The Tax Collector’s Coming, So How Much Does Your Business Have to Pay?
Taxes aren’t fun, there are so many rules and regulations, filings, things you can’t do, sometimes it just makes you want to rip your hair out. To give you some piece of mind, we'll give you a general overview of the kind of taxes you can expect to pay as a small business in the UK. So, how much does your business have to pay? Keep reading to find out!
What Kind of Taxes Do You Have to Pay?
As you probably already know, taxes are contingent on a number of factors, including, but not limited to:
- Number of employees
- Assets and holdings
- Revenue
- Property
- Industry
However, your business will be primarily taxed based on your earnings and profit. There are even some cases in which you won’t have to pay any taxes, although this case is normally when your business’ losses outweigh your earnings.
There are multiple types of taxes that your business might have to pay, including:
- Corporation tax
- VAT
- Income tax
- National insurance
- Business rates
- Capital gains tax
Let’s start with the first one…
Corporate Tax
If your business is owned by multiple people, and not just one like in a sole trader company, then you’ll have to pay corporate taxes. Corporate tax is a flat tax, meaning that no matter how much you make, you’ll pay the same rate: 19%. The taxable amount is calculated after payment of salaries and other essential business expenses, but before dividends are paid.
In order to pay it, you’ll need to submit each year a company tax return, or CT600 form, to HMRC. This form is due exactly 12 months after the end of your company’s accounting year, which can change from business to business. Even though the form itself is due 12 months after, you’ll need to pay the tax, at the latest, 9 months and 1 day after the end of your company’s accounting year. You can do that by logging into your company’s HMRC account.
Value Added Tax (VAT)
VAT, or sales tax, is a tax that is added to most good and services you buy. The standard VAT rate is 20%, but can also be lowered to 5% for certain categories of products. VAT is different from most taxes, because it’s paid by the customer, not directly by the business. That means VAT is added on top of the prices you charge customers.
There are some regulations regarding being a VAT-registered business. Companies who have an annual taxable turnover higher than £85,000 must register with HMRC as a “VAT registered business”.
Even if you don’t have to pay any VAT, you will still have to submit VAT returns to HMRC every 3 months.
Income Tax
Income tax is paid based on your personal salary, and possibly dividends. Business owners don’t have to pay any taxes for the revenue of the business itself, but if their personal salary is over £12,570, for the 2021-2022 tax year, they will have to pay income tax. Unlike the previous taxes we’ve mentioned before, the income tax rate is different for different tax brackets, meaning different revenue levels. There are 4 different rates:
|
Type |
Income |
Rate |
|
Personal Allowance |
up to £12,570 |
0% |
|
Basic Rate |
from £12,571 to £50,270 |
20% |
|
Higher Rate |
£50,271 to £150,000 |
40% |
|
Additional Rate |
for over £150,000 |
45% |
Keep in mind that additional items, like dividends, savings or capital gains, may count towards your taxable income and therefore push you into a higher tax bracket.
National Insurance
The social contributions taken out of your salary in the form of taxes contribute to public services like NHS or even to things like your public retirement. Businesses pay 13.8% for employees if they make over £9,568 a year. This may be the most technical tax of all the ones mentioned in this article, so we won’t go too into detail, but you may be eligible to reduce your NIC's if your business is eligible for the Employee Allowance, go to the government or HMRC’s websites to check for more detail.
Additionally, if you work in a limited company, your NIC will be automatically taken out of your salary.
Business Rates
If you own a business and run it from a non-domestic property, meaning not from your home, like from an office or shop for example, you’ll most likely have to pay business rates. Every year, typically in February or March, your local council will send you a business rates bill detailing the amount that you owe. The government’s website has a full explanation of how you can estimate how much your business rates will end up being.
Note: Business rates work differently in Scotland and Northern Ireland, if you live in either of those places please consult either the government or HRMS website for further details.
Capital Gains Tax
This one might not apply to all businesses. A business might have to pay capital gains tax when they sell or dispose of a business asset and make a profit, or gain, off of it. These assets could be anything from land and buildings to machinery and registered trademarks.
The amount of tax is based on how much the asset was sold for and how much you made off it, so for any more information concerning the rate or amount of taxes you have to pay, consult either the government or HMRS website.
Tax Season- The Worst Time of the Year
Although it might not be at all pleasant or enjoyable, filing and paying taxes is a necessary and compulsory part of being a small business. And knowing what taxes you have to pay already eliminates half the stress!