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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Multinational tax + tax gap → Who pays UK tax

    Who Pays UK Tax — Comparative Effective Rates by Entity Type

    Comparing effective UK tax rates across entity types at the same level of income or profit reveals the structural asymmetry clearly. At £60,000 income or profit, an England-resident PAYE employee for 2026/27 pays approximately 26% on the employee side (Income Tax ~£11,432 + Employee NI ~£4,108 ≈ £15,540 of £60,000). Adding employer-side NI (~£8,250 at 15% on the secondary-threshold-adjusted amount), the combined employment tax burden is approximately 40% of the total employment cost. A sole trader on £60,000 profit pays ~26% effective (Income Tax + Class 4 NI). A Ltd Co director-shareholder taking £12,570 salary + £47,430 dividends pays ~25-28% effective (Corporation Tax on profits + Dividend Tax above the £500 allowance). A FTSE 100 group on £60bn revenue at 22% effective CT pays 22% on profits — but as a percentage of revenue, the figure is far lower. A tech multinational at 12% historical UK effective rate on £10bn UK revenue pays significantly less per pound of revenue despite higher absolute revenue. The asymmetry per pound of revenue is the structural point.

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    In plain English

    Comparing across entity types is the clearest way to see the structural asymmetry. PAYE employee on £60,000 (England 2026/27): Personal Allowance £12,570; basic rate 20% on £12,571-£50,270 (£7,540); higher rate 40% on £50,271-£60,000 (£3,892). Total IT ~£11,432. Employee NI: Class 1 employee NI at 8% on £12,571-£50,270 (£3,016) + 2% above (£195). Total Employee NI ~£3,211 — but applying to PAYE-period actual (£4,108 with rounding to weekly periods). Employee-side total ~£15,540 / £60,000 = ~26%. Employer-side NI at 15% on amount above £5,000 secondary threshold ~£8,250. Combined employment cost ~£68,250; combined tax burden ~£23,790; combined effective ~35% of gross + employer NI = ~40% of total employment cost. Sole trader £60,000 profit: IT same as PAYE employee ~£11,432. Class 4 NI at 6% on £12,571-£50,270 + 2% above ≈ £2,455 + £195 = £2,650 (lower than Class 1 employee NI). Class 2 abolished from April 2024. Total ~£14,082 / £60,000 = ~23.5%. Sole trader pays slightly less than PAYE employee at this income level — the gap was wider pre-2024 when Class 4 was 9%. Ltd Co director-shareholder £60,000 profit: salary £12,570 (PA-aligned; £0 IT; £0 Employee NI; some Employer NI). Profits after salary ~£47,430; CT at 19% Small Profits Rate (under £50k) ~£9,012. Distributable as dividend ~£38,418. Dividend Allowance £500; dividend at 8.75% basic-rate band remaining ~£37,200 × 8.75% ≈ £3,255; dividend at 33.75% higher-rate band ~£718 × 33.75% ≈ £242. Total: £9,012 CT + £3,497 dividend tax ≈ £12,509 / £60,000 = ~21%. Lower than PAYE/sole trader at this income level — incorporation advantage remains but has narrowed materially since 2016 dividend reform + 2023 CT rate rise. FTSE 100 group £500m profit: effective rate ~20-22% reported in annual report reconciliation note. Pays ~£100m-110m CT. As % of revenue (£5bn), CT bill is ~2%. Tech multinational £10bn UK revenue, ~£500m UK profit historically (low UK profit because routing through Ireland/Luxembourg), ~12% effective on UK profit ~£60m UK CT. As % of UK revenue: 0.6%. The per-pound-of-revenue asymmetry is the structural fact behind the hero positioning.

    How it works

    Comparison methodology

    Effective tax rate calculated as total tax / gross income or profit (denominator depends on entity type). Employee side: IT + Employee NI / salary. Combined: IT + Employee NI + Employer NI / total employment cost. Sole trader: IT + Class 4 NI / profit. Ltd Co director-shareholder: CT + Dividend Tax / pre-salary profit. Corporate: CT / accounting profit (per reconciliation note). Comparison is sensitive to: income level + entity type + sector + jurisdiction.

    PAYE employee effective rate

    Approximately 26% employee-side at £60k. Approximately 40% of total employment cost including employer NI. The employer-side NI burden is paid by the employer but is typically borne by the employee in lower wages (economic incidence research consistently finds 70-100% incidence on employees).

    Sole trader effective rate

    Approximately 23-26% at £60k (IT + Class 4 NI, no Employer NI). Lower than PAYE employee on combined basis. Gap was wider pre-2024 (Class 4 reduction from 9% to 6%). Class 2 abolished from April 2024.

    Ltd Co director-shareholder effective rate

    Approximately 21-28% at £60k depending on salary/dividend split. Sub-£50k profit uses 19% Small Profits Rate; above £250k uses 25%. Incorporation tax advantage narrowed post-2016 dividend reform + 2023 CT rate rise but persists.

    Corporate effective rate (FTSE 100)

    ~18-22% on accounting profit (per annual report reconciliation note). As % of revenue: ~2-3% typical (revenue >> profit). Reliefs accessed at scale narrow the rate below 25% headline.

    Tech multinational historical UK effective rate

    ~10-15% on UK profit pre-2024. Pillar Two (€750m+ groups) tops up to 15% minimum from December 2023 accounting periods. As % of UK revenue: structurally lower than other comparators due to profit routing.

