A guide to business tax in the UK

As a business owner, knowing what taxes you need to pay, and when, is vital. This guide outlines the various types of business tax in the UK, who is liable, and ways in which to manage payments.

UK business taxes

Whether you’re a sole trader or a limited company, managing your taxes is a crucial part of running a successful business. Not only is it important for cashflow purposes and accurate projections, but getting your business tax wrong can be a costly mistake.

In the UK, there are 7 types of business tax. Which taxes you are liable for depends on several factors such as the amount of profit you make, your business structure, and how you choose to pay yourself as the business owner. Because of this, you may not have to pay every kind of business tax. The main UK business taxes are:

• Corporation tax
• Income tax
• National Insurance
• VAT
• Business rates
• Dividends tax
• Capital gains tax

If you are in any doubt about which taxes your company is liable for, it’s best to speak to your accountant. At CTT Accountancy, we offer a full business tax compliance and planning advisory service, tailored to you.

Corporation tax

Corporation tax is the main tax a limited company must pay. It is payable on the company’s annual profits as well as the income generated by the sale or rental of any property or land belonging to the company, and any savings the company might have.

The amount of Corporation Tax due for each financial year is set by the government and is a percentage of your overall profits for that year, based on the amount the company has generated. For 2023-24 tax year, rates are:

• Under £50,000 = small profits rate of 19%
• Over £250,000 = main rate of 25%
• Between £50,000 – £250,000 = main rate of 25%, but are eligible for Marginal Relief, which operates on a sliding scale

The accurate and timely payment of Corporation Tax to HMRC is the responsibility of the company. It is not automatically deductible as with some taxes, and you will not receive a notification for the amount due. Instead, you must:

• Register your business for corporation tax
• Keep accurate, preferably digital, records of your company accounts to calculate the correct amount of tax due and prepare a Company Tax Return
• Pay the correct amount of Corporation Tax due to HMRC within 9 months of the end of your accounting period
• File your Company Tax Return with HMRC within 12 months of the end of your accounting period.

At CTT Accountancy, we can complete this whole process for you, including ensuring your business is up to date with the latest government requirements for Making Tax Digital.

Income Tax

Sole traders, freelancers, and self-employed business owners must all pay Income Tax on their trading profits. This is done via a Self-Assessment Tax Return, which must be filed with HMRC no later than 31 January following the end of the previous tax yar.

If you are an employer, it is your responsibility to ensure your employees’ Income Tax is paid to HMRC by deducting it from their salary using PAYE (Pay As You Earn).

Income tax rates are the same for both employed and self-employed people and is charged as a percentage of earnings:

• Up to £12,570 = personal allowance of 0%
• £12,571 – £50,270 = basic Rate of 20%
• £50,271 – £125,140 = higher rate of 40%
• Over £125,140 = additional rate of 45%

CTT Accountancy provide a full Self-Assessment Tax Return and PAYE service to help you manage Income Tax payments with ease.

National Insurance

Sole traders, freelancers, and self-employed business owners must all pay their own National Insurance Contributions (NIC). This is done via a Self-Assessment Tax Return, which must be filed with HMRC no later than 31 January following the end of the previous tax yar.

There are two types of NIC, both of which must be paid. Class 2 NIC are £3.45 per week; Class 4 NIC are charged at a percentage of trading profits which equates to 9% on profits £12,750 – £50,270 and 2% on profits over £50,270.

If you are an employer, it is your responsibility to ensure your employees’ NIC is paid to HMRC by deducting it from their salary using PAYE (Paye As You Earn). This is charged as above with the company liable for an additional 13.8% per employee on the income of salaries between £758 – £4,189 a month. Different rules apply for apprentices, employees under 21, veterans, and Freeport workers.

VAT

If you are a VAT-registered businesses, you can add VAT onto the price of your products and services. VAT – or Value Added Tax – is charged at 20%. All businesses with a VAT-taxable turnover of more than £85,000 must register for VAT with HMRC. You can also choose to register your business for VAT if your turnover is less than £85,000.

As a VAT-registered business, you must:

• Include VAT in the price of all products and services at the correct rate with the exemption of zero-rate items
• Keep a record of all VAT paid on things bought for the business
• Account for VAT on any import into the UK
• Send a VAT report to HMRC every three months detailing the amount of VAT you’ve paid to other businesses and the amount of VAT you’ve charged your customers
• Pay any VAT owed to HMRC. This is usually the difference between any VAT you’ve paid out to other businesses and the amount of VAT you’ve charged your customers.

Business Rates

If your business owns commercial property such as offices, a retail space, warehouse, factory, or holiday rental, you will be required to pay business rates on those properties. Unlike the taxes mentioned above, Business Rates are paid to your Local Council, which sends you an annual bill for the following tax year.

Business Rates are calculated using the property’s rateable value (an estimate of what it would cost to rent that property for a year, commencing on a certain date) and multiplying it by the multiplier, which is set by the government each year. The multiplier that’s applied to a property varies in accordance with the rateable value of that property.

Dividends Tax

One of the ways to pay yourself as a self-employed business owner is through dividends. If you choose to do this, you will have to pay Dividend Tax to HMRC on anything over the 2023-24 tax-free dividend allowance of £1,000 as set by the government.

The rate of Dividend Tax due is based on your Income Tax Band:

• Basic Rate = 8.75%
• Higher Rate = 33.75%
• Additional Rate = 39.35%

Capital Gains Tax

When you sell an asset that has increased in value, such as property, plant and machinery, shares, or rights to a trademark, you will have to pay Capital Gains Tax (CGT) directly to HMRC on any profits you make from its sale.

The rate of CGT is calculated in accordance with:

• The type of asset you’ve sold and;
• The tax band into which the gain falls when added to your taxable income.

CGT is charged at either 10% or 18 % for Basic Rate taxpayers (those earning £12,571 – £50,270). If you are a Higher or Additional Rate taxpayer earning over £50,271, the rate is either 20% or 28%. For UK residential property gains, CGT Returns must be filed with HMRC within 60 days of the sale of the asset.

Penalties for incorrect tax payment

The penalties for inaccurate or insufficient payment of business taxes to HMRC can be costly and severe. Fines are applied at a percentage of the amount owed. This varies in accordance with how late and/or deliberate the non-payment is deemed to be.

For non-payment that’s a result of genuine carelessness, a fine of up to 30% of the amount owed can be levied against the business owner. In instances where insufficient or non-payment of taxes is shown to be deliberate and concealed, a fine of up to 70% of the outstanding figure is applied.

Do I need an accountant for business tax?

Business tax in the UK can be complicated, and as outlined above, there are many different types of tax to consider. What’s more, the taxes your business is liable for can vary from year to year – and even quarter to quarter – as the status of the company and its profit margins change.

As a business owner, managing your own tax payments is a difficult, time-consuming process. The need to keep accurate digital records of all transactions can add further pressure. There is also the possibility of missing out on vital tax benefits and deductions that you or your businesses might be entitled to when doing your own tax returns.

At CTT Accountancy, we offer a holistic approach to creating a tax-efficient strategy for your business. By taking the time to get to know you and your business, we provide a tailored tax service to suit your needs and maximise your benefits.

We support our clients with everything from Income Tax, NI, and PAYE to Corporation and Capital Gain Tax. With our expert help, you’ll not only be fully compliant, you’ll also gain fresh insight into your business taxes with a carefully curated tax strategy, drawing on the latest information from HMRC to ensure you save money at every opportunity.

Find out how to make your business more tax efficient with a personalised tax plan by contacting a member of the CTT Accountancy team today.