The UK tax system is one of the most complex in the world, shaped by centuries of development and constantly evolving to meet the fiscal and policy needs of government. It encompasses a wide range of taxes imposed on individuals, businesses, property owners and consumers, each designed to raise revenue, redistribute wealth, or influence behaviour. Understanding the structure and scope of the UK tax framework is critical for employers, finance directors, business owners and senior managers, as tax liabilities directly affect profitability, compliance and long-term planning.
What this article is about
The UK tax system covers a wide spectrum of obligations, from personal and business income through to property, investment, goods, and environmental charges. Core national taxes such as Income Tax, National Insurance, VAT and Corporation Tax underpin government revenue, while capital, property and local levies shape how assets and property are managed. Excise duties and environmental taxes influence consumption and behaviour, and vehicle or miscellaneous charges add further responsibilities for households and employers. This overview brings these categories together to show how they operate and why they matter for employers, finance leaders and business owners.
Section A: Core National Taxes
Core national taxes form the foundation of the UK revenue system. They apply broadly to individuals and businesses and account for the largest share of government income. For employers, directors and business owners, these taxes determine payroll obligations, company profit liabilities, and indirect costs on goods and services. Understanding how they interact is critical to financial planning and compliance.
You can read our extensive guide to Core National Taxes here >>
1. Income Tax
Income Tax is levied on the earnings of individuals, including salaries, self-employment profits, pensions and certain investment income. It is charged on a progressive basis, with higher rates applied to higher bands of income. Employers play a central role in its administration through the Pay As You Earn (PAYE) system, deducting tax at source from employee wages. For business leaders, accurate PAYE operation is a legal duty, while self-employed individuals must report and pay via Self Assessment.
You can read our extensive guide to Income Tax here >>
2. National Insurance
National Insurance Contributions (NICs) are payable by both employees and employers, funding the State Pension and other social security benefits. Employers must calculate and remit Class 1 NICs for their workforce, while self-employed individuals pay Class 2 and Class 4 contributions. Rates and thresholds change annually, meaning payroll systems require regular updates. For businesses, NICs represent a significant cost of employment, influencing staffing budgets and remuneration strategies.
You can read our extensive guide to National Insurance here >>
3. Value Added Tax (VAT)
VAT is a consumption tax levied on most goods and services at the point of sale. Businesses with turnover above the registration threshold must charge VAT on taxable supplies and remit it to HMRC, offsetting input VAT on purchases. For employers, VAT compliance affects invoicing, accounting systems and pricing. Mismanagement can lead to substantial penalties, making strong VAT control essential. International trading businesses must also contend with complex import and export VAT rules.
You can read our extensive guide to VAT here >>
4. Corporation Tax
Corporation Tax is charged on the profits of UK companies and some non-UK companies with UK operations. It is a key determinant of business profitability after tax and is payable annually, with large companies often required to make quarterly instalments. Directors and finance teams must ensure that taxable profits are accurately calculated, reliefs and allowances applied correctly, and payments made within deadlines. Changes to Corporation Tax rates and rules are a regular feature of UK budgets, meaning ongoing monitoring is necessary.
Section Summary
Core national taxes — Income Tax, National Insurance, VAT and Corporation Tax — form the backbone of the UK tax system. They touch every aspect of employment and business operations, from payroll management to corporate profitability and consumer pricing. For employers and finance leaders, careful compliance and forward planning are vital to avoid penalties, optimise tax positions, and maintain sound governance.
You can read our extensive guide to Corporation Tax here >>
Section B: Capital & Wealth Taxes
While core national taxes dominate government revenues, capital and wealth taxes play a crucial role in regulating asset ownership, investment, and intergenerational transfers of wealth. These taxes can have significant implications for business owners, investors, and families, particularly when planning disposals, succession, or estate management. Understanding their application is essential for structuring finances efficiently and avoiding unexpected liabilities.
You can read our extensive guide to Capital & Wealth Taxes here >>
1. Capital Gains Tax (CGT)
Capital Gains Tax is charged on the profit made when disposing of certain assets that have increased in value, such as property, shares, or business assets. The tax applies to individuals, trustees, and personal representatives of estates, with different rates depending on the taxpayer’s Income Tax band and the type of asset.
For employers and business owners, CGT is particularly relevant on the sale of business interests, shares, or investment properties. Reliefs such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce the effective tax rate, making advance planning essential. Additionally, reporting deadlines are strict: for example, gains on UK residential property must be reported and tax paid within 60 days of completion.