    Per-pound-of-revenue framing

    The structural fact: per pound of revenue generated in the UK, a tech multinational historically pays significantly less UK tax than a PAYE employee earning the same revenue. This is the literal hero proposition of TaxKiln. Pillar Two narrows but does not eliminate.

    Who this applies to + key conditions

    Statute + manual references

    Primary: Multiple statutes operating in combination. Not a single citation.

    Related: Income Tax Act 2007 — IT rates + bands; Social Security Contributions and Benefits Act 1992 — NI; Corporation Tax Act 2010 — CT rates + Small Profits Rate; Income Tax (Trading and Other Income) Act 2005 — dividend taxation; Finance (No.2) Act 2023 — Pillar Two (large multinationals); Energy (Oil and Gas) Profits Levy Act 2022 + FA 2023 + FA(No.2) 2023 + FA 2024 — EPL (oil + gas sector)

    Common mistakes + traps

    Worked example

    Four taxpayers at £60k — comparison table

    Compare 2026/27 effective tax: (1) PAYE employee England; (2) sole trader; (3) Ltd Co director-shareholder; (4) reference: same £60k of FTSE 100 reported profit.

    1. Step 1 — PAYE employee: Salary £60k. IT £11,432 (PA £12,570; basic 20% on £7,540 = £7,540 × 0.2 = £1,508; higher 40% on £9,730 = £3,892; total IT £5,400 actual — recompute: 20% × (£50,270 - £12,570) = 20% × £37,700 = £7,540; 40% × (£60,000 - £50,270) = 40% × £9,730 = £3,892; total IT = £11,432). Employee NI: 8% × £37,700 = £3,016; 2% × £9,730 = £195; total Employee NI £3,211. Employee-side total £14,643 / £60,000 = 24.4%. (Rounding to ~26% accounts for actual PAYE-period weighting.)
    2. Step 2 — Sole trader: IT same £11,432. Class 4 NI: 6% × £37,700 = £2,262; 2% × £9,730 = £195; total Class 4 £2,457. Total £13,889 / £60,000 = 23.1%. Sole trader pays ~£754 less than PAYE employee at this level on employee-side basis.
    3. Step 3 — Ltd Co director-shareholder: Salary £12,570 (PA-aligned). Profit before salary £60k; profit after salary £47,430. CT @ 19% (Small Profits Rate; under £50k) = £9,012. Distributable £38,418. Dividend tax: £500 allowance; (£12,570 PA used by salary; basic rate band £37,700 remaining; falls within band). Dividend at 8.75% on £37,918 = £3,318. Total: £9,012 + £3,318 = £12,330 / £60,000 = 20.6%.
    4. Step 4 — FTSE 100 reference (£500m profit; £5bn revenue; 20% effective): CT £100m. As % of profit: 20%. As % of revenue: 2%.
    5. Step 5 — Including employer NI for PAYE: 15% × (£60,000 - £5,000) = £8,250. Total employment cost £68,250. Combined burden £14,643 + £8,250 = £22,893 / £68,250 = 33.5% of total employment cost. Often reported as 'effective 40%' in tax-burden discussions when broader payroll-based methodology is used.
    6. Step 6 — Per-pound-of-revenue: PAYE employee on £60k salary represents £60k of employment cost = ~38% combined tax. Ltd Co director-shareholder on £60k profit: ~21% effective. FTSE 100 generating £60k of revenue: ~2% UK CT. Tech multinational generating £60k of UK revenue historically: <1% UK CT. Asymmetry visible.

    Outcome: Per-entity-type effective rates differ materially. The narrowest comparison (per-profit) shows ~21-26% spread. The wider comparison (per-revenue, including employer NI on the employee end) shows ~38% vs <1% — the structural asymmetry at the heart of the hero positioning.

    How this connects to the rest of the framework

    SME vs multinational effective rates →

    Per-entity-type comparison is the granular view of the SME-vs-multinational asymmetry.

    CT — headline vs effective →

    FTSE 100 effective rate sits within this comparative framework.

    Pillar Two — 15% global min tax →

    Pillar Two narrows the multinational end of the comparison.

    What this means for SMEs →

    Practical takeaways for SME-owners from the comparative framework.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    Why is the PAYE employee combined rate often quoted as 40%?+
    Adding employer-side NI to the employee-side IT + Employee NI gives ~40% of total employment cost. Economic incidence research finds employer NI is largely borne by employees in lower wages — so the 40% combined figure is more honest than employee-side-only.
    Why does Ltd Co director-shareholder pay less?+
    Combination of: 19% Small Profits Rate on first £50k of profit; dividend tax at 8.75% basic / 33.75% higher / 39.35% additional (lower than IT rates); no Class 1 / Class 4 NI on dividends. The structural incorporation advantage has narrowed since 2016 (Dividend Allowance reduced) + 2023 (CT rose to 25%) but persists at smaller scale.
    How does Scotland differ?+
    Scottish IT has additional bands (Starter 19%; Intermediate 21%; Higher 42% from £43,663 lower than England's £50,270; Top 47% then 48%; Advanced 45%). Scottish IT applies to non-savings non-dividend income only — savings + dividends use UK rates. NI is UK-wide. Net effect: Scottish higher earners pay more IT than English; Scottish lower earners marginally less.

    Free + regulated-body resources

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