Main Types of Tax in the UK

The UK tax system raises money in several main ways. Each tax has a different purpose and affects people in different situations.

1. Income Tax
Income Tax is paid on most types of income, such as wages, salaries, bonuses and some benefits. Everyone gets a tax‑free Personal Allowance up to a certain amount each year. Above that, tax is charged in bands (basic, higher and additional rate), so the more you earn, the higher the rate on the top slice of your income.

2. National Insurance Contributions (NICs)
National Insurance is not called a “tax”, but it works like one. Employees, employers and the self‑employed pay NICs on earnings above certain thresholds. These contributions help you qualify for state benefits such as the State Pension, maternity allowance and some unemployment benefits.

3. Value Added Tax (VAT)
VAT is a tax on spending. It is added to most goods and services sold in the UK. The standard rate is charged on most items, but some goods have a reduced rate or are zero‑rated (for example, most food and children’s clothes). Businesses that are VAT‑registered collect VAT from customers and pass it on to HMRC.

4. Capital Gains Tax (CGT)
Capital Gains Tax is paid on the profit when you sell or dispose of certain assets, such as shares, investment properties or valuable items. You are taxed on the gain (the difference between what you paid and what you sold it for), after any allowances and reliefs. Your main home is usually exempt.

5. Corporation Tax
Corporation Tax is paid by limited companies on their profits. The company calculates its taxable profit, applies the correct rate and pays the tax directly to HMRC. This is separate from any Income Tax paid by directors or shareholders on their own income.

6. Other Taxes
There are several other UK taxes, including:

Council Tax – paid to local councils based on the value of your home.
Stamp Duty Land Tax (SDLT) – paid when you buy property or land above certain price thresholds.
Inheritance Tax (IHT) – charged on the value of an estate above a set allowance when someone dies.