United Kingdom

Value-added tax (VAT)

The standard VAT rate of 20% applies to most goods and services, apart from domestic fuel and power and certain other reduced-rate supplies, which are subject to VAT at 5%. Traders who generate revenues above the VAT registration threshold (currently GBP 90,000 per annum) are required to register for VAT and charge VAT on their sales of goods and services. 

Certain small traders (supplies less than GBP 150,000 per annum) with a limited range of expenses may adopt a special flat-rate scheme, which computes VAT at a sector-specific flat rate.

Most exports, most food, most public transport, most books and publications (including, from 1 May 2020, e-publications), and certain essential goods and services are zero-rated. Some supplies are exempt, the main categories being the grant of certain interests in land, insurance, financial services, betting and gaming, certain sports services, cultural services, and health and welfare. As regards education, while private education in the UK was historically exempt from VAT, recent changes mean that from 1 January 2025, private schools need to charge VAT on their fees. Zero-rating is preferable to exemption because the VAT on costs incurred in making a zero-rated supply can be recovered while that incurred in making an exempt supply cannot.

VAT is chargeable on the supply of most goods and services made in the United Kingdom by 'taxable persons' in the course of business, when their taxable turnover exceeds the registration thresholds. Taxable persons include individuals, companies, partnerships, clubs, associations, or charities.

Taxable persons who are not normally resident in the United Kingdom, do not have a business establishment in the United Kingdom, and, in the case of companies, are not incorporated in the United Kingdom, but who make taxable supplies, sales to unregistered persons in the United Kingdom, or acquisitions of goods in the United Kingdom above the relevant limits, may be required to register and account for VAT in the United Kingdom.

If the value of taxable supplies is over a specified limit, registration for VAT is compulsory unless the taxable supplies made are wholly or mainly zero-rated, in which case it is possible to apply for exemption from registration. A zero VAT registration threshold applies for businesses not established in the United Kingdom.

The rules applying to VAT and territoriality are different to those applying to direct tax in that they derive from the principles of the place of supply in EU law, as enshrined in European Commission (EC) VAT Directives. Having determined that a supply of goods or services has taken place, the second condition to be determined, if the transaction is to fall within the scope of UK VAT, is whether the supply takes place within the United Kingdom. The place of supply rules are different for goods and for services. A person or business belonging outside the United Kingdom, with no place of business in the United Kingdom, may, nevertheless, be liable to UK VAT registration where the place of supply of those goods or services is in the United Kingdom.

For goods, the basic rule is that a supply of goods is taxable in the territory where those goods are physically located at the time of supply. Hence, if goods are supplied in the United Kingdom by a non-established taxable person, there will still be a liability for VAT purposes, and the person must register for VAT in the United Kingdom. A zero VAT registration threshold applies for businesses not established in the United Kingdom.

For services, the basic rule is that services are treated as made where the customer 'belongs' or is established for VAT purposes, and the customer is responsible for accounting for the VAT due via the reverse-charge procedure. However, this is subject to a number of special rules and exceptions. Determining where a business is established for VAT purposes is based on EU law criteria enshrined in UK law.

For business-to-consumer (B2C) supplies, the basic rule is that services are treated as made where the supplier 'belongs' or is established for VAT purposes. B2C supplies of telecommunications, broadcasting, and electronic services are taxed where the customer is located or is normally resident, to be determined according to specific criteria.

VAT returns and payments

VAT returns must be completed at pre-set intervals (usually every three months). Larger companies may be required to file monthly returns or make monthly payments on account. All businesses are required to file VAT returns online and make electronic payments. Smaller enterprises can apply for annual returns. VAT returns are usually required to be filed 30 days after the end of the period.

All businesses are required to keep and preserve digital records and provide VAT returns using compatible software. This is done via an ‘application programming interface’ (API), which enables taxpayers to communicate electronically with HMRC. 

Annual accounting is available for taxable persons with annual turnover (taxable supplies, excluding VAT) not exceeding GBP 1,350,000.

Cash accounting is available for taxable persons with annual turnover (taxable supplies, excluding VAT) not exceeding GBP 1,350,000.

