The type of tax you pay depends on structure of the business and it may be useful to consider the most beneficial business structure for you.
Whether you are a sole trader, self-employed or a new start-up, TaxAssist Accountants can help you to navigate small business taxes.
What is the business tax rate in the UK?
Business tax is paid depending on how you trade. In this article we look at the different rates of tax businesses pay. Here we specifically look at a key recent change to the corporation tax rate.
From April 2023, businesses will pay the higher 25% corporation tax rate if profits exceed £250,000. Smaller businesses with profits up to £50,000 will continue to pay the previous Small Profits Rate (SPR) of 19%.
Businesses with profits between £50,000 and £250,000 will receive marginal relief.
How much business tax do I pay?
A business pays tax depending on business structure, level of turnover, number of employees and location of the business. As you would expect, the higher the level of profits, the higher the tax liability. However, it is not as simple as that, other factors will play part in what sort of tax businesses pay.
Employers must budget for National Insurance Contributions, and VAT-registered businesses must account for VAT (Value Added Tax) liabilities.
It is important to have tax planning discussions with your accountant to ensure you understand the tax implications of your business structure and size changing.
What are the different types of tax businesses will need to pay?
It is important to know what tax your business will pay and ensure you meet all your obligations. The chart below shows you the type of tax your business may need to pay.
|Partnership||Limited Liability Partnership
|National Insurance Contributions||Yes||Yes||Yes||Yes|
|Capital Gains Tax||Yes||Yes||Yes||No|
|Pay As You Earn (PAYE)||Yes||Yes||Yes||Yes|
A UK company must pay corporation tax on income earned after deduction of salaries and allowable expenses and tax reliefs.
Businesses self-assess and pay corporation tax annually. A company pays corporation tax 9 months and 1 day after its accounting period ends. Larger companies may pay corporation tax over four regular instalments.
You complete self-assessment using a CT600 form. Businesses that file their corporation tax late or provide inaccurate information could receive a penalty from HM Revenue and Customs (HMRC).
Value Added Tax (VAT) is the tax added to most products and services.
Companies must register for VAT:
- if their total VAT taxable turnover for the last 12 months was over £85,000 (VAT threshold) or
- if they expect their turnover to go over £85,000 in the next 30 days
VAT can be payable monthly, quarterly, or annually. Submit VAT returns within 37 days of the period's end, regardless of whether there is VAT to pay or reclaim.
Income tax is the amount an individual with taxable income (usually property income and/or income from partnership or sole-trade activities) must pay. Income tax is self-assessed using a tax return and needs to be paid by 31st January each year.
Individuals must pay income tax if their taxable income is more than £12,570, the personal allowance for the 2023-24 tax year. Some individuals are not entitled to the personal allowance.
Where company directors are receiving a salary and benefits, this income may need to be reported on their tax return as part of their taxable income. This will depend on whether the director is required to complete a tax return.
The rate of income tax payable depends on the level of taxable income earned.
England, Wales and Northern Ireland
|Band||Taxable Income||Tax Rate|
|Personal Allowance||Up to £12,570||0%|
|Basic Rate||£12,571 to £50,270||20%|
|Higher Rate||£50,271 to £125,140||40%|
|Additional Rate||over £125,140||45%|
|Band||Taxable Income||Tax Rate|
|Personal Allowance||Up to £12,570||0%|
|Starter Rate||£12,571 to £14,732||19%|
|Basic Rate||£14,733 to £25,688||20%|
|Intermediate rate||£25,689 to £43,662||21%|
|Higher Rate||£43,663 to £125,140||42%|
|Top Rate||over £125,140||47%|
Dividend income is taxed at different rates, which are noted later in this article.
Individuals are also entitled to a tax-free trading and property allowance of £1,000 each, which can boost tax-free income where there are no other associated costs to attribute to that income.
Businesses that have employees will need to pay National Insurance Contributions through the employers’ PAYE scheme.
Employer National Insurance contributions
Employer National Insurance Contributions (NICs) are also known as secondary Class 1 NICs. These are different to primary Class 1 NICs which are made by employees.
Employer NICs are paid at 13.8% of an employee’s gross salary above £9,100 (secondary threshold).
Some businesses can reduce their NIC liability by up to £5,000 using the employment allowance.
Sole traders and self-employed National Insurance Contributions
Sole-traders and self-employed individuals may be required to pay Class 2 and Class 4 NICs.
In the 2023/24 tax year, an individual will pay:
- class 2 NICs £3.45 per week where profits exceed £12,570.
- class 4 NICs at 9% on profits between £12,570 and £50,270, and at 2% on earnings above £50,270.
Dividends are the distribution of company profits to shareholders. It is a tax-efficient way for shareholders to take income from a company. For 2023/24, the first £1,000 of dividends an individual receives are tax-free. Thereafter tax is payable based on the follow bands.
|Tax Band||Total Income||Tax Rate|
|Basic Rate||£12,571 – £50,270||8.75%|
|Additional rate||£125,141 upwards||39.35%|
A business, including sole traders and limited companies, may be subject to business rates if it:
- occupies non-domestic premises, or
- uses part of a domestic property for non-domestic use.
Local authorities will calculate business rates annually, based on the premise’s ‘rateable value’. Businesses should receive notice from their local council between February and March showing the charges applicable for the year from April.
Small business rates relief
There are relief schemes which may enable you to reduce your business rates, including the small business rates relief. More information can be found here for businesses in England, Wales, Northern Ireland and Scotland.
Capital Gains Tax
Capital Gains Tax is payable on the disposal of some assets, where a gain in made. A disposal can be a sale, swap, or gift, and can include the sale of a company, property, assets and shares.
All individuals have a tax free allowance (Annual Exempt Amount ‘AEA’). In 2023/24, the AEA is £6,000 or £3,000 for trusts. These allowances were previously much higher, and the allowance is reducing to £3,000 and £1,500 for trusts from April 2024.
How long should you keep tax records for a UK limited company?
A company should keep tax records for at least six years from the end of the accounting period. E.g. Records for the year ended 31st March 2023 should be kept until 31st March 2029.
Can you close a limited company without paying tax?
There are two main methods to close a limited company:
- voluntary strike off/dissolving your company,
- members’ voluntary liquidation.
There are advantages and disadvantages of both, and advice should be sought.
If a company is not trading, and you have told HMRC, the company will not need to pay corporation tax. The last period of trade should be accounted for and included on the final corporation tax return. All liabilities should be paid as part of closing the company.
Who pays corporation tax?
Incorporated companies, co-operatives, members’ clubs, housing associations and trade associations may be required to pay corporation tax.
Arrange a free TaxAssist initial consultation
At TaxAssist Accountants we can help your business determine how much tax it needs to pay, file a return and ensure you are aware of and meet your obligations. Call today on 0800 0523 555 or contact us using the online enquiries form.
Date published 27 Sep 2023 | Last updated 2 Oct 2023This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Catherine Heinen, FCCA
Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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