You can read our extensive guide to Capital Gains Tax here >>
2. Inheritance Tax (IHT)
Inheritance Tax is levied on the transfer of estates above the nil-rate band, currently £325,000, with additional allowances available in specific circumstances such as the residence nil-rate band for passing a family home to direct descendants. The standard rate is 40% on the value above the threshold.
From a business perspective, IHT is highly relevant to succession planning. Business Property Relief (BPR) can provide significant exemptions where qualifying business assets are passed on, but eligibility conditions are tightly defined. Employers who own family companies or partnerships must take care to structure ownership and estate plans with IHT in mind, often requiring professional advice to mitigate exposure.
You can read our extensive guide to Inheritance Tax here >>
Section Summary
Capital and wealth taxes — CGT and IHT — are critical for individuals and businesses with significant assets. They require forward-looking planning to manage disposals and succession effectively. For business owners in particular, these taxes influence decisions on investment, retirement, and passing wealth to the next generation, making them a central element of long-term financial strategy.
Section C: Property and Local Taxes
Property and local taxes apply to both individuals and businesses in their capacity as property owners, tenants or occupiers. These taxes are a major cost centre, particularly for companies with significant property holdings or multiple operating locations. They also represent key sources of revenue for local and devolved governments, funding essential services.
You can read our extensive guide to Property and Local Taxes here >>
1. Stamp Duty Land Tax (SDLT)
SDLT is payable on land and property transactions in England and Northern Ireland. The tax is calculated on a tiered basis, with higher rates applying to second homes, buy-to-let properties, and non-resident purchasers (subject to the 2% surcharge). For businesses, SDLT arises when acquiring commercial property, with rates depending on the value and whether the property is freehold or leasehold. Employers and finance directors must consider SDLT as part of acquisition costs when expanding premises or restructuring operations.
You can read our extensive guide to Stamp Duty Land Tax here >>
2. Land and Buildings Transaction Tax (LBTT)
In Scotland, SDLT has been replaced by LBTT, which applies similar principles but with distinct bands and rates set by the Scottish Government. LBTT also includes the Additional Dwelling Supplement, which applies to purchases of second homes. For businesses operating across multiple UK jurisdictions, understanding the differences between SDLT and LBTT is essential to ensure accurate budgeting and compliance.
You can read our extensive guide to LBTT here >>
3. Council Tax
Council Tax is a local charge on domestic property in England, Scotland and Wales, based on property valuation bands and payable by occupiers. While primarily a household tax, it can indirectly affect employers, particularly those providing staff accommodation or relocating employees, as it represents a material living cost. Council Tax funds local services such as waste collection, policing, and social care.
You can read our extensive guide to Council Tax here >>
4. Business Rates
Business Rates are charged on non-domestic properties, including offices, factories, warehouses and shops. Valuations are carried out by the Valuation Office Agency in England and Wales, with rates bills issued by local councils. Business Rates are one of the largest recurring costs for many companies, especially in retail, hospitality, and manufacturing. Reliefs may be available, such as small business rate relief or sector-specific support during economic downturns, but compliance with billing and payment is a continuing obligation for employers.
You can read our extensive guide to Business Rates here >>
Section Summary
Property and local taxes — SDLT, LBTT, Council Tax and Business Rates — directly impact both households and businesses. For employers, they represent substantial acquisition and occupancy costs and vary depending on jurisdiction. Sound planning, awareness of reliefs, and regular monitoring of rate changes are vital to managing financial exposure.
Section D: Excise & Environmental Taxes
Excise and environmental taxes are targeted levies applied to specific goods, services, or activities. They are designed not only to raise revenue but also to influence behaviour, discourage harmful consumption, and support environmental goals. For businesses, these taxes often translate into higher operating costs, compliance requirements, and pricing considerations, particularly in sectors such as transport, hospitality, manufacturing, and energy.
You can read our extensive guide to Excise & Environmental Taxes here >>
1. Fuel Duty
Fuel Duty is charged on petrol, diesel and other fuels used in vehicles, with the rates set per litre. It represents a significant cost for logistics, transport, and delivery-based businesses. Fuel Duty has been frozen for many years, but its potential reform remains a recurring policy issue. Employers with large vehicle fleets must account for its impact on operating margins.
You can read our extensive guide to Fuel Duty here >>
2. Alcohol Duty
Alcohol Duty applies to the production and import of alcoholic drinks, with rates varying by product type and alcohol strength. Breweries, distilleries, pubs, and hospitality businesses must calculate and pay this duty accurately. It is often passed through to consumers in retail pricing, but errors in compliance can result in penalties and reputational damage.