Brexit

While the United Kingdom is no longer part of the European Union, under the Northern Ireland Protocol (NIP), Northern Ireland (NI) remains part of the single market as regards the application of the EU VAT provisions to goods, while services are no longer in scope of EU VAT rules. The NIP protocol was largely replaced by the Windsor Framework on 12 April 2024, with goods remaining in scope of EU VAT provisions. Consequently, the obligation to report intra-Community supplies and acquisitions for the movement of goods between the European Union and Northern Ireland remains in place. Goods moving between Great Britain (GB) and Northern Ireland are treated as though they are imports/exports. Goods entering Great Britain from Northern Ireland are therefore subject to VAT as though they were imports, and relevant UK legislation applies. Goods entering Northern Ireland from Great Britain are also subject to VAT as though they were imports, and relevant EU or UK legislation applies as appropriate.

‘Distance sales' of goods from GB to EU consumers (B2C transactions) are no longer subject to the distance selling thresholds set by member states, and GB suppliers are required to comply with the rules on imported goods and local supplies in each of the EU member states (including local 'low value consignment relief' rules).

Businesses identified for VAT purposes under the NIP are subject to existing rules in respect of distance sales of goods to consumers (B2C) in EU member states, and EU businesses are able to supply goods to NI consumers under existing distance selling arrangements.

Following the withdrawal of 'low value consignment relief', import VAT is no longer due at the border for most consignments valued below GBP 135. From 1 January 2021, overseas businesses selling direct to UK consumers are required to register and account for VAT in the United Kingdom where the value of any consignment is GBP 135 or less. However, 'low value consignment relief' from import VAT for consignments not exceeding GBP 15 continues to apply in Northern Ireland (although not in respect of goods that are ordered remotely).

For movements of own goods from Great Britain to Northern Ireland, output VAT will need to be accounted for on the VAT return; this may also be reclaimed as input VAT (on the same VAT return), subject to the normal rules. For movements of own goods from Northern Ireland to Great Britain, no VAT will need to be accounted for unless the goods have been subject to a sale or supply to a customer.

UK VAT groups continue to operate largely as they did before the NIP came into force. The exceptions are:

• Where goods are supplied by members of a VAT group, and those goods move from Great Britain to Northern Ireland, VAT will now be due in the same way as when a business moves its own goods.
• Where supplies of goods are made between members of a VAT group, those goods are located in Northern Ireland at the time that they are supplied, and one or both members only have establishments in Great Britain, VAT must be accounted for by the representative member but may be reclaimed, subject to the normal rules.

In February 2023, the United Kingdom and the European Union agreed wide ranging amendments to the Northern Ireland Protocol, titled the Windsor Framework, in order to smooth the flow of trade between Great Britain and Northern Ireland. The Northern Ireland Protocol, reached as part of the Brexit Withdrawal Agreement, aimed to prevent a hard border on the Island of Ireland and stipulated that Northern Ireland remained subject to certain EU customs, VAT, and regulatory rules. The implementation of the Protocol has led to numerous issues for businesses operating in and with Northern Ireland and has therefore been subject to continuous negotiations.

The amended agreement aims to remove these issues by: 

• Creating ‘Green Lanes’ enabling goods that are transported from Great Britain to Northern Ireland that are destined to stay in Northern Ireland to be transported with minimal checks and paperwork.
• Amending the text of the Protocol to ensure that UK VAT and excise changes will apply to Northern Ireland and not just Great Britain.
• Implementing a new ‘Stormont Brake’ that will give the Northern Ireland Assembly the ability to block certain new EU laws from applying in Northern Ireland. 

The changes are took place in stages up to 2025 to provide businesses with time to adapt to the new arrangements.

Supplies of services between the United Kingdom and the European Union are treated, with effect from 1 January 2021, as supplies of services to a third country. The UK VAT rules determine the place of supply, whether the supply is subject to UK VAT, and whether input VAT incurred in making the supply is recoverable in the United Kingdom.

