United Kingdom

The headline rate is 25% (for companies with profits over GBP 250,000 per year). A lower rate of 19% applies to companies with profits of less than GBP 50,000. Companies with profits between GBP 50,000 and GBP 250,000 are subject to a blended rate between 19% and 25%.

There are also sector-specific rates. For example, companies that make profits from oil extraction or oil rights pay up to 30%. Similarly, banks are subject to an additional bank surcharge of 3%, resulting in a combined corporation tax rate of 28%. Companies undertaking UK residential property development with annual profits of over GBP 25 million are subject to an additional 4% tax, meaning such companies are charged corporation tax at 29%.

The UK operates a Patent Box scheme, allowing companies to pay a reduced corporation tax rate of 10% on profits earned from patented inventions.

The UK has implemented the Global Minimum Tax, which applies to multinational enterprise groups with annual consolidated revenues exceeding EUR 750 million that have a presence in the UK, and aims to ensures a minimum effective tax rate of 15% across all jurisdictions in which a group operates. It operates through the rules:

• Qualified Domestic Minimum Top-up Tax (QDMTT) — ensures that any top-up tax due on UK profits is collected by HMRC;
• Income Inclusion Rule (IIR) — charges UK parent entities on the undertaxed profits of overseas constituent entities operating in low-tax jurisdictions; and
• Undertaxed Profits Rule (UTPR) — acts as a backstop and allocates any residual top-up tax that has not been collected by an IIR or QDMTT in any jurisdiction.

• Income tax. Companies resident in the UK are subject to corporation tax on their profits.
• Capital gains tax. UK companies do not pay capital gains tax and instead, chargeable gains are subject to corporation tax at the standard corporation tax rate. Note that there are reliefs available including the Substantial Shareholding Exemption (SSE), whereby gains on the disposal of shares in a trading company (or holding company of a trading group) arising in a UK company are exempt from corporation tax where the relevant conditions are satisfied.
• Foreign-source income. UK resident companies are taxed on their worldwide income and gains, regardless of where they arise. Dividends received from foreign subsidiaries are generally exempt from UK corporation tax, provided certain conditions are met. Whilst a UK company can currently elect for the profits and losses of its foreign permanent establishments (branches) to be exempt from UK corporation tax, the UK Government announced on 21 May 2026 that it intends to make profits and losses attributable to a foreign permanent establishment mandatorily exempt from UK corporation tax for accounting periods beginning on or after 1 January 2027 (or 1 September 2026 for oil and gas companies). Where foreign income does not benefit from an exemption and is taxed both overseas and in the UK, relief from double taxation may be available to the company under a double tax treaty.

Value Added Tax (VAT)

VAT is the principal indirect tax in the UK (at a rate of 0%, 5% or 20% depending on the nature of supplies made) and applies to any supply of goods or services made in the UK if annual supplies exceed GBP 90,000.

The standard VAT rate is 20% and applies to most consumer goods and services such as electronics, fashion, and hospitality. The reduced VAT rate is 5% and applies to select items and the 0% VAT rate applies to essentials such as most food and drink.

The UK also imposes excise duties on certain goods including tobacco, alcohol, fuel and soft drinks. There are also certain miscellaneous indirect taxes such as the Air Passenger Duty, a tax levied on aircraft operators for passengers departing from UK airports.

Transfer taxes

Stamp duty typically applies to transfers of shares and marketable securities at a flat rate of 0.5% of the consideration paid. Where transfers are effected electronically, the equivalent charge arises under Stamp Duty Reserve Tax (SDRT). A number of reliefs and exemptions are available under each regime.

Land and property transactions are subject to separate land transaction taxes, which vary depending on the jurisdiction within the UK (Stamp Duty Land Tax (SDLT) in England and Northern Ireland; Land and Buildings Transaction Tax (LBTT) in Scotland; Land Transaction Tax (LTT) in Wales). All three taxes operate on a progressive, slice-based system, with rates ranging from 0% to 12% for residential property and 0% to 5% for non-residential property, and also apply to leasehold transactions. Each regime also provides a range of reliefs and exemptions.

There are also excise duties and other minor industry-specific duties and levies, including Air Passenger Duty, Alcohol Duty, Landfill Tax, Insurance Premium Tax, the Climate Change Levy and Carbon Price Floor and the Soft Drinks Industry Levy.

