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Taxes, What Do Small Businesses Have to Pay?

If you run a business which trades for profit, you’re legally obligated to pay taxes to the government. But the taxes you pay depend on the type and size of company you operate, leading Turner Little to discuss; what taxes do small businesses have to pay?

Small business taxes

There are no specific ‘small business taxes.’ Rather, the taxes you pay to the government depends on the type of business you run. If you’re self-employed, you must send a self-assessment tax return to HM Revenue and Customs (HMRC), the government’s tax department, every year and pay income tax on any profits above a certain threshold, which is adjusted by Whitehall annually.

In contrast, if you form a limited company in the UK (which as experts in this field, Turner Little can help you with), you may have to pay corporation tax on any profits your business makes during its most recent accounting period. At present, all limited companies must pay a corporation tax rate of 20% on profits earned from 1st April 2015. Also whatever type of firm you operate, if you ‘dispose of’ one of your business’ assets for a profit, you’ll be required to pay capital gains tax.

Who must pay national insurance?

National insurance is essentially another type of business tax. So who must pay national insurance? You’re required to submit national insurance contributions to Whitehall if you’re aged 16 or over and if either you’re an employee earning more than £155 per week, or self-employed and making a profit of at least £5,965 or more. If you’re self-employed you may have to submit national insurance contributions as both an employer and an employee of your firm.

How Could VAT Affect Your Small Business?

Also, you may be required to charge Value Added Tax (VAT) of 20% on the price of most of the products and services you sell to customers. So how could VAT affect your small business? If your annual turnover exceeds a certain threshold (currently £82,000), you’re legally obligated to register for VAT. You must then pay VAT on your business’ ‘taxable supplies’ e.g. commission to HMRC.

After this, you charge VAT on the goods and services you sell to customers; if you charge more VAT than you’ve paid, you must submit the difference to HMRC. However, you’ve paid more VAT than you’ve charged your company’s customers, you can reclaim the difference from HMRC. If you’re the director of a limited company it’s you, not your business, that must register for VAT. You can utilise Turner Little’s miscellaneous corporate services to handle VAT registration.

Additional business taxes

If you’re a small business owner in the UK, you may be required to pay additional taxes depending on your circumstances. For example, you may have to pay business rates to HMRC if you use non-domestic properties e.g. offices, shops, for business purposes, or pay stamp duty if you buy commercial premises valued above a certain threshold. At present, the stamp duty threshold for non-residential properties and land is £150,000. Finally, you may be affected by a number of environmental and other specific types of taxes, depending on the industry your business operates in.

How to lower your tax bill

At this point, we need to explain how to lower your tax bill. There are a number of business tax allowances and reliefs you can use to reduce your company’s tax expenditure. For example, if you’re self-employed you can claim ‘allowable expenses’ e.g. employee wages. You can set against your taxable profits as well as your personal income tax allowance, to lower your firm’s income tax bill.

In order to reduce your firm’s tax bill, as well as fulfil your legal obligations, you need to keep proper business tax records detailing your company’s revenue and expenses. Therefore, your small business needs to invest in effective financial infrastructure to reduce the burden that tax places on its bottom line. As registered bank intermediaries and business consultants, Turner Little can supply the corporate banking services your firm requires to handle its tax obligations.

Turner Little

Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.