United Kingdom

Taxable period

The tax year commences on 6 April and ends on the following 5 April in the United Kingdom.

Tax returns

The United Kingdom has a self-assessment (SA) tax system. As part of this system, the majority of UK taxpayers settle their tax liability entirely through tax withheld at source on earnings and savings and do not need to make any further declarations. However, around a third of taxpayers need to complete a tax return, which will be issued by HMRC each year. Married taxpayers and those in civil partnerships are independently taxed and responsible for their own affairs, and each files their own return.

Tax returns must be filed, and all outstanding tax paid, by 31 January following the end of the tax year. This filing deadline is brought forward to 31 October after the end of the tax year for individuals who are filing on paper (although the tax is still due by 31 January). The UK SA system is moving towards being fully online, and paper returns are now only accepted in limited circumstances.

HMRC have recently issued a number of consultation documents to consider ideas such as more timely tax payments and the use of third-party data. 

The deadline for either a UK resident disposing of UK property not covered by CGT main residence relief or a non-UK resident notifying HMRC of a disposal of UK property or an interest in a property-rich company is 60 days after the completion of the sale. Penalties will be charged if this deadline is missed, even if no tax was due.

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA)

The UK government has announced that UK taxpayers who currently report income on the land and property pages, self-employment pages, and property section of the foreign pages of the self-assessment tax return will be required to enter a new reporting regime under MTD ITSA. The new regime includes mandatory digital record keeping and the filing of quarterly updates in respect of these qualifying sources of income. A year-end return will be required for MTD ITSA sources and all other income, as it is now under self-assessment.

Impacted UK taxpayers will be required to enter the MTD ITSA regime from 6 April 2026 if their combined turnover from the above qualifying sources is in excess of GBP 50,000. UK taxpayers with combined turnover from these sources between GBP 30,000 and GBP 50,000 will be required to join from 6 April 2027.

Payment of tax

Income tax is normally withheld at source from salaries under the PAYE system. PAYE for expatriates can be a complex area. In principle, the worldwide earnings for a UK resident employee should be subjected to PAYE, but there are a number of special schemes and reliefs that can be used to help deal with the issues this may cause. These schemes can allow PAYE to be operated on an estimated or, in some cases, an annual basis, limit PAYE to expected UK earnings, and, in some situations, to remove the obligation to operate PAYE at all. Further advice should be sought as penalties apply for the incorrect operation of PAYE.

Savings income from most other UK sources is received either gross or after basic rate tax has been deducted. Under the self-assessment regime, any tax not collected through withholding is paid by payments on account (see below) and the final balancing payment due on 31 January after the end of the tax year. CGT is due by 31 January following the tax year in which the gain arose, unless in respect of residential property where the deadline is 60 days from the completion date.

Individuals who do not pay at least 80% of their income tax liability at source are required to make tax payments on account for the year, based on the level of income in the previous tax year. Payments on account are due in two instalments, on 31 January during the tax year and on 31 July following the tax year. Any outstanding tax due is payable by the filing deadline of 31 January after the end of the tax year.

Employers are required to notify HMRC of total pay, benefits, and expenses paid or reimbursed, and the employee then makes a claim for allowable business expenses.

Penalties

Automatic penalties are charged where returns are filed late and also where the tax is paid late, and interest is chargeable where tax is paid late. There is a penalty regime specifically intended to reduce the UK tax lost through offshore transactions and structures. The highest penalty is up to 200% of the undeclared tax, and, in certain circumstances, persons guilty of an offence can be subject to a fine or to imprisonment.

Tax audit process

HMRC is able to enquire into an individual's tax return and anything (including any claim or election) contained in it. HMRC must give notice that shows an intention to enquire into a tax return within 12 months of the return being filed (as long as the return has not been filed late). If the return has been delivered to HMRC after the filing date, an enquiry must be made by the ‘quarter day’ next following the first anniversary of the delivery date. 'Quarter days' are 31 January, 30 April, 31 July, and 31 October.

Where HMRC considers tax to have been lost, it will seek to recover that tax, and, in such cases, the normal time limits for making discovery assessments are extended where tax has been lost as a result of a taxpayer's (or their agent’s) deliberate or careless conduct (see Assessing time limits below for more information on normal time limits).

