When you start a business, a wide variety of issues can occupy your attention, with taxes often put on the back burner while you deal with more pressing concerns. However, it’s important to remember that there are substantial penalties for businesses that pay their taxes too late.
Therefore, it’s always a good idea for small business owners to have a solid understanding of their tax obligations or otherwise, leave it to wealth and tax management companies to sort it out.
From corporation tax to VAT, and capital gains tax to capital allowance, this article from luminablog.co.uk will show you the types of taxes UK businesses pay and how they work.
Corporation tax is a tax on the profits made by your business over the financial year. It must be paid nine months and one day after your business’s accounting period ends. If your business is a limited company, it must pay corporation tax on its profits – both from trading and from the sale of investments or assets.
You’ll need to register for this tax when you set up as a limited company (within three months of starting to trade). You are responsible for ensuring that you pay the right amount of tax, so you must keep accurate company accounts and file a Company Tax Return by your deadline (an accountant can take care of this).
Currently, the corporation tax rate is set at 19%.
Income tax is paid on income you receive personally, such as salary and dividends. For sole traders, income tax will be paid based on the profit made from the business which is included on your self-assessment tax return.
If your business is a limited company (paying corporation tax on its profits), as a director you will still need to take an income, which could be subject to income tax and NI contributions. You have some flexibility about how you do this, and this can help you reduce the tax you need to pay.
The two main ways to take an income from a limited company are as salary and dividends.
National Insurance helps to build up your state pension and pay for public services. As is the case with income tax, National Insurance will be taken via PAYE for limited company directors. The payment process for sole traders is a little different. Essentially, it’s calculated as part of the annual self-assessment and paid to HMRC and as part of your payment on account.
VAT (Value Added Tax) is a consumption tax that’s added to the cost of goods and services. Companies aren’t registered for VAT automatically, and unless your annual turnover exceeds the VAT threshold (£85,000) it doesn’t need to be paid.
When your business is registered for VAT, you must charge it on all VAT-able products and services. You will then submit a quarterly VAT return to HMRC, and at the end of each tax year you receive a tax bill for the total that you owe.
It’s also important to remember that your company’s tax obligations are determined by your business structure, which also dictates when your taxes are due.
Business rates If your business is run from an office, shop, factory or warehouse – anywhere that isn’t a domestic property – then it’s likely you’ll be charged business rates on this property. In a similar way to council tax, business rates bills are calculated and sent out by local authorities. To help businesses during the coronavirus outbreak, the government
Business rates are calculated on the property’s ‘rateable value’ meaning its estimated value on the open market if you were to sell it. The Valuation Office Agency (VOA) carries out revaluations of commercial properties.