Connor Campbell
Duncan Ferris
Hannah Nemeth
Whether you’re grappling with corporation tax or filing your self-assessment tax return, keeping on top of your taxes is one of the most important aspects of running a business – and one of the most costly if you get it wrong.
That’s why we have put together a guide on the main business taxes you should be aware of when operating in the UK, including what, when and how you will need to pay.
» MORE: How to file your taxes
Which business taxes do you need to pay?
Which businesses taxes you are required to pay depends on a number of factors, including:
- how your business is structured
- how much profit you make
- how you pay yourself as an owner (whether that’s through business drawings, a salary, or dividends)
This means that you will not need to pay every single one. However, it is good to know the full breadth of business taxes in the UK, as it may help you structure and run your organisation.
Typically, the main business taxes to be aware of are:
- corporation tax
- income tax
- National Insurance
- VAT
- business rates
- dividends tax
- capital gains tax
» MORE: Do I need an accountant?
Corporation tax
If your business is structured as a limited company, then you will need to pay corporation tax. You will also need to pay corporation tax if you are a foreign company with a UK branch or office, or a club, co-operative or other unincorporated association.
Corporation tax is paid annually on any profits your business makes during your financial year. This not only includes trading profits from ‘doing business’, but any profits your business makes on investments and selling assets.
The corporation tax rate you are charged is determined by the size of your profits. For the 2024/25 tax year, corporation tax rates are as follows:
- Profits under £50,000: You are charged at the small profits rate of 19%.
- Profits over £250,000: You are charged at the main rate of 25%.
- Profits between £50,000 and £250,000: You are charged at the 25% main rate, but can reduce the effective rate you pay through Marginal Relief (which operates on a sliding scale). You can calculate your Marginal Relief at gov.uk.
Corporation tax isn’t automatically deducted from your profits. Nor do you receive a bill in the post. In order to pay corporation tax, you need to complete the following steps:
- Register for corporation tax. You need to do this when you start your business, or restart a dormant business. Most businesses do this at the same time as registering with Companies House. To register, you will need your Government Gateway user ID and password to log into your business tax account, alongside your Unique Taxpayer Reference (UTR). If you do not have a user ID, you will get the chance to create one when you first sign in.
- Keep your accounting records up to date. It is on you – or your accountant – to maintain your accounting records. You will use these to prepare a company tax return. This is how you calculate the amount of corporation tax you need to pay.
- Pay your corporation tax. You must pay your corporation tax within nine months and one day of the end of your accounting period. If your profits are greater than £1.5 million, you will need to pay in instalments. You will still need to meet this deadline even if you are reporting that you have nothing to pay.
- File your company tax return. The deadline for filing your company tax return is slightly later than paying your corporation tax. You have 12 months following the end of your accounting period to submit your return.
It’s also worth noting that capital allowances may offer some tax relief to your business. Capital allowances allow businesses to deduct the cost of certain necessary items, such as company vehicles and machinery, from total pre-tax profits. This could significantly reduce your tax bill, so make sure to claim if you are eligible.
Income tax
There are two ways you can encounter income tax as a business:
- as a sole trader, freelancer or self-employed business owner, as you will pay income tax on your own profits that are more than your personal allowance
- as an employer, as every employee will pay income tax on their salary over their personal allowance, and have this deducted from their pay
If you are a sole trader, freelancer, or are self-employed, then you will need to pay your income tax via your self-assessment tax return. This must be submitted and paid, no later than 31 January, following the close of the most recent tax year. For example, for the 2023/24 tax year, which ended on 5 April 2024, the deadline is 31 January 2025. If you miss the deadline, it is likely you will have to pay a penalty.
If you have never submitted a self-assessment tax return before and need to do so for the first time, you’ll need to inform HM Revenue & Customs (HMRC) by 5 October following the end of the applicable tax year. Failure to do so could result in a fine.
Self-employed income tax rates are the same as for employees. The difference is that income tax will be charged on your trading profits, rather than a salary. For the 2024/25 tax year, the income tax rates are as follows for 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% |
Income tax rates for Scotland differ slightly from the rest of the UK, and can be found at gov.uk.
Alongside your personal allowance, you will not pay income tax or National Insurance contributions on your ‘trading allowance’ – that is the first £1,000 you make when self-employed.
If your business has directors or employees, you will need to register your company with PAYE (Pay As You Earn). This is how HMRC collects income tax and National Insurance from your payroll, through monthly deductions from each employee’s and director’s pay cheques.
National Insurance
As with income tax, there are two main ways you can encounter National Insurance as a business:
- As a sole trader, freelancer or when self-employed: The 2023/24 tax year was the last year that sole traders, freelancers, and self-employed workers were required to pay both Class 2 and Class 4 National Insurance Contributions (NICs). Class 2 NICs were set at a flat £3.45 a week and were payable by self-employed workers with profits over £12,570. However, from the 2024/25 tax year onwards, Class 2 NICs have been abolished entirely.
