Small business tax can seem complicated and is certainly not one of the most exciting aspects of launching a new business. However, it’s important to understand what you need to do to comply with your tax obligations.
We’ve collected details on the main small business taxes that apply in the UK. You’ll find links to official information and guidelines too.
The specific taxes you need to pay as a small business owner depends on a number of factors, including the structure of the company, the services and products on offer, and how it’s performing.
Small business taxes – Income Tax
Income Tax is payable on certain sources of your income, including:
- Earnings from employment.
- Profits from self-employment. This includes money made from any services sold through apps or websites.
- Some state issued benefits.
- Most pensions.
- Any rental income you earn. This doesn’t apply if you are a live-in landlord and earn less than the limit set by the rent-a-room guidelines.
- Benefits from your work.
- Any income from trusts.
- Interest on any savings you have if it exceeds your allowance.
There is some Income Tax relief on offer. For example, you don’t pay tax on the first £1,000 of the income you make if you’re self-employed. This is called the ‘trading allowance’. The Government’s page on Income Tax has all the relevant information on any allowances or tax relief.
You’ll generally pay through self-assessment, which means you must file a tax return with the HMRC every year. Make sure you’re claiming all possible expenses when you file your Self-Assessment tax return. The deadline for online tax returns is 31 January every year, and for paper tax returns it’s 31 October. The UK tax year runs from 6 April to 5 April the next year, and you’ll always be filing for the previous year.
The deadline for payment is 31 January, and 31 July for the second payment on account, which was introduced by the Government to help people spread the cost of their tax bills.
It’s always worth engaging a tax specialist to ensure you’re covering all bases and filling out your return correctly. Check out the official tax help page for more information.
Corporation Tax is levied on business profits from limited companies, foreign companies with a UK office or branch, and any co-operative, club or incorporated association.
There are no bills issued for this tax, so it’s up to you as the business owner to ensure you pay. Register on the gov.uk website as a first step. Then go to the relevant page titled ‘Pay Your Corporation Tax Bill’. This page is packed with information, and it also directs you to the Government Gateway page. This is where you log in and pay the Corporation Tax.
The deadline for your company tax return is 12 months after the end of your business accounting period. There is a separate payment deadline, which is nine months, 1 day after the end of the accounting period. Usually, a company accounting period adheres to the financial year, but you can have two accounting periods in the first year of business.
As you will receive no bill or prompt from the Government, it’s a good idea to appoint a professional to keep on top of your obligations.
How does VAT work for businesses?
If your company sells services and/or products, then you may have to charge customers value added tax (VAT). You are then liable to pay VAT due to Government and submit returns.
Standard VAT is 20%, but some services and products are reduced, with some exempt. A business can be registered for VAT at any time, but if you are turning over more than £85,000 and it’s VAT taxable, then you must register immediately.
You pay VAT online, and it’s your responsibility to make sure it gets to HMRC on time. If it doesn’t, you may incur a surcharge. In the majority of cases, the VAT return deadline and payment deadline are the same – that is one calendar month, seven days following the end of the accounting period.
Employees and PAYE
If your small business employs people, then you also need to ensure you’re up to date with PAYE, which can include Income Tax deductions for employees, Class 1 and 1B National Insurance, student loan repayments, Apprenticeship Levy payments and Construction Industry Scheme (CIS) deductions.
The deadline if you pay monthly is the 22nd of the following tax month, and if you pay quarterly it’s the 22nd after the end of the next quarter.
How does National Insurance work for different business types?
National Insurance Contributions (NICs) go towards certain Government benefits and a State Pension. NI responsibilities vary between business types, and whether you employ people or are self-employed.
Limited company directors must pay Class 1 NICs through PAYE, while sole traders pay Class 2 and Class 4 NICs through self-assessment. If you employ people, you pay NICs through their salaries.
Deadlines depend on your company structure, but sole traders pay through Self-Assessment, which means the deadline of 31 January applies.
How business rates work
If your business is housed in a non-domestic property, then you will be liable for business rates. Properties that are taxed under business rates include offices, pubs, shops, factories, warehouses and holiday rentals.
In England, you get a bill from your local council by March every year, which tells you what to pay for the upcoming tax year. Be aware that business rates are administered differently in Scotland and Northern Ireland. Deadlines will be specified on your bill.
James Turner, Managing Director of Turner Little Limited says: “As you can see, small businesses have a number of tax liabilities and obligations, some of which are not immediately obvious without external advice. While the Government website does have a lot of information, and this is the obvious place to start when working out your liabilities, I would also recommend working with a professional to ensure that you are covering all bases.”
“Taxes are something that can pile up unnoticed in the background, particularly when you’re busy launching a small business. Getting your business and personal tax affairs straight from the outset will ensure your business runs smoothly down the line. Remember that not all of your liabilities are prompted by the Government, and the responsibility lies with you as a small business owner to make sure everything is in place.”
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.