UK tax laws affect almost every individual and organisation, from employees and sole traders to landlords, investors and limited companies. The rules determine how income is taxed, when businesses must register for VAT, what employers must deduct through payroll and how profits or gains should be reported to HM Revenue and Customs.

Although some taxes are deducted automatically, many responsibilities remain with the taxpayer. Failing to register, report income or submit a return on time can lead to interest, penalties and HMRC enquiries.

This guide explains the main UK tax laws applying during the 2026/27 tax year. As individual circumstances differ, professional advice should always be obtained before making important tax or financial decisions.

How the UK Tax System Works

The UK tax system is administered primarily by HMRC. Tax may be collected automatically through PAYE, reported through Self Assessment or paid directly by businesses through systems such as Corporation Tax and VAT.

The UK personal tax year runs from 6 April to 5 April. The current 2026/27 tax year began on 6 April 2026 and ends on 5 April 2027. Corporation Tax financial years, however, normally begin on 1 April.

The amount of tax due depends on several factors, including:

The taxpayer’s residence and employment status
The type and amount of income received
Whether the individual is employed or self-employed
The legal structure of a business
Available allowances, expenses and reliefs
Profits from property or investments
Capital gains made when assets are sold
Whether VAT registration is required

Understanding which rules apply is essential because different types of income can be taxed in different ways.

Income Tax Laws in the UK

Income Tax can apply to employment earnings, self-employment profits, pensions, rental income, savings, dividends and certain overseas income.

For the 2026/27 tax year, the standard Personal Allowance is £12,570. This is the amount most people can earn before paying Income Tax.

For taxpayers in England, Wales and Northern Ireland, the main rates are:

20% on taxable income within the basic-rate band
40% on taxable income within the higher-rate band
45% on taxable income within the additional-rate band

With the standard Personal Allowance, the basic rate normally applies to income between £12,571 and £50,270. The higher rate applies between £50,271 and £125,140, while the additional rate applies above £125,140.

The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is normally removed completely when adjusted net income reaches £125,140.

Scotland has different Income Tax bands and rates for earnings such as employment, pension and self-employment income. The current rates and regional differences can be checked through HMRC’s Income Tax rates and allowances guidance.

National Insurance Contributions

National Insurance is separate from Income Tax, although employees usually see both deductions on their payslips.

For most employees in 2026/27, Class 1 National Insurance is charged at 8% on earnings between the primary threshold and upper earnings limit. A 2% rate applies to earnings above the upper earnings limit.

Self-employed individuals with profits above £12,570 normally pay Class 4 National Insurance at:

6% on profits between £12,570 and £50,270
2% on profits above £50,270

Eligible self-employed people with lower profits can be treated as having made Class 2 contributions for the purpose of protecting their National Insurance records. Some may also choose to make voluntary Class 2 contributions.

HMRC provides the current figures in its National Insurance rates guidance.

Self-Employment Tax Laws

Sole traders are taxed personally on their business profits. Tax is not based simply on the money withdrawn from the business bank account. It is generally calculated using taxable income less allowable business expenses.

Allowable expenses may include accountancy fees, business insurance, advertising, office costs, staff wages, subcontractor costs and qualifying travel expenses. The expense must normally be incurred for business purposes and supported by appropriate records.

Sole traders should keep invoices, receipts, bank statements and other accounting records. Personal expenses must not be claimed as business costs, while expenses with both personal and business use may require a reasonable adjustment.

A person earning a small amount of gross trading income may be able to use the £1,000 trading allowance. However, the allowance is not automatically the best option for everyone, particularly when actual allowable expenses exceed £1,000.

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax began on 6 April 2026 for qualifying sole traders and landlords.

Individuals with combined qualifying gross income from self-employment and property exceeding £50,000 for the 2024/25 tax year should have started using the system from April 2026.

The programme is scheduled to expand as follows:

Qualifying income above £30,000: from 6 April 2027
Qualifying income above £20,000: from 6 April 2028

Those within the rules must use compatible software to maintain digital records and send quarterly updates to HMRC. They must also complete their end-of-year reporting obligations.

Receiving no letter from HMRC does not automatically remove the taxpayer’s responsibility to check whether the rules apply. The latest requirements are available in HMRC’s Making Tax Digital for Income Tax guidance.

Self Assessment Tax Return Laws

Self Assessment is the system used to report income and gains that have not been fully taxed automatically.

A return may be required if you are self-employed, receive rental income, have substantial dividends or savings income, dispose of taxable assets or receive income from overseas. HMRC may also issue a formal notice requiring a return.

For the 2025/26 tax year, the principal upcoming deadlines are:

5 October 2026: Register if you need to complete a return and have not already done so
31 October 2026: Submit a paper tax return
30 December 2026: Submit online if you want HMRC to consider collecting qualifying tax through your PAYE code
31 January 2027: Submit the online return and pay the tax due

Some taxpayers must also make payments on account towards their next tax bill, with instalments generally due on 31 January and 31 July.

