As a small business owner in the UK, it’s important to have a good understanding of the tax laws that apply to your business. Not only will this help you stay compliant with the law, but it can also help you save money by taking advantage of tax deductions and credits. In this blog post, we’ll provide a comprehensive overview of the tax considerations for small businesses in the UK, including how to pay your taxes and take advantage of available tax breaks. Clayton Stirling & Co is here for you and your small business, get in touch with us if you are confused about any taxes, or just need some advice on general accounting.
First, let’s start with the basics. As a small business owner in the UK, you’ll likely be responsible for paying several types of taxes, including corporation tax, income tax, and value-added tax (VAT). HMRC has a very useful page on their website that takes you through all of the different types of tax, you can read them here.
Corporation tax is a tax on the profits of limited companies. If your business is a limited company, you’ll need to pay corporation tax on your profits. The current corporation tax rate is 19%, and you’ll need to pay it if your business has profits of £1,000 or more. You’ll need to file a corporation tax return and pay any taxes due to HM Revenue and Customs (HMRC) within nine months and one day of the end of your accounting period.
“From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25%. Although the current 19% rate will still apply if your profits are £50,000 or less, your company will pay more tax on profits above this level.” – Bytestart, read more about how this might affect you and your business here.
Income tax is a tax on your personal income, including any income you receive from your business. If you’re self-employed, you’ll need to pay income tax on your profits (i.e., your income after deducting business expenses). If you have a partnership or limited company, you’ll need to pay income tax on any salary or dividends you receive. The current income tax rates for individuals in the UK are 20%, 40%, and 45%.
“Understanding how Income Tax works can seem confusing, particularly when you’re first starting out in the workplace. Knowing how Income Tax and the Personal Allowance work will allow you to figure out if you’re being paid the right amount and help you budget.” – Moneyhelper, this website has a huge amount of information on Income tax and Personal tax allowance so you if want a more in-depth view then read this article.
Value-added tax (VAT) is a tax on the sale of goods and services in the UK. If your business is VAT-registered, you’ll need to charge VAT on your sales and pay it to HMRC. You can also claim back any VAT you’ve paid on your business expenses. The current VAT rate is 20%, and you’ll need to register for VAT if your business has taxable supplies (i.e., sales) of more than £85,000 in a 12-month period. Xero have a great article that goes into more detail about VAT, read here.
Now that you have a basic understanding of the types of taxes you may need to pay as a small business owner in the UK, let’s talk about how to pay them. You’ll need to register with HMRC and set up a system for paying your taxes, whether that’s through online banking, direct debit, or another method. You’ll also need to keep accurate records of your income, expenses, and sales to ensure that you’re paying the correct amount of tax.
In most cases, you’ll need to pay your taxes on a quarterly basis through the HMRC’s Making Tax Digital (MTD) system. This means that you’ll need to submit your VAT return and pay any VAT due every three months. You’ll also need to pay any corporation tax or income tax due on a quarterly basis through MTD or through self-assessment if you’re self-employed.
Now that you know how to pay your taxes, let’s talk about how to save money on them. As a small business owner in the UK, you may be eligible for various tax deductions and credits that can help lower your tax bill. Some common tax breaks for small businesses in the UK include:
- Business expenses: You can deduct a wide range of expenses that are directly related to your business, such as rent, utilities, and travel costs.
- Capital allowances: If you purchase business assets such as equipment or vehicles, you may be able to claim capital allowances to reduce your tax bill.
- Research and development (R&D) tax credits: If your business is engaged in innovative research
In conclusion, understanding and paying taxes as a small business owner in the UK is essential for staying compliant with the law and maximizing the profitability of your business. By keeping accurate financial records, registering with HMRC, and taking advantage of available tax deductions and credits, you can minimize your tax burden and focus on growing your business. It’s also a good idea to work with a professional accountant or tax advisor to ensure that you’re paying the right amount of tax and taking advantage of all available tax breaks. Clayton Stirling & Co is here to help when it comes to everything tax related for your business, big or small, we are here to help. Get in touch today for accountants that have been trusted in Gravesend for over 25 years.