A Guide to Small Business Taxes

When you run your own business, it’s a given that you have to pay some tax at some point in time. However, with so many complex rules in the UK, it can be challenging to figure out which ones apply to you or your business and what kinds of tax you will have to pay to HMRC. This article examines the five small business taxes you need to know about. 

Income Tax

Income tax refers to the tax you pay on your income. That might include your salary, rental income, and dividends. 

Suppose you are a limited company director and draw a salary higher than the yearly personal allowance. In that case, you will have to pay Income Tax at source through your organisation’s PAYE scheme. Moreover, any dividends you get from the organisation will be taxed through your self-assessment, which you will complete every year. 

On the other hand, if you’re a sole trader, you will have to pay income tax on the profit you earn from your business, which you include on your yearly self-assessment tax return. 

For self-assessment, the deadline to pay income tax is due by the 31st of January each year. Keep in mind that you will be filing your Income Tax return for the previous tax return, not the one you’re presently in. Each tax year runs from the 6th to the following 5th of April.

Corporation Tax

Corporation tax is a tax applicable to limited company owners on the profits they generate. There is no personal allowance equivalent in this situation. Thus, as soon you earn a profit, you will begin to pay corporation tax. 

Currently, the flat rate for corporation tax is 19 per cent. It is payable nine months and one day after the end of your accounting year. Thus, if your year ends on the 31st of March, you must pay corporation tax by the 1st of January. 

You will also have to complete an online form known as CT600. This form contains details of your organisation’s income minus expenses and tax allowances. The deadline for completing and filing the CT600 is 12 months after the end of your accounting period. 

Value Added Tax (VAT)

VAT is a tax applicable to all businesses that sell a product or service. Most products typically have a standard VAT rate of 20%. However, some have lower or even zero VAT rates. 

You don’t have to register for VAT unless your yearly taxable turnover exceeds the VAT threshold, i.e., £85,000 until the 31st of March 2024. Nevertheless, you can register for VAT voluntarily. Doing so gives you the benefit of claiming VAT back for anything you buy for your company, such as tools, stationery, and laptops. It does, however, mean that you will have to submit VAT returns to the HMRC. 

The deadline to submit your online VAT return is typically one calendar month and seven days after the end of an accounting period. That is also the deadline to pay the HMRC. 

Note that it’s now mandatory for businesses registered for VAT to use Making Tax Digital, which entails maintaining records and submitting VAT returns through MTD-compatible software. 

National Insurance

National Insurance Contributions allow you to qualify for certain government benefits, build up your state pension entitlement, and help pay for public services. You have to pay your National Income Contributions if you’re over 16 and are either:

A limited company director or an employee earning more than the National Insurance Primary Threshold, or 

Self-employed and making a profit higher than the small profits threshold

As a limited company director, your category is as an employee instead of self-employed. Thus, you must know that your organisation will have to pay the Employer’s National Insurance if you draw a salary higher than the National Insurance Secondary Threshold. Moreover, as a limited company director, your PAYE payroll includes the National Insurance contributions owed. 

The payments for National Insurance Contributions are due at the same time your income tax payments and self-assessment are due. That means the online and paper returns deadline is the 31st of January and the 31st of October, respectively. 

Business Rates

You must pay business rates if you run your business from retail premises or offices. Business rates are pretty similar to council tax. However, it is exclusive to business properties. In addition, specific locations, such as farms, are exempt from paying business rates, whereas others might be eligible for business rate relief. 

Your local authority will calculate your business rates and send you a bill. These typically come in either February or March; you will have to pay them by the 1st of April next year. The rates are calculated based on your property’s rateable value, the estimated value it would have if you were to sell it. If you feel this figure is incorrect, you can contact the Valuation Office Agency (VOA), as you might be able to appeal against it. 

Conversely, if you operate your business from home, you typically will not have to pay business rates. You will only have to pay council tax that you can partially claim as expenses. Nevertheless, there are certain exceptions. For instance, you cannot claim them as expenses if:

  • You hire employees who work at your house
  • You sell services or goods from your home
  • You have changed your house so that you can work from there
  • Your house is part domestic and part business

Finally 

Understanding the small business taxes allows you to take your organisation a step further and recognise what you have to pay, when, and how much. However, if you ever feel confused about these taxes, it’s best to seek professional assistance from a financial advisor or accountant specialising in facilitating small business owners. 

Contact ISA Consortium to learn about small business taxes. At ISA Consortium, we offer various accounting , tax and bookkeeping services to help you focus on your business goals. Contact us for more information!

Book your free appointment with ISA Consortium

For more information and professional advice, please get in touch for a free appointment. We will discuss all the needs of you and your business, and head you in the right direction for future business .

All this and more

We offer all the above as part of our full Tax Services and Accounting and can also help you with Capital Gains Tax, Inheritance Tax, Retirement Planning, even filling out your Self-Assessment Tax Returns for you.

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