The official dates are explained in HMRC’s Self Assessment deadlines guidance.

Tax Laws for Limited Companies

A limited company is a separate legal entity from its directors and shareholders. It must maintain accounting records, prepare annual accounts and submit a Company Tax Return when required.

Corporation Tax is calculated on taxable company profits, including trading profits, investment income and certain chargeable gains.

The Corporation Tax rates are:

19% small-profits rate for qualifying companies with profits of £50,000 or less
25% main rate for companies with profits above £250,000
Marginal Relief for qualifying profits between £50,000 and £250,000

These thresholds can be reduced when the company has associated companies or a short accounting period. This means that a group of connected companies may reach the main rate sooner than expected.

Further information is available in HMRC’s Corporation Tax rates guidance.

Companies must normally pay Corporation Tax before the deadline for submitting the Company Tax Return. For many companies, payment is due nine months and one day after the end of the accounting period, while the return is normally due twelve months after the period ends.

Salary and Dividend Tax for Directors

Company directors may receive income through salary, dividends or a combination of both. Each method has a different tax treatment, and dividends can only be paid from legally available distributable profits.

For 2026/27, the dividend allowance is £500. Dividend income above the allowance is taxed according to the shareholder’s Income Tax band.

The applicable dividend rates are:

10.75% for basic-rate taxpayers
35.75% for higher-rate taxpayers
39.35% for additional-rate taxpayers

The taxpayer’s salary, rental income, savings and other taxable income can affect which dividend rate applies. The official figures are provided in HMRC’s dividend tax guidance.

Directors should also be careful with money taken from the company that has not been treated as salary, expenses or dividends. Such withdrawals may create a director’s loan account, which can have tax consequences for both the director and the company.

VAT Laws for UK Businesses

VAT is a tax charged on many goods and services. A business must normally register if its VAT-taxable turnover exceeds £90,000 over a rolling twelve-month period or if it expects to exceed the threshold within the relevant future period.

The test does not use only the accounting year or calendar year. Turnover must be monitored continuously.

Most goods and services are subject to the standard VAT rate of 20%. Some are charged at 5% or 0%, while others may be exempt or outside the scope of VAT.

Businesses below the compulsory threshold can sometimes register voluntarily. This may be beneficial when customers are VAT-registered and the business incurs significant VAT on its costs. However, voluntary registration also creates administrative responsibilities and may increase prices for customers who cannot recover VAT.

HMRC explains the registration requirement in its VAT thresholds guidance.

Payroll and PAYE Laws

Businesses employing staff must normally register as employers and operate PAYE. Employers are responsible for calculating Income Tax, employee National Insurance, employer National Insurance, pension deductions and other relevant amounts.

Payroll information must usually be reported to HMRC through a Full Payment Submission on or before the employee’s payment date.

For 2026/27, most employers pay employer National Insurance at 15% on earnings above the relevant secondary threshold. Different rules or reliefs may apply to certain employees, including apprentices, veterans and workers in designated Freeports or Investment Zones.

Employers must also comply with workplace pension auto-enrolment requirements. This includes assessing eligible workers, making the required contributions and completing re-enrolment duties.

Late or inaccurate payroll submissions can produce incorrect tax records, penalties and difficulties for employees.

Capital Gains Tax Laws

Capital Gains Tax can arise when an individual disposes of an asset that has increased in value. The tax is generally charged on the gain rather than the full sale proceeds.

Taxable disposals may include:

Shares held outside an ISA
Second homes and rental properties
Business assets
Land
Valuable personal possessions
Cryptocurrency and other digital assets

For 2026/27, the annual exempt amount for most individuals is £3,000. Individuals generally pay Capital Gains Tax at 18% or 24%, depending on their taxable income and the nature and amount of the gain.

Gains qualifying for Business Asset Disposal Relief are taxed at 18% for disposals from 6 April 2026, provided all eligibility conditions are satisfied.

Losses, acquisition costs, legal fees and qualifying improvement expenditure may affect the taxable gain. The latest figures are provided in HMRC’s Capital Gains Tax rates and allowances guidance.

Certain disposals of UK residential property must be reported and the estimated tax paid within a separate deadline. Taxpayers should therefore seek advice at the time of sale rather than waiting for their annual Self Assessment return.

Tax Laws for Landlords

Individual landlords normally pay Income Tax on taxable rental profits. Allowable costs may include letting-agent fees, insurance, repairs, maintenance and certain professional expenses.

Improvements are generally treated differently from repairs. Replacing a damaged item with a modern equivalent may be a repair, while substantially upgrading or extending a property may be capital expenditure.

Individual residential landlords cannot usually deduct all mortgage interest as an ordinary expense. Instead, qualifying finance costs may generate a basic-rate tax reduction. Different rules can apply to companies holding property.

Landlords should also consider Capital Gains Tax when selling properties, Stamp Duty Land Tax when purchasing property in England or Northern Ireland, and Inheritance Tax as part of long-term estate planning.