Following the United Kingdom’s departure from the European Union, the Retained EU Law (Revocation and Reform) Act was enacted in 2023. This act makes provision for significant changes to the status and operation of retained European law. In order to prevent the repeal of several EU derived UK VAT and excise provisions as a result of this act, Finance Act 2024 included specific provisions for retained EU law relating to VAT, excise, and customs duty. As a consequence, UK VAT and excise law that was in force prior to 1 January 2021 (EU exit day) will continue to be interpreted in line with EU law principles.

The VAT directive remains applicable to Northern Ireland as regards all supplies of goods, but it does not apply to the supplies of services.

Digital Services Tax (DST)

Pending international agreement on how to address the tax challenges of the digitalisation of the economy, in particular the OECD’s two-pillar approach, the United Kingdom has introduced a DST as an interim measure to address these tax challenges. From April 2020, this new DST applies at a rate of 2% to the revenues of certain digital businesses to reflect the value they derive from the participation of UK users, pending an appropriate international solution. The tax applies to annual UK revenues above GBP 25 million from activities relating to Internet search engines, social media platforms, and online marketplaces (of businesses with in-scope annual global revenues of more than GBP 500 million). Loss-makers are exempt, and businesses with very low profit margins are subject to a reduced effective rate. The Government published its report on the future of the Digital Services Tax as part of the Autumn Budget 2025, confirming its commitment to repeal the legislation once a suitable international solution is found.

Customs and excise duties

Many goods imported into the United Kingdom are now subject to customs duties set under UK's own tariff regime. Post Brexit, the EU’s Common Customs Tariff no longer applies to Great Britain. Instead, the UK Integrated Online Tariff governs duty rates and classifications. Duty rates continue to vary by commodity code and origin under any applicable free trade agreements under the UK’s new network of trade agreements.

Excise duties are chargeable on most hydrocarbon oil products, alcoholic drinks, and tobacco products imported into or produced in the United Kingdom. Examples include the following (note that the duty structure for alcoholic drinks was reformed from 1 August 2023):

Following the end of the Brexit transitional period on 31 December 2020, goods moving between Great Britain and the European Union are treated as imports and exports with full customs formalities. Under the provisions of the Windsor Framework (which replaced the operation of the Northern Ireland Protocol (NIP)), Northern Ireland has a special status in regards to customs.

EU goods entering Northern Ireland for sale or final use in Northern Ireland and qualifying under the UK Internal Market Scheme are treated as 'not at risk' and will not be chargeable to UK import duty. However, anti-avoidance provisions apply in circumstances where goods are moved via Northern Ireland specifically to avoid paying UK duties that would have applied if the goods had moved directly from the European Union to the United Kingdom. Non-EU goods imported into the United Kingdom by entering Northern Ireland are subject to duty charged in accordance with EU customs legislation.

Where goods are at risk of entering the EU single market, EU customs rules and duties can apply in Northern Ireland.

See Brexit above (under VAT) for more information regarding amendments to the Northern Ireland Protocol.

Rules allow UK-established traders to use a duty deferment account without holding a Customs Comprehensive Guarantee, upon grant of a guarantee waiver by HMRC. Guarantee requirements can still apply in other contexts, particularly for excise movements and transit guarantees.

VAT-registered traders choosing not to, or not eligible to, defer their import declarations will still be able to use postponed VAT accounting if they choose to do so.

The United Kingdom has lost access to the intra-EU reporting functionality within the Excise Movement and Control System (EMCS). EMCS remains operational in the United Kingdom, but now operates solely for internal UK duty-suspended movements, including movements between the importer or exporter’s warehouse and the port.

Importers wishing to move goods under excise duty suspension need to be approved as a Registered Consignor (or seek the services of one) to declare goods to EMCS from the port of import. An excise movement guarantee must be in place (if required) for duty-suspended imports to cover the movement from the port to the warehouse.

Traders using the Common Transit Convention to import and export need to follow all transit procedures from 1 January 2021.