You can read our extensive guide to Alcohol Duty here >>
3. Gambling Taxes
Gambling businesses are subject to specific duties, including Remote Gaming Duty, General Betting Duty and Pool Betting Duty. These apply to betting operators and gaming providers rather than consumers directly. Compliance is strictly monitored by HMRC, and the sector’s regulatory landscape continues to evolve, requiring ongoing vigilance from operators.
You can read our extensive guide to Gambling Taxes here >>
4. Insurance Premium Tax (IPT)
IPT is a tax on insurers, applied to most general insurance premiums such as home, motor and commercial insurance. For businesses, IPT increases the cost of insuring property, vehicles, and liabilities. As insurance is a mandatory expense in many industries, IPT can be a hidden but material burden on operating budgets.
You can read our extensive guide to IPT here >>
5. Soft Drinks Industry Levy
Commonly known as the “sugar tax,” the Soft Drinks Industry Levy applies to producers and importers of sugary soft drinks. It aims to incentivise reformulation and reduce sugar consumption. For companies in the food and beverage sector, the levy affects product pricing and strategic decision-making on product development.
You can read our extensive guide to the Soft Drinks Levy here >>
6. Air Passenger Duty (APD)
Air Passenger Duty is paid by airlines on flights departing UK airports, with costs typically passed on to passengers. Rates vary depending on destination and class of travel. APD is a significant factor for airlines and affects businesses with high travel volumes, influencing ticket prices and corporate travel budgets.
You can read our extensive guide to Air Passenger Duty here >>
7. Tobacco Duty
Tobacco Duty applies to manufactured tobacco products, including cigarettes, cigars and hand-rolling tobacco. Its public policy purpose is to discourage smoking, but it also provides substantial revenue. Retailers and importers are primarily responsible for compliance, but the duty has wider commercial effects on pricing and demand.
You can read our extensive guide to Tobacco Duty here >>
8. Climate Change Levy (CCL)
The Climate Change Levy is an environmental tax on the use of energy by businesses, including electricity, gas, and solid fuels. Certain industries can benefit from exemptions or reduced rates under Climate Change Agreements if they commit to energy efficiency targets. For employers, CCL represents both a financial cost and an incentive to pursue greener operations.
You can read our extensive guide to Climate Change Levy here >>
Section Summary
Excise and environmental taxes are narrow in scope but wide in impact, targeting specific sectors and behaviours. They impose direct compliance duties on businesses in energy, transport, insurance, hospitality, and manufacturing. For employers, these taxes must be factored into operational budgets and strategic planning, particularly as environmental policy continues to evolve.
Section E: Vehicle & Miscellaneous Taxes
Alongside national, capital, property and excise taxes, there are additional levies that apply to vehicles and other specific areas of public funding. While narrower in scope, these taxes affect both households and employers, particularly those with fleets, company cars, or media usage obligations.
You can read our extensive guide to Vehicle & Miscellaneous Taxes here >>
1. Vehicle Excise Duty (VED)
Commonly known as road tax, Vehicle Excise Duty is charged on vehicles used on UK roads. Liability depends on factors such as vehicle type, age, CO₂ emissions and fuel type. Employers operating company car schemes or commercial fleets must ensure VED is correctly paid, as failure to comply can result in fines and the vehicle being deemed unlicensed. The shift toward low-emission and electric vehicles has led to evolving VED structures, incentivising greener choices but complicating compliance.
You can read our extensive guide to Vehicle Excise Duty here >>
2. TV Licence
The TV Licence is a statutory charge payable by households and businesses to legally watch or record live television broadcasts or use BBC iPlayer. Businesses such as hotels, pubs, and offices with televisions or streaming services must ensure they hold the appropriate licence. The TV Licence funds the BBC and enforcement is strict, with fines imposed for non-payment. For employers, this represents a regulatory cost rather than a traditional tax but is nonetheless part of the UK’s fiscal framework.
You can read our extensive guide to the TV Licence here >>
Section Summary
Vehicle and miscellaneous taxes are more targeted than the main revenue streams but still carry significant obligations. For businesses, VED influences fleet management and environmental strategy, while the TV Licence can affect compliance in workplaces providing media access. Though narrower in scope, these taxes reflect the UK’s diverse approach to revenue raising and regulation.
FAQs
What are the main types of UK tax?
