The UK tax system consists of several different types of taxes, both national and county. The national UK tax system is administered by Her Majesty’s Revenue and Customs (Her Majesty's Revenue and Customs, now known as HMR More), which collects income taxes, Value Added Tax is basically a sales tax, as of June 2023, the current rate is 20%. More and National Insurance Contributions (NIC) to fund public services. Changes to tax typically roll out annually with the government budget, as announced by the Chancellor of the Exchequer.

Income Taxes in the UK

Income Tax is very similar to the USA, taken directly from your pay. However, there are no tax returns to fill out every year, unless you are self-employed. Self-employed individuals, and company directors, must file a Self Assessment tax return each year.

The Inland Revenue calculates a simpler tax for everyone, without deductions for dependents and expenses. This tax includes Pay As You Earn (Pay As You Earn - UK Income Tax Scheme, deducted every paycheck More) and National Insurance contributions. There are different bands of income tax, with the rate of tax increasing as income increases.

Instead of the tax year aligning with the calendar year, it runs from April 6 to April 5th of the following year. This does make your US expat taxes more complicated as you’ll need to track your income manually. I’ve typically used a simple spreadsheet to do this. With most workers being paid monthly, it’s only twelve entries.

National Insurance Contributions (NICs)

These are payments made by employees and employers towards certain state benefits, such as the State Pension and unemployment benefits. The amount paid depends on a person’s employment status and how much they earn.

Tax Credits

Some families are also entitled to tax credits similar to Earned Income Credit. In the UK these are called Child Tax Credit and Working Tax Credits. These are based on family income, and can supplement a large portion of childcare costs, with payments made monthly or weekly via direct deposits. For more information, see https://www.gov.uk/child-tax-credit.

Note that if your passport visa states that you have no recourse to public funds, you are not eligible for tax credits or other benefits. However, if your spouse or child is a British citizen, they can still get tax credits, while you cannot. There are other exceptions. ¹

Value Added Tax (VAT)

Sales taxes are nearly invisible, they are already calculated into costs of goods, so the price you see is the price you pay at the till or checkout. VAT is currently 20%. It is applied to all goods/services except children’s clothes and some food products such as milk. ² A reader pointed out that “Actually, all fresh food, vegetables etc, that are not processed or cooked are VAT free as is bread and some other essentials. All books and magazines, newspapers etc are VAT free as well.”

It’s interesting to note that the VAT rate was reduced to 15% during the recession in 2009 but was revised to 17.5% in January 2010. It was then increased to 20% in January 2011.

Other UK Taxes

Council Tax

Council Tax is the equivalent of property tax. It is paid by tenants/residents, not landlords of rented property, to the local council (city or county). This is a local tax set by local authorities to help pay for local services like Trash or garbage, British term. More collection, local infrastructure and emergency services. The amount of council tax due depends on the value of the property and the tax rate set by the local authority. Properties are grouped into tax bands, (A, B, C, D..), which determines the tax rate.

Road Tax

Part of owning a vehicle means paying road tax, which is similar to renewing license plates in the USA. In the UK, the license plate is permanently associated to the vehicle, and until 2014, everyone needed to display their tax disc, proof of payment, in the front window. These were abolished but there is still a requirement to pay the renewal fees.

You can pay your road tax online with the reference number from:

• a recent vehicle tax reminder or ‘last chance’ warning letter from DVLA
• your vehicle log book (V5C) – it must be in your name
• the green ‘new keeper’ slip from a log book if you’ve just bought it 

In order to pay road tax, your vehicle must have a valid MOT test pass certificate and be insured. If it is expired, you will not be able to renew your road tax. ³ You can also pay your UK road tax in person at a post office. 

If you have a car that is in storage, off the road for some time, you can get a lower road tax rate by making a SORN. Learn more at https://www.gov.uk/make-a-sorn.

References

1.  Tax credits if you leave or move to the UK. (2023). Retrieved 29 July 2023, from https://www.gov.uk/tax-credits-if-moving-country-or-travelling/immigration-control 

2. Tax on shopping and services. (2023). Retrieved 29 July 2023, from https://www.gov.uk/tax-on-shopping 

3. Legal obligations of drivers and riders . (2023). Retrieved 29 July 2023, from https://www.gov.uk/legal-obligations-drivers-riders