Soft drinks industry levy (SDIL)

The government introduced legislation with effect from April 2018 to encourage the reformulation of drinks that are high in added sugar by levying a unit charge on UK producers and importers of such drinks. There is an exemption for smaller producers. For drinks that contain at least 5 grams (but less than 8 grams) of sugar per 100 millilitres of prepared drink, the SDIL will be charged at the rate of GBP 0.194 per litre of prepared drink; where the drink contains at least 8 grams of sugar per 100 millilitres, the SDIL will be charged at the rate of GBP 0.259 per litre of prepared drink. In the Autumn Budget the UK government announced that with effect from 1 January 2028 SDIL will be extended to milk-based drinks (which had previously been exempt), and the threshold for the application of SDIL lowered from 5 grams of sugar per 100ml to 4.5 grams per 100ml. 

Stamp taxes

Stamp duty is charged at 0.5% on instruments effecting sales of shares, rounded up to the next GBP 5. Agreements to sell shares usually attract stamp duty reserve tax (SDRT) at 0.5%. The liability to SDRT may be cancelled by paying the stamp duty due on a stock transfer form (or other transfer instrument) executed in pursuance of the agreement. Stamp duty is not usually charged on an issue of shares. Transfers of shares to clearance services or depositary receipt systems that are not an integral part of an issue of share capital may attract SDRT at 1.5% (stamp duty at 1.5% may be payable on instruments effecting transfers of shares to such services or systems). Transfers of bearer shares also attract stamp duty at 1.5%. From 27 November 2025, transfers of a company’s securities will be subject to relief from the 0.5% SDRT charge for three years from the date the company first lists on a UK regulated market.

Acquisitions of non-residential or mixed land and buildings in England and Northern Ireland are chargeable to stamp duty land tax (SDLT) at progressive rates of up to 5%; the 5% rate applies for the portion of the consideration exceeding GBP 250,000.

Acquisitions of residential property in England and Northern Ireland by companies and similar non-natural persons and by individuals acquiring second homes are charged at progressive rates of up to 17% (15% pre 31 October 2024) (whereas acquisitions by individuals who do not own any other properties or who are replacing their main residence are capped at 12%). The 17% or 12% rate applies to the portion of the consideration exceeding GBP 1.5 million. Companies and non-natural persons are subject to the 17% rate where the consideration exceeds GBP 500,000 and the company is not using the property for one of certain specific business purposes. An additional 2% surcharge also applies to the acquisition of residential property by non-resident purchasers, which can result in an applicable rate of up to 19%.

Grants of new commercial leases in England and Northern Ireland are chargeable to SDLT at 1% of the net present value (NPV) of the rents payable in excess of GBP 150,000 up to GBP 5 million and at 2% of the NPV in excess of GBP 5 million. SDLT is also payable at progressive rate of up to 5% on any premium paid.

Grants of residential leases in England and Northern Ireland are charged at 1% of the NPV of the rents payable in excess of GBP 125,000, plus up to 17% on any premium paid.

Purchases of land and buildings in Scotland are subject to Land and Buildings Transactions Tax (LBTT). Residential rates are graduated up to 12%, which applies for the portion of the consideration exceeding GBP 750,000. The Additional Dwellings Supplement (ADS) may also apply in respect of the purchase of second homes or buy-to-let properties, as well as certain acquisitions of residential interests by 'non-natural' persons. ADS applies to add an 8% (6% before 5 December 2024) surcharge to each consideration 'band'. In respect of non-residential interests, rates are graduated up to 5%; the top rate applies to the portion of the consideration exceeding GBP 250,000.

Acquisitions of non-residential leases in Scotland are chargeable to LBTT based on the NPV of rents over the term of the lease (calculated with reference to the first five years of the lease) as well as any premium payable. Rates are graduated up to 2% for any NPV of rents exceeding GBP 2 million. The tax due on the premium is calculated with reference to the non-residential freehold rates. A further LBTT return must be submitted on every third anniversary of the lease to take account of any changes that have taken place in the previous three years (e.g. to the rental payments) and any extensions or variations to the lease that have been agreed during that three-year period.

LBTT is not charged on the NPV of the rents payable on the grant of a residential lease in Scotland, with the exception of certain long leases treated as non-residential leases.