The UK tax system is divided into broad categories: core national taxes such as Income Tax, National Insurance, VAT and Corporation Tax; capital and wealth taxes such as Capital Gains Tax and Inheritance Tax; property and local taxes like SDLT, LBTT, Council Tax and Business Rates; excise and environmental taxes covering fuel, alcohol, tobacco, energy, and air travel; and vehicle or miscellaneous charges including Vehicle Excise Duty and the TV Licence.
Which taxes apply to individuals and which to businesses?
Individuals are primarily affected by Income Tax, National Insurance, Council Tax, CGT and IHT. Businesses face Corporation Tax, VAT, Business Rates, IPT, and sector-specific duties like Alcohol Duty or Climate Change Levy. Both individuals and businesses may also be subject to property transaction taxes such as SDLT or LBTT.
How do national, local and excise taxes interact?
National taxes are levied by central government and collected by HMRC, whereas local taxes like Council Tax and Business Rates are collected by local authorities. Excise and environmental taxes are applied on specific goods or services and may overlap with VAT, meaning businesses often need to account for multiple taxes on a single transaction or activity.
Which UK taxes raise the most revenue?
Income Tax, VAT, National Insurance and Corporation Tax are the largest contributors to the Exchequer. Excise duties and local taxes raise smaller but still significant amounts, while environmental levies reflect the government’s policy objectives as much as revenue needs.
What tax changes are most likely in future budgets?
Future changes often focus on Corporation Tax rates, Income Tax thresholds, NIC adjustments, and the scope of environmental levies such as the Climate Change Levy. Policy debates also continue around Business Rates reform, Inheritance Tax thresholds, and incentives for investment in green technologies. Employers should monitor HM Treasury announcements closely to anticipate and plan for upcoming changes.
Conclusion
The UK tax system is diverse, complex and constantly evolving. From the broad-based core taxes that fund most public spending to narrower excise duties and environmental levies designed to influence behaviour, every business and individual faces a combination of obligations.
For employers, finance directors and business owners, these obligations extend far beyond simply paying the correct amount on time. They require the integration of tax planning into payroll systems, investment strategies, property acquisitions, and succession planning. Failure to manage tax compliance can result in significant penalties, reputational risk, and financial strain, whereas proactive management can optimise efficiency and strengthen long-term governance.
Taken together, UK taxation is not just about raising revenue. It is also a policy tool shaping economic decisions, redistributing wealth, and driving environmental change. By understanding the categories of tax, their scope, and their practical implications, employers and decision-makers can better anticipate risks, identify opportunities, and ensure their organisations remain compliant and financially resilient.
Glossary
| Income Tax | Tax on the earnings and income of individuals, collected mainly through PAYE or Self Assessment. |
| National Insurance (NICs) | Contributions made by employees, employers and the self-employed to fund the State Pension and certain benefits. |
| VAT (Value Added Tax) | A consumption tax charged on most goods and services supplied in the UK. |
| Corporation Tax | Tax on the profits of UK companies and certain non-UK companies with UK activities. |
| Capital Gains Tax (CGT) | Tax on profits from the sale or disposal of assets that have increased in value. |
| Inheritance Tax (IHT) | Tax on the estate of a deceased person or on certain transfers made during lifetime. |
| Stamp Duty Land Tax (SDLT) | Tax on land and property transactions in England and Northern Ireland. |
| Land and Buildings Transaction Tax (LBTT) | The Scottish equivalent of SDLT, charged on land and property purchases. |
| Council Tax | Local authority tax on domestic property, based on valuation bands. |
| Business Rates | Local tax on non-domestic property, payable by occupiers of commercial premises. |
| Fuel Duty | Excise duty charged on petrol, diesel and other vehicle fuels. |
| Alcohol Duty | Excise duty levied on the production and import of alcoholic beverages. |
| Gambling Duties | Taxes on gambling operators, including betting and gaming activities. |
| Insurance Premium Tax (IPT) | Tax charged on most general insurance premiums. |
| Soft Drinks Industry Levy | Commonly called the “sugar tax,” applied to producers and importers of sugary soft drinks. |
| Air Passenger Duty (APD) | Tax on airlines for flights departing UK airports, passed on to passengers. |
| Tobacco Duty | Excise duty levied on cigarettes, cigars and other tobacco products. |
| Climate Change Levy (CCL) | Environmental tax on energy supplied to businesses, with exemptions available under Climate Change Agreements. |
| Vehicle Excise Duty (VED) | Also known as “road tax,” charged on vehicles used on UK roads. |
| TV Licence | Statutory charge funding the BBC, required to watch or record live TV or use BBC iPlayer. |
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Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
