1. Understanding Taxes for a Business
Every UK business, from sole traders to limited companies, must pay taxes. The type and amount depend on the business structure, profits, and activities. Understanding your tax obligations ensures compliance with HMRC and avoids penalties.
2. Corporation Tax
Limited companies must pay corporation tax on profits.
- Rate: 19% for profits up to £50,000, 25% for profits above £250,000, with marginal relief between these thresholds.
- Due Date: Payment is due 9 months and 1 day after the end of the accounting period.
- Filing: Submit a Company Tax Return (CT600) to HMRC within 12 months.
3. Income Tax for Sole Traders and Partnerships
If you are self-employed, you don’t pay corporation tax. Instead, you pay income tax on business profits through the Self Assessment system.
- Profits are taxed after deducting business expenses.
- Rates follow standard income tax bands: 20%, 40%, or 45%.
4. Value Added Tax (VAT)
Businesses with taxable turnover above £90,000 (2024/25 threshold) must register for VAT.
- Standard Rate: 20%
- Reduced Rate: 5%
- Zero Rate: 0% for items like food and children’s clothing
VAT returns are usually filed quarterly.
5. PAYE and National Insurance Contributions (NICs)
If your business employs staff, you must operate Pay As You Earn (PAYE):
- Deduct income tax and NICs from employees’ wages.
- Pay employer NICs on top of salaries.
- Submit payroll reports to HMRC regularly.
6. Business Rates
Most non-domestic properties, such as offices, shops, and warehouses, must pay business rates. Small businesses may qualify for relief, reducing or eliminating their liability.
7. Dividends Tax
Directors and shareholders of limited companies can take profits as dividends after paying corporation tax.
- Tax-Free Allowance: £500 (2024/25 tax year).
- Rates: 8.75%, 33.75%, or 39.35% depending on income tax band.
8. Other Business Taxes and Duties
Depending on your industry, you may also face:
- Capital Gains Tax (CGT) on asset sales (for individuals).
- Excise duties on goods like alcohol, fuel, or tobacco.
- Stamp duty on property or share purchases.
9. Tax Reliefs and Allowances for Businesses
Businesses can reduce their tax burden with reliefs, such as:
- Annual Investment Allowance (AIA) for equipment and machinery.
- R&D Tax Credits for innovation.
- Business Asset Disposal Relief for reduced CGT on selling a business.
- Small Business Rate Relief for eligible premises.
10. Filing and Paying Business Taxes
- Self-employed: File Self Assessment by 31 January.
- Limited companies: File CT600 within 12 months of the accounting year.
- VAT: Usually quarterly returns online.
- PAYE: Real-time reporting with each payroll.
Frequently Asked Questions
1. What taxes do small businesses pay in the UK?
Sole traders pay income tax and NICs, while limited companies pay corporation tax, VAT (if applicable), and PAYE for employees.
2. Do I need to register for VAT immediately?
Only if your taxable turnover exceeds £90,000, though voluntary registration is possible.
3. Can business expenses reduce my tax bill?
Yes, allowable expenses like travel, office costs, and salaries reduce taxable profit.
4. How do I know if I need to pay business rates?
If you operate from commercial premises, you likely owe business rates unless exempt or eligible for relief.
5. Are dividends taxed separately from salary?
Yes, dividends are taxed differently from salary and may be more tax-efficient.
6. What happens if I don’t pay business taxes on time?
HMRC may charge interest, issue penalties, or take legal action.
Conclusion
Understanding taxes for a business in the UK is essential for compliance and financial planning. From corporation tax and VAT to PAYE and business rates, knowing your obligations ensures smoother operations and reduces the risk of penalties. With careful planning and use of reliefs, businesses can also minimise their tax liabilities.