Acquisitions of land and buildings in Wales are subject to Land Transactions Tax (LTT). Residential rates are graduated up to 12%, which applies to the portion of the consideration exceeding GBP 1.5 million. The higher rates of LTT apply to add a 5% surcharge (4% before 11 December 2024) to each consideration band in respect of purchases of second homes and buy-to-lets as well as certain residential acquisitions by 'non-natural' persons. In respect of non-residential interests, rates are graduated up to 6%; the top rate applies to the portion of the consideration exceeding GBP 1 million.

Acquisition of non-residential leases in Wales are chargeable to LTT based on the NPV of rents over the term of the lease (calculated with reference to the first five years of the lease) as well as any premium payable. Rates are graduated up to 2% for any NPV of rents exceeding GBP 2 million. The tax due on the premium is calculated with reference to the non-residential freehold rates.

LTT is not charged on the NPV of the rents payable on the grant of a residential lease in Wales.

Annual tax on enveloped dwellings (ATED) and related capital gains tax charge

An annual tax on enveloped dwellings is charged on the acquisition and holding of high-value residential properties (property over GBP 500,000) through a company or other 'non-natural' person. From 1 April 2023, for properties acquired before 1 April 2022, this is based on the value of the property at 1 April 2022, and for properties acquired on or after 1 April 2022, this is based on the value at acquisition. The charge on a property worth GBP 20 million or more cannot exceed GBP 292,350 per annum from April 2025. The minimum charge is GBP 4,600 from April 2026 for a property valued at GBP 500,000.

There are certain reliefs that may be claimed to reduce the charge to nil, including where the residential property is let to third parties on a commercial basis or is part of the stock of a property trading company. There are also some complete exemptions from the regime, including charitable companies and public bodies.

See also ‘Capital gains on disposal of UK immovable property by non-UK residents’ in the Income determination section).

Payroll taxes

Other than employers’ national insurance contributions (NICs) (see below), there are no other payroll taxes, the burden of which falls on the employer. Employers are, however, responsible for deducting the employees’ income tax liability at source, through the pay-as-you-earn (PAYE) system. The employer may also be required to deduct other amounts from pay (e.g. court orders).

Employers' national insurance contributions (NICs)

Employers are obliged to pay NICs based on a percentage of each employee's earnings. For the year ending 5 April 2026, the rate is 15% on all earnings above GBP 96 per week.

Apprenticeship levy

Employers are required to pay 0.5% of their total payroll in excess of GBP 3 million to create a fund to support apprenticeships.

Pension protection fund levy

All defined benefit pension schemes pay a levy, based on pension fund liabilities and the financial risk of the employing company. This levy funds a compensation fund for pensioners and employees of failed schemes.

Bank levy

A bank levy in the form of an annual tax on certain liabilities of most UK-based banks and building societies. The calculation is based on the relevant liabilities on the last day of the accounting period. The tax is levied at the following annualised rates (for any periods on or after 1 January 2021):

• 0.10% of a bank's short-term relevant liabilities.
• 0.05% of long-term equity and liabilities.

The levy is not charged on the first GBP 20 billion of chargeable liabilities and is not deductible for corporation tax purposes. It is due for payment at the same time as corporation tax payments. From 2021, it no longer applies to overseas branches and subsidiaries held by the UK business.

Insurance premium tax (IPT)

IPT at the standard rate of 12% applies to premiums for most general insurance, such as for buildings and contents and motor insurance, where the insured risk is in the United Kingdom. Life assurance and other long-term insurance remain exempt, though there are anti-avoidance rules surrounding long-term medical care policies. As an anti-avoidance measure, a higher rate of 20% applies to insurance sold by suppliers of specified goods or services, e.g. mechanical breakdown insurance, travel insurance (irrespective of supplier), insurance sold with TV and car hire, and 'non-financial' guaranteed asset protection (GAP) insurance sold through suppliers of motor vehicles or persons connected with them. Further anti-avoidance rules affect administration or similar fees connected with contracts of insurance, charged under separate contracts by brokers and other intermediaries.

Airport passenger duty

Individuals leaving the United Kingdom by air are obligated to pay a duty, which, in practice, is invariably included in the cost of the air ticket. Typically, such taxes are borne by employers in respect of employee’s business travel. Further, significantly higher rates apply for travel in certain 'executive jets'.