• Interest. The UK levies 20% withholding tax (proposed to rise to 22% from 6 April 2027) on yearly interest payments that have a UK source. There are a number of exceptions from the requirement to withhold tax on interest payments, including interest paid to a UK resident company, a UK bank or a UK branch of a foreign bank, or interest paid on quoted Eurobonds.
• Dividends. The UK does not impose a withholding tax on dividends paid by UK companies.
• Royalties. Royalties paid by UK companies for the use of intellectual property (e.g. patents, copyrights, trademarks, design rights) that has a UK source are subject to 20% withholding tax.
• Real Estate Investment Trust (REIT) Property Income Distributions. Under the UK-REIT regime, distributions out of that qualifying property income are subject to 20% withholding tax.

The UK has a statutory General Anti-Abuse Rule (GAAR) which operates to counteract tax advantages arising from abusive tax arrangements. The GAAR applies to “tax arrangements” that are “abusive”, which includes three interlocking concepts:

• Tax arrangements. Arrangements where it would be reasonable to conclude that obtaining a tax advantage was the main purpose, or one of the main purposes.
• Tax advantage. Defined broadly to include relief or increased relief, repayment of tax, avoidance or reduction of a charge, deferral of tax and avoidance of an obligation to deduct or account for tax.
• Abusive. Arrangements are abusive if entering into or carrying them out cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to whether the outcomes align with the principles and policy objectives of those provisions, whether the arrangements involve contrived or abnormal steps, and whether they exploit any shortcomings in the legislation. This is commonly referred to as the “double reasonableness test”.

Where the GAAR applies, HMRC can counteract the abusive tax arrangement in a just and reasonable manner to recover lost tax revenue, which is usually done through issuing or modifying tax assessments or disallowing or amending claims. The procedure for HMRC to make counteractions involves notifying the taxpayer, receiving written representations from the taxpayer, and referring the matter to an advisory panel before HMRC can come to a decision and, if necessary, issue the final notice of counteraction. Where a final counteraction notice is issued and the tax advantage is counteracted, a penalty of up to 60% of the value of the counteracted advantage may be charged.

Transfer pricing disputes are among the most significant and common sources of tax controversy in the UK. Common issues include:

• the pricing of inter-company loans, cash pooling arrangements and financial guarantees;
• valuation of IP transferred between group entities, particularly hard-to-value intangibles;
• the allocation of costs and mark-ups for centralised group services; and
• profit attribution to UK permanent establishments of overseas entities.

The UK tax authorities have significantly increased their scrutiny of R&D relief claims following widespread non-compliance and fraud. The principal issues are:

• whether work constitutes a genuine scientific or technological advance;
• which expenditure categories are properly includable; and
• inflated or fraudulent claims, leading to criminal investigations and significant penalties.

Further, HMRC frequently challenge input VAT recovery on costs related to the sale or acquisition of shares and costs incurred by investment funds and their managers.

The following statutes are the core legislative frameworks that govern tax controversies:

• The Taxes Management Act 1970 and the Finance Act 1998 govern the administration, assessment and dispute resolution of income, capital gains, and corporation tax.
• The Value Added Tax Act 1994 governs the same in relation to VAT.

Tax disputes are resolved in accordance with HMRC’s Litigation and Settlement Strategy, which is the framework HMRC uses to resolve tax disputes through civil law processes. It applies to all taxpayers whether the dispute is resolved by agreement or through litigation. Decisions are made under HMRC’s published Code of Governance and overseen by the Tax Assurance Commissioner, who publishes an annual transparency report.

Disputes that go to litigation are first heard by the First-tier Tribunal (Tax Chamber), then, if appealed, they go to the Upper Tribunal (Tax and Chancery Chamber), the Court of Appeal, and finally the Supreme Court.

HMRC operates a formal Alternative Dispute Resolution (ADR) whereby a neutral, trained HMRC facilitator (who has not been involved in the dispute) facilitates discussions between the taxpayer and the HMRC caseworker and assists both parties in reaching a resolution. The facilitator does not make binding decisions but helps to clarify issues and facilitate communication. ADR can be used at any stage of an enquiry, including where progress has stalled, and its availability after a decision has been made depends on whether the dispute concerns a direct or indirect tax. For direct taxes, ADR can be applied for immediately where HMRC has accepted the appeal but has not offered a statutory review, without any prior tribunal involvement. Where a review has been offered (whether accepted or not), the taxpayer must first exhaust or decline the review, appeal to the First-tier Tribunal, and receive an acknowledgement letter. For indirect taxes, tribunal engagement is always a prerequisite and there is no route to ADR without first appealing to the First-tier Tribunal and receiving an acknowledgement letter.

Before proceeding to the First-tier Tribunal, a taxpayer may request a statutory review of an HMRC decision by a different officer from the one who made the original decision. The review must be requested within 30 days of the decision letter, and HMRC must complete the review within 45 days unless a different deadline is agreed. Where the taxpayer is not satisfied with the outcome of the review, they retain the right to appeal to the tribunal within 30 days of the review decision letter.