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The tax guide for small businesses in the UK

The tax guide for small businesses in the UK

Tax for small businesses can appear to be a complicated process. You need to know what taxes apply to your small business, as well as their deadline

If you do not submit the correct tax return at the right time, your small business may receive a financial penalty from HM Revenue & Customs (HMRC) and ignorance is not an excuse.

The type of business you run, its performance, its size, the products or services you sell will all be determining factors in knowing what taxes apply to you.

Income Tax

Income tax is a tax that everyone has to pay on their income.

Income tax is calculated based on profits made during the year.

For employees, income tax is collected via Pay As You Earn (PAYE) and is paid directly to HMRC.

However, if you are self-employed, you must file your tax return before January 31 with HMRC, otherwise you will be exposed to a financial penalty.

As a business owner, you are responsible for withholding and paying the tax on wages paid by your business. If, however, you are an independent trader, you will only have to pay income tax on profits above the personal benefits tax threshold, which is currently £ 12,500.

You pay no tax on your first 1,000 pounds of self-employed income because it is your "business allowance".

Your tax rate depends on your taxable income after accounting for all deductible expenses.

Corporation Tax

Corporate tax is only paid by public limited companies. Therefore, if you are an independent merchant or a partnership, you are not affected by this tax.

Corporate tax equivalent to income tax but for your business. It is calculated as a percentage of your company's profits after taking into account elements such as allowances and tax relief to which you are entitled, such as travel expenses, salaries, office equipment, etc.

Corporate tax, like income tax, is done by self-assessment. You must determine the amount that your business owes to HMRC. You must then file your corporate income tax return with HMRC and send the payment. You have up to 12 months after the end of your exercise to do so. You have nine months and one day from the end of your accounting period to settle your corporate tax bill.

The amount of corporate tax used to depend on the amount of your business profits - the more you earn, the more corporate tax you have to pay. Now, however, corporate tax has been standardized for everyone at 17% since 2020.

It should also be mentioned that if your business makes more than £ 1.5 million in profits, the process is slightly different since you will have to pay your corporate tax in installments.


As a small business owner, you must legally register your business for VAT when your turnover exceeds £ 85,000. You can register before that if you wish, but it is neither mandatory nor necessary.

VAT is a tax applied to certain products and services sold in the UK. Not all items are subject to VAT, certain products such as children's clothing, books and items sold in charitable shops are classified at zero rate. Other products and services are subject to a reduced rate of VAT, such as household energy or child car seats.

National Insurance

If your small business has employees, you must pay National Insurance (NIC) contributions. The NICs entitle you to certain benefits such as your state pension or your maternity allowance (for the self-employed).

If you have employees, NICs are paid directly to HMRC at the same time as you pay income tax deducted from their salaries.

For the self-employed, there are different categories of national insurance that may apply. Check out gov.uk.

Business Rates

Typically, business rates only apply if your small business operates from a store or office.

If your small business operates from your home and you have no customers, you will generally not be required to pay professional rates. If, however, you have converted part of your accommodation to work, you will probably have to pay.

There are business rate relief programs as well as grants to help you. Ask your accountant for advice on how to benefit from it.

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