Assessing time limits

The normal time limit for making assessments is four years following the end of the tax year. This is termed a 'discovery' assessment. The time limit for making an assessment on a person in a case involving a loss of income tax brought about 'carelessly' by that person is six years following the end of the tax year. This is the position unless it is in respect of an 'offshore matter' or an 'offshore transfer', under which HMRC will have at least 12 years to enquire. The time limit for making an assessment on a person in a case involving a loss of income tax brought about deliberately by that person or where they failed to notify chargeability is 20 years following the end of the tax year.

Topics of focus by the UK tax authorities

Given the announcements in the Autumn Budget 2024, HMRC are likely to focus more on an individual’s residency status and question offshore aspects of their assets..

The UK tax authorities also have a 'spotlight' system that highlights the characteristics of tax planning that they ask taxpayers to be wary of and warn that they are likely to look into if implemented. Some of the characteristics include:

• artificial or contrived arrangements are involved
• it seems very complex given what you want to do
• there are guaranteed returns with apparently no risk
• there are secrecy or confidentiality agreements
• taxation of income is delayed or tax deductions accelerated
• offshore companies or trusts are involved for no sound commercial reason
• a tax haven or banking secrecy country is involved without any sound commercial reason
• tax exempt entities, such as pension funds, are involved inappropriately
• it involves money going in a circle back to where it started, and
• the scheme promoter lends the funding needed.

In addition, the tax authorities have identified specific tax planning schemes that are likely to be challenged.

Anti-avoidance

The United Kingdom has a large number of targeted anti-avoidance rules, such as those dealing with 'disguised remuneration', 'personal service companies', and 'enveloped dwellings'. It has also introduced a general anti-abuse rule (GAAR). See General anti-abuse rule (GAAR) in the Tax administration section of the Corporate tax summary for further information.

Disclosure of Tax Avoidance Schemes (DOTAS)

The DOTAS regime is designed to enable HMRC to proactively tackle attempts to avoid tax and introduced the concept of 'notifiable arrangements'. The term 'arrangements' is widely defined and includes any scheme, transaction, or series of transactions. Promoters and users of schemes that, in summary, contain defined 'hallmarks' of tax avoidance and provide a tax advantage are required to notify HMRC of the arrangement when it is first marketed.

Accelerated tax payment

There is legislation where HMRC can, if they so wish, extend the accelerated payment of tax to users of arrangements disclosed under the DOTAS rules, and to taxpayers involved in planning held to contravene the GAAR, so that the tax amount in dispute is held by HMRC until the dispute is resolved. Legislation can also potentially be applied that requires taxpayers who have used arrangements that are defeated in another party's litigation to pay the disputed amount to HMRC on demand.

Personal tax offshore anti-avoidance legislation

The United Kingdom has anti-avoidance rules that are broadly designed to attribute the income of a 'person' abroad (e.g. a non-UK company or trust) to either an individual who transferred the funds to the person abroad and has the power to enjoy the income of the overseas person (e.g. they hold shares) or an individual who received a benefit from the person abroad. These rules are referred to as the 'Transfer of Assets Abroad' provisions, and they only apply to UK resident individuals. This part of the legislation is currently under consultation, with a review and potential changes to come into effect in 2026.

The requirement to correct (RTC) and failure to correct (FTC)

After 30 September 2018, taxpayers (including non-UK resident trustees and non-resident landlords) that ‘failed to correct’ are subject to a range of significant penalties in respect of any errors that come to light in respect of income tax, CGT, and IHT (but excluding corporation tax).

Penalties

Where a taxpayer has failed to correct an error or notify a liability within the statutory window, the regime post September 2018 imposes the following penalties:

• A penalty of between 100% and 200% of the tax. The penalty will apply regardless of the reason for the error for years up to and including 2015/16.
• Potential asset-based penalty of up to 10% of the value of the relevant asset where the tax at stake is over GBP 25,000 in any tax year.
• Potential 'naming and shaming' where over GBP 25,000 of tax per investigation is involved.
• A potential additional penalty of 50% of the amount of the standard penalty if HMRC could show that assets or funds had been moved to attempt to avoid the RTC.

The RTC and FTC apply to any tax error arising from offshore financial interests or in respect of offshore transfers; it is not limited to those who have deliberately or carelessly failed to pay the right amount of tax. The regime applies to anyone who has relevant UK tax liabilities, which would include non-UK resident trustees and non-resident landlords.

The RTC and FTC regimes only apply to inaccuracies or failures that arose prior to 30 September 2018; however, for subsequent tax periods, HMRC have alternative extended assessing time limit and penalty powers.