UK VAT & Tax Guide 2026

Introduction to UK Taxation

The UK tax system is administered by HM Revenue & Customs (HMRC). Whether you're an employee, self-employed, or running a business, understanding your tax obligations helps you plan effectively and avoid penalties. This guide covers the key taxes affecting most people in 2026.

Value Added Tax (VAT)

VAT is a consumption tax added to most goods and services. Businesses with turnover above the registration threshold must charge VAT on their sales (output tax) and can reclaim VAT on their purchases (input tax).

VAT Rates (2026)

Rate	%	Typical examples
Standard	20%	Most goods and services, electronics, clothing, adult clothing
Reduced	5%	Children’s car seats, home energy, sanitary products
Zero	0%	Most food, books, children’s clothes, public transport
Exempt / Outside scope	—	Education, healthcare, insurance, postage stamps

VAT Registration Threshold

For 2026, the compulsory VAT registration threshold remains at £85,000 (unchanged for several years). If your total taxable turnover in the previous 12 months exceeds this, you must register. You can also voluntarily register if below the threshold.

VAT Schemes

• Flat Rate Scheme – small businesses pay a fixed percentage of turnover, keeping the difference between what they charge customers and pay to HMRC.
• Cash Accounting – pay VAT only when your customers pay you (helpful for cash flow).
• Annual Accounting – make advance payments and file one return per year.

Income Tax (2026/27)

Income tax is charged on earnings, pensions, rental income, and most other income. The tax year runs from 6 April to 5 April. The following bands are based on current projections for 2026/27 (confirm with HMRC).

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 – £50,270	20%
Higher rate	£50,271 – £125,140	40%
Additional rate	Over £125,140	45%

* Personal Allowance reduces by £1 for every £2 of income above £100,000.

National Insurance (2026/27)

Employees pay Class 1 NICs: 12% on earnings between £12,570 and £50,270, and 2% above that. Employers pay 13.8% on earnings above £9,100 (subject to change). Self-employed pay Class 2 and Class 4 contributions.

Self-Assessment

You must file a Self-Assessment tax return if you are self-employed, a partner in a business, have untaxed income (e.g., rental income, investments), or earn over £1,000 from self-employment. Key deadlines:

• 5 October 2026 – register for Self-Assessment if new.
• 31 January 2027 – online filing and payment deadline.
• 31 July 2027 – second payment on account (if applicable).

Corporation Tax (for Limited Companies)

Companies pay Corporation Tax on their profits. For 2026, the rates are:

Profits	Tax rate
£50,000 or less	19% (small profits rate)
£50,001 – £250,000	Marginal relief applies, effective rate between 19% and 25%
Over £250,000	25% (main rate)

Companies must file a Company Tax Return (CT600) within 12 months of the year-end, but pay any tax due 9 months and 1 day after the end of the accounting period.

Other Key Taxes

Capital Gains Tax (CGT)

When you sell assets (e.g., shares, second property) above certain allowances, you may owe CGT. In 2026/27, the annual exempt amount is projected to be around £3,000. Rates depend on your income band and asset type: 10%/18% for basic rate, 20%/24% for higher rate (residential property rates are higher).

Inheritance Tax (IHT)

IHT is charged at 40% on estates above the nil-rate band (£325,000) and potentially the residence nil-rate band (£175,000) if you leave a home to direct descendants. Transfers between spouses are exempt.

Tax Tips for Small Businesses

• Keep accurate records – HMRC can ask for up to 6 years of accounts.
• Claim all allowable expenses: office costs, travel, staff salaries, marketing, and professional fees.
• Use tax-efficient structures: sole trader, partnership, or limited company – each has different implications.
• Consider pension contributions to reduce corporation tax or income tax.
• If you're VAT-registered, ensure you’re on the best scheme for your cash flow.

Where to Get Help

HMRC’s website (gov.uk) provides official guidance, calculators, and contact details. You can also consult a qualified accountant or tax adviser for personalised advice.

Last updated: March 2026. Rates and thresholds are subject to change; always verify with HMRC or a professional.