An individual will be required to pay tax on his/her income if he/she come to live in the United Kingdom. Here, income comprises of earnings from pension, other state benefits an individual might receive, interest earned on savings, and wage received from employer. The tax payable by an individual will be on the income above his/her Personal Allowance. In the UK, each individual receives a tax-free Personal Allowance which is set at £11,850 for tax year 2018/19 (personal allowance for tax year 2017/18 was £11,500), and the person is liable to pay Income Tax on earnings that are over and above the personal allowance. A tax year starts from 6th April of any year to 5th April of the subsequent year. However, no tax is payable if an individual visits the United Kingdom on a short trip such as a business meeting or professional training. Taxes are payable to HM Revenue and Customs (HMRC) and in case of any dispute, an individual can contact the department and seek clarification.
How can an individual pay taxes in the UK
If an individual is employed in the UK, the income tax is deducted for the wage by his/her employer. This is the most common means of paying taxes in the United Kingdom and is commonly referred to as Pay-As-You-Earn (PAYE) system, where a pension provider or employer decreases the wage amount by the tax an individual owes. But in case a person is working for himself (self-employed) or has other sources of income in the UK, then he/she will have to send a Self-Assessment tax return to HMRC. Additionally, there are other situations as well where an individual might have to send a Self-Assessment tax return; these situations comprise of earnings from selling some assets, such as house or shares. Also, if an individual has to pay United Kingdom income tax on foreign income, then too he/she is liable to send a Self-Assessment tax return to the HMRC. Foreign income can be defined as savings in a foreign bank account, earning rent from a rental property, or a foreign pension scheme. Furthermore, an individual may have to pay tax on gains or income made while he/she is staying abroad.
Understanding National Insurance
If an individual is working in the United Kingdom, he/she is generally expected to have a National Insurance (NI) number and pay National Insurance on their income. The mode of payment of National Insurance will be governed by the fact that whether an individual is self-employed or employed by somebody in the UK. A National Insurance (NI) number is mandatory for an individual who desires to work in the United Kingdom or be entitled for state benefits. He/she must apply for a NI number and should also be able to validate that he/she is permitted to work in the United Kingdom.
A person will not be required to get a National Insurance number or pay national insurance if any of the following are applicable for an individual:
- A certificate or permit from a nation that is in bilateral agreement, with the United Kingdom, on social security
- If a person has a Portable Document E101/A1/E102 that validates that he/she pays National Insurance in a different European Economic Area (EEA) country
- An individual can use the postal form service or online form service to file in an application form A1/E101 to make sure that he/she remains in the United Kingdom National Insurance scheme. This form is used when a person is self-employed in the United Kingdom and goes outside the country (within the EEA) to work temporarily. This form will help HMRC to decide which member state’s social security legislation will be applicable
Nations which, at present, have a bi-lateral contract with the United Kingdom include:
- United States of America
- Republic of Korea
- Isle of Man
- Bosnia and Herzegovina
An individual will not have to pay National Insurance for the initial 52 weeks of working in the United Kingdom if both of the below mentioned statements hold true:
- If the person is sent by an employer (from his/her home country) to carry out professional work activities in the United Kingdom
- If a person has come from a nation that doesn’t have a bi-lateral contract with the United Kingdom or isn’t part of the EEA
Tackling double taxation
There might be a scenario where an individual is taxed twice on the same gains or income. The United Kingdom has entered into a double-taxation contract with numerous other countries to prevent such issues.
Who meet the requirements of being a UK Resident
An individual is by default considered a UK resident if either:
- He/she spends 183 days or more during a tax year in the United Kingdom
- If an individual’s only home was in the United Kingdom – the person must have owned or rented it or stayed in it for a minimum period of 91 days
Other tax rate facts for tax year 2018/19
|2018/19||Tax Rate||2017/18||Tax Rate|
|Individuals - UK|
|Starting rate||From £1 to £5,000||20%||From £1 to £5,000||20%|
|Basic rate||From £5,001 to £34,500||20%||From £5,001 to £33,500||20%|
|Higher rate||From £34,501 to £150,000||40%||From £33,501 to £150,000||40%|
|Additional rate||In excess of £150,000||45%||In excess of £150,000||45%|
|Individuals - Scottish income tax|
|Starter rate||From £1 to £2,000||19%||Not applicable|
|Basic rate||From £2,001 to £12,150||20%||From £1 to £31,500||20%|
|Intermediate rate||From £12,151 to £31,580||21%||Not applicable|
|Higher rate||From £31,581 to £150,000||41%||From £31,501 to £150,000||40%|
|Top/Additional rate||In excess of £150,000||46%||In excess of £150,000||45%|
|Standard rate||From £1 to £1,000||20%||From £1 to £1,000||20%|
|Trust rate||In excess of £1,000||45%||In excess of £1,000||45%|
Also See: Limited Company Formation
Any questions? Schedule a call with one of our experts.