Inheritance Tax Laws

Inheritance Tax can apply to an individual’s estate, including property, money and possessions.

The standard nil-rate band is £325,000. Where a qualifying home is passed to direct descendants, the total tax-free threshold can potentially increase to £500,000 through the residence nil-rate band.

Unused allowances may sometimes transfer between spouses or civil partners. The standard Inheritance Tax rate is 40% on the taxable portion of an estate, although exemptions and reliefs may reduce the final liability.

Lifetime gifts can also affect an estate. Some gifts are immediately exempt, while others can remain relevant if the donor dies within seven years.

Because estate-planning decisions can have legal and financial consequences, professional advice should be taken before transferring valuable assets. HMRC provides an overview of the current Inheritance Tax thresholds and rules.

Overseas Income and UK Tax Residence

UK tax treatment can depend on whether a person is UK-resident under the Statutory Residence Test. A UK resident may need to report certain foreign income and gains, even when the money remains abroad.

Non-residents can also have UK tax responsibilities, particularly when receiving UK property income or disposing of UK land and property.

The previous non-domicile remittance-basis system was replaced from 6 April 2025 by new foreign income and gains rules for certain qualifying new residents. International tax matters can involve residence rules, double-taxation agreements and foreign tax credits, so specialist advice is strongly recommended.

Record-Keeping Responsibilities

UK tax laws require individuals and businesses to retain evidence supporting the figures reported to HMRC. Depending on the circumstances, records may include sales invoices, expense receipts, bank statements, payroll information, dividend vouchers, property records and contracts.

Digital accounting records should be complete, accurate and regularly reconciled. Poor record keeping can result in missed deductions, incorrect returns and difficulty responding to an HMRC enquiry.

Documents should not be created or altered simply to support a tax claim. Claims must reflect genuine transactions and be supported by credible evidence.

Penalties for Breaking UK Tax Rules

HMRC can impose penalties for late returns, late payments, inaccurate submissions and failures to notify.

The amount charged can depend on:

Whether the mistake was careless or deliberate
Whether the taxpayer disclosed the error voluntarily
How quickly the position was corrected
Whether HMRC lost tax because of the mistake
The quality of the taxpayer’s records and cooperation

An initial £100 penalty can apply when a Self Assessment return is filed late, even where no tax is due. Further daily and percentage-based penalties may follow when the return remains outstanding.

Interest may also be charged on tax paid after its deadline. Submitting a return and paying the tax are separate obligations, so taxpayers should file on time even if they cannot immediately pay the full bill.

Why Professional Tax Advice Matters

UK tax law contains many allowances and reliefs, but each has eligibility conditions. Claiming too little can result in unnecessary tax, while claiming too much can expose the taxpayer to penalties and an HMRC enquiry.

An experienced accountant can help with:

Self Assessment tax returns
Company accounts and Corporation Tax
VAT registration and returns
Payroll and PAYE compliance
Making Tax Digital
Capital Gains Tax calculations
Landlord and property taxation
Dividend and director remuneration planning
HMRC correspondence and investigations
Lawful tax planning

Professional advice is particularly valuable before major decisions such as incorporating a business, purchasing property, selling assets, taking large dividends or transferring wealth.

Get Help Understanding UK Tax Laws

UK tax laws are constantly developing, and relying on outdated information can create costly mistakes. SAS Accountants helps individuals, sole traders, landlords and limited companies understand their obligations and remain compliant with HMRC.

We provide straightforward advice without unnecessary jargon, helping clients calculate their liabilities, claim legitimate reliefs and meet the correct deadlines.

For professional assistance with UK tax compliance, contact SAS Accountants on 0330 133 0278 or visit sasaccountant.com.

Frequently Asked Questions
1. What is the UK tax year?

The personal tax year runs from 6 April to 5 April. The current 2026/27 tax year began on 6 April 2026 and ends on 5 April 2027. Corporation Tax financial years normally begin on 1 April.

2. How much can I earn before paying Income Tax?

The standard Personal Allowance for 2026/27 is £12,570. It is gradually reduced when adjusted net income exceeds £100,000 and is normally removed completely at £125,140.

3. Do all self-employed people need to submit a tax return?

Not necessarily. Whether a return is required depends on gross trading income and the individual’s wider circumstances. People with gross trading income above the relevant allowance will commonly need to register and report their earnings through Self Assessment.

4. When must a business register for VAT?

A business must normally register when its VAT-taxable turnover exceeds £90,000 over a rolling twelve-month period or when it expects to exceed the threshold within the relevant future period. Voluntary registration is also possible below the threshold.

5. Can an accountant legally reduce my tax bill?

An accountant can help reduce unnecessary tax by identifying legitimate expenses, allowances and reliefs. Lawful tax planning must reflect genuine transactions and comply with current legislation. It does not involve hiding income or submitting artificial claims.