Environmental taxes

There are several environmental taxes, including the following.

Landfill tax

The landfill tax is a tax on waste disposal in England and Northern Ireland, primarily at landfill sites, however the tax also encompasses disposals made at unauthorised sites (including ‘fly-tipping’). The standard rate increased from GBP 103.70 per tonne to GBP 126.15 per tonne from 1 April 2025. The reduced rate for inert waste increased from GBP 3.30 per tonne to GBP 4.05 per tonne from 1 April 2025. 

Landfill taxes have been devolved to Scotland and Wales and work to a slightly different legislative framework. Landfill disposals tax, which is the regime in Wales, and Scottish landfill tax, the regime in Scotland, are both currently charged at GBP 103.70 per tonne at the standard rate or GBP 3.30 at the lower rate.  There are penalty rates for unauthorised disposal of material on land other than at landfill sites.

Climate change levy (CCL)

Climate change levy is a tax on energy supplied to business consumers in the United Kingdom, such as electricity, gas, coal, etc., and is charged at rates that depend on the nature of the fuel. Gas and electricity rates of CCL are charged at GBP 7.75 per MWh consumed. There are reduced rates and exclusions from the charge, e.g. supplies to domestic or charitable users, some specific non-fuel uses and energy-intensive sectors committing to specific emissions/energy-saving measures.

The carbon price support (CPS) rate of CCL is applied to the use of gas in the generation of electricity at GBP 3.31 per MWh. CPS rates also apply to coal but coal is no longer used to fuel power stations in the UK.

Aggregates levy

The aggregates levy is a tax on the extraction or importation of sand, gravel, and crushed rock for commercial exploitation in the United Kingdom. The rate of tax is GBP 2.03 per tonne and will increase to GBP 2.08 per tonne from 1 April 2025. The Scottish Parliament is currently considering the devolution of aggregates levy to Scotland with effect from 1 April 2026.

Plastic packaging tax

The government introduced a tax on the production and import of plastic packaging from 1 April 2022. There is a de minimis of 10 tonnes imported or manufactured plastic packaging. This tax applies to plastic packaging that does not contain at least 30% recycled plastic. The rate of tax is GBP 223.69 from 1 April 2025. This includes importers of filled plastic packaging.

Extended Producer Responsibility for packaging

Extended Producer Responsibility (EPR) for packaging in the UK requires in‑scope businesses that supply or import packaging to register, report detailed packaging data and pay disposal costs that cover the full net costs of the household packaging waste they are responsible for.

The definition of ‘supply’ is broad – EPR captures businesses whose brand is on packaging, who distribute packaging, who pack/fill packaging, and who sell to the final consumer, amongst others.

Base EPR fees for the 2025/2026 assessment year have been confirmed (with invoices issued in October 2025), alongside ongoing PRN/PERN recycling obligations. For the 2026/2027 assessment year onwards, fees will be modulated according to the recyclability of packaging – which businesses must assess themselves using the Government's Recyclability Assessment Methodology (RAM).  Fees for packaging which receives a ‘Red’ recyclability rating are expected to double over the coming years.

Local municipal taxes

Local taxes are not based on income, but rather are levied on the occupiers of business property by reference to a deemed annual rental (or 'rateable') value for the property concerned. These taxes (known as 'business rates') are administered by regional local government authorities rather than central government. The amounts paid are deductible for corporation tax purposes, provided they meet all the usual requirements for deductibility.

Offshore Receipts in Respect of Intangible Property (ORIP) tax

In November 2023, the government announced that it would abolish the ORIP rules in respect of income arising from 31 December 2024. Legislation enacted in Finance Act 2025 now achieves this. The repeal of the ORIP rules takes place alongside the introduction of the UTPR, which the government considers will more comprehensively discourage the multinational tax-planning arrangements that ORIP sought to counter.

The final taxable period is the 2024/25 income tax year, for which amounts will be due and payable by 31 January 2026. Entities within scope of the ORIP rules for the 2024/25 period will only need to report UK derived amounts arising prior to 31 December 2024.