Introduction to the British Tax System
HM Revenue and Customs (HMRC) is responsible for administering and collecting taxes in the UK. Basic UK taxes include income taxes, property taxes, capital gains, UK inheritance tax, and Value Added Tax (VAT). Many of these are progressive taxes, meaning that those with higher incomes pay a higher rate. The British fiscal system applies throughout the United Kingdom: England, Scotland (though there are some specific differences owing to Scotland’s unique legal system), Wales, Northern Ireland, and many of the smaller islands around the British coast. Furthermore, it includes oil drilling platforms in British territorial waters, though, notably, it excludes the Channel Islands and the Isle of Man.
One
interesting aspect of UK tax is that it treats spouses as separate entities and
taxes them as individuals, with the exception of a small allowance for the
purpose of income taxes.
HMRC administers the following central taxes:
- Income tax
- Corporate tax
- Capital gains tax
- Inheritance tax
- Insurance premium tax
- Stamp, land, and petroleum revenue taxes
- Environmental taxes
- Climate change and aggregates levy and landfill tax
- Value-Added Tax (VAT)
- Customs duty
- Excise duties
Overall many of the various taxes for which a UK resident is liable – with the exception of VAT – are in some way keyed to income taxes. The basic formula for this is to add up your personal income and benefits, subtract your personal allowance, and then pay the appropriate rate on the difference.
There
are some ways you can file for tax exemption in the UK. For example, if you
were a tax resident for at least one of the last three tax years and spent 16
or fewer days in the UK during the current tax year, you are not a UK resident.
The same is true if you were not a tax resident for any of the last three years
and spent fewer than 46 days in the UK. The window of allowable time extends to
91 days if you worked full-time overseas.
UK tax system for foreigners
Generally
speaking, expat residents must pay British tax at the same rates as nationals.
All types of remuneration and benefits such as school tuition and
cost-of-living allowances are taxable. Under certain conditions, however,
the employer’s contributions to a foreign pension plan may not be taxable and
employee contributions may be deductible.
The UK
has double-taxation agreements with more than 130 countries making it one of
the world’s largest networks. These include Australia, France, Germany, the Netherlands,
Russia, Saudi Arabia, the United Arab Emirates, and the United States. If
you’re taxed at the source on income from another country, you can usually
claim tax relief to get some or all of this tax back. However, how you make
your claim depends on a number of factors, including whether you’re a UK tax
resident or not.
Taxes for short-term business visitors (STBV)
Anyone working in the UK for less than a year in total, and spending less than 183 days in the country within the relevant tax year, will be treated for tax purposes as a short-term business visitor. Such people are liable for UK tax on their remuneration where the duties were performed in the UK, even if the employer is overseas. Double-taxation treaties may offset any taxes due in such cases.
UK taxes for non-domiciled residents
In some cases, foreigners who live in the UK but have their permanent home (‘domicile’) outside the country may not have to pay tax in the UK on foreign income. Your domicile is usually the country your father considered his permanent home when you were born. However, this can change if you are now living in another country (such as the UK) and do not intend to return. Such non-domiciled people (non-doms) are typically not able to live in the UK indefinitely. (can be changed according to the regular changes in the UK tax).
To learn more about tax system in the UK or international taxation, please contact us.
