) for 2024-25 and pay any outstanding PAYE and National Insurance.
• 31 May 2025: Provide P60s to employees who were on payroll on 5 April 2025.
• 6 July 2025: Report employee expenses and benefits (P11D forms).
• July 2025: Pay Class 1A National Insurance contributions.

It's important to note that this information is based on current legislation and is subject to change. Always consult official government sources for the most up-to-date details.

Value Added Tax (VAT) is a consumption tax levied on most goods and services in the UK.

VAT Rates and Thresholds

As of January 1, 2025, the standard VAT rate is 20%. A reduced rate of 5% applies to certain goods and services like children's car seats, domestic fuel and power, and some energy-saving materials. A zero rate (0%) applies to items such as most food, books, newspapers, and children's clothing. Some goods and services are entirely exempt from VAT, including insurance, finance, education, and health services. Note that private school fees for terms starting on or after January 1, 2025 are now subject to the standard 20% VAT.

The current VAT registration threshold is £90,000. Businesses must register for VAT if their taxable turnover exceeds this amount in any 12-month period. The deregistration threshold is £88,000.

VAT Registration

Businesses are required to register for VAT if their annual taxable turnover exceeds £90,000 or if there's reasonable belief that it will exceed this threshold within the next 30 days. Additionally, businesses may choose to register voluntarily, even if their turnover is below this threshold. Non-UK businesses selling goods or services to UK consumers, storing goods in a UK warehouse, or selling digital services to UK consumers must also register.

Upon exceeding the threshold, businesses have 30 days to register with HMRC.

Filing and Payment

VAT-registered businesses are generally required to submit returns and payments electronically through Making Tax Digital (MTD)-compatible software every quarter. The deadline for filing and payment is one month and seven days after the end of the accounting period. For example, for the quarter ending March 31, the deadline is May 7.

Businesses with an annual VAT liability over £2.3 million must make additional interim payments. Those with a turnover under £1.35 million may opt for the Annual Accounting Scheme, paying once a year. Penalties are levied for late submissions.

Exempt Supplies

Several goods and services are exempt from VAT, meaning VAT is not charged on their sale, and businesses cannot reclaim VAT on related expenses. These exempt categories include but are not limited to:

• Insurance
• Finance and credit
• Education and training
• Fundraising events by charities
• Subscriptions to membership organisations
• Sale, lease, and letting of commercial land and buildings (though this can be waived)

It's important to note that these regulations are subject to change, and businesses should consult official sources or tax professionals for the most up-to-date information.

As of February 5, 2025, the UK offers several tax incentives designed to encourage investment and stimulate specific sectors. These incentives change periodically so this information is current as of today.

Research and Development (R&D)

• R&D Expenditure Credit (RDEC): Available to all companies performing qualifying R&D, offering relief of up to 15p-16p per £1 spent.
• Enhanced R&D Intensive Support Scheme (ERIS): Specifically for loss-making R&D-intensive SMEs, with relief up to 27p per £1 spent. SMEs qualify as "R&D Intensive" if at least 30% of their total expenditure is on qualifying R&D. Both RDEC and ERIS are claimable regardless of any grant funding received for R&D projects.

Creative Sector Tax Reliefs

• Audio-Visual Expenditure Credit (AVEC): Replaces previous film, high-end TV, animation, and children's TV tax reliefs. Offers a taxable credit rate of 34% for film, high-end TV, and video games (equivalent to a net cash credit of approximately 20.4%). A 39% credit rate applies to animated film, TV, and children's TV (a net cash credit of about 23.4%).
• Video Games Expenditure Credit (VGEC): Replaces the Video Games Tax Relief, also offering a taxable credit rate of 34%.
• Independent Film Tax Credit (IFTC/Enhanced AVEC): Specifically for lower-budget films (under £15m and meeting the BFI UK creative practitioner test) starting principal photography on or after April 1, 2024. Offers a 53% taxable credit rate or a net 39.75% rate. Starting April 1st, 2025 VFX expenditure will receive an uplift to 29.25% net after tax.
• VFX Uplift within AVEC: Starting in 2025, VFX expenditure under AVEC will see an increased rebate from 25.5% to 29.25%, exempt from the 80% cap on total budget eligible for relief.

Other Tax Incentives

• Patent Box: Reduced 10% corporation tax rate on profits derived from patented inventions.
• Investment Zones: Offer £160 million in spending support and tax reliefs over 10 years (£150 million allocated to Northern Ireland), focusing on promoting investment and job creation in key sectors.
• Land Remediation Relief: 150% deduction for qualifying expenditure on remediating contaminated land, or a cash payment surrender option at £24 per £100 spent for loss-making companies.

General Tax System

• The standard UK Corporation Tax rate is 25%.
• No withholding tax on dividends paid by UK companies to overseas shareholders.

Ending Tax Credits

Working Tax Credit and Child Tax Credit are ending and will be fully replaced by Universal Credit from April 5th, 2025 so no new claims for these credits will be accepted. Most claimants will be transitioned to Universal Credit. Pension Credit is also available for those of State Pension age.