- Self-employed workers earning over the above threshold will still be required to pay Class 4 NICs, which were set at 9% in the 2023/24 tax year. For the 2024/25 tax year, Class 4 NICs have been reduced to 6% on profits between £12,570 and £50,270. The rate on profits over £50,270 is 2%. These payments are made through your self-assessment tax return.
- As an employer: Alongside your employees’ own National Insurance contributions, you make Class 1 NICs per employee, at a rate of 13.8% for income above the secondary threshold. That’s a salary of £758 to £4,189 a month. However, there are different rules for apprentices, employees under 21, veterans, and freeport workers.
This means, as with income tax, you will need to be registered with PAYE if you have any directors or employees.
» MORE: National Insurance changes
VAT
VAT, or value added tax, is added to most goods and services you would sell as a VAT-registered business, and is typically charged at 20%. You can only charge VAT if you are a VAT-registered business.
Once you have registered your business for VAT online via your Government Gateway account or your accountant or agent, you will have a number of responsibilities, including paying HMRC any VAT you owe. If you have charged more VAT to customers than you have paid in VAT to other businesses, you will need to pay the difference to HMRC.
There is, however, a list of items that are eligible for a reduced rate of VAT, or ‘zero-rate’ items on which VAT is not charged. Examples of zero-rate items include books, children’s clothes and most goods exported to outside the UK. A more comprehensive breakdown of reduced and zero-rate items can be found at gov.uk.
As a business, you must register for VAT if your taxable turnover is greater than £90,000. You can still choose to become a VAT-registered business if your taxable turnover is below this threshold – it just isn’t compulsory.
To calculate your VAT taxable turnover, you need to add up the total of all the goods and services you have sold across a 12-month period, excluding any zero-rate items, and see if that total is greater than the threshold.
VAT taxable turnover is calculated on a rolling 12-month basis, not just across your 12-month financial year. This means that at the end of every month, you will need to calculate your 12-month VAT taxable turnover, to check if you have crossed the £90,000 threshold. If you have crossed the threshold, you have 30 days to inform HMRC and register for VAT.
Business rates
If you operate your company out of a dedicated business location, such as a shop or office, then you will need to pay business rates to your local council.
Business rates are calculated by multiplying your property’s ‘rateable value’ by the tax rate, or ‘multiplier’.
The ‘rateable value’ of your property is based on an estimate of its open market rental value on a specific date.
The ‘multiplier’ is typically expressed in pence. In England and Scotland, the multiplier, or ‘poundage’, you are charged at is determined by the rateable value of your property. In Northern Ireland, it is informed by the region and district your business premises are based in. And in Wales, it is a fixed multiplier for all businesses. There are also slightly different rates for properties in the City of London.
Across the UK there are various levels of business rate relief you can apply for to reduce your bill, including small business rates relief (SBRR) and rural rate relief. Additionally, businesses in the retail, hospitality and leisure sector in England are eligible for business rates relief of 75%, up to £110,000. Retail, hospitality and leisure relief in Wales is set at 40% for the 2024/25 tax year.
Your local authority will send you a business rates bill ahead of the start of the new tax year. In England, Scotland and Wales, you can expect your bill in February or March; in Northern Ireland, you may not receive it until early April.
Dividends tax
If you pay yourself a dividend as the owner of a business, you will pay tax on that sum if it is greater than the 2024/25 dividend allowance of £500.
The dividends tax rate you pay is determined by your income tax band. To calculate your new income tax band, you need to add your total annual dividends to your base salary.
- Basic rate (£12,571 to £50,270): If you are on the basic rate of income tax, any dividends over your allowance will be charged at a rate of 8.75%.
- Higher rate (£50,271 to £125,140): Anyone on the higher rate of income tax will see dividends over the allowance charged at a rate of 33.75%.
- Additional rate (over £125,140): If you pay the additional rate of income tax, your post-allowance dividends are taxed at a rate of 39.35%.
If your dividends total less than £10,000, you will need to ask HMRC to change your tax code. If your dividends exceed £10,000, you will need to complete a self-assessment tax return.
Capital gains tax
Capital gains tax is paid on the profit you make when you sell an asset, such as shares in a business or a property that isn’t your home, that has increased in value.
While you don’t need to be a business owner to pay capital gains tax, you should be aware of the assets you may need to pay the tax on as a business. These include:
- land and buildings
- fixtures and fittings
- plant and machinery
- shares
- registered trademarks
- your business’s reputation
You may be able to reduce the amount of capital gains tax you pay when selling all or part of your business through Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief). Alternative forms of relief could be available if you are selling assets that are promptly replaced or gifting assets to another business or individual.
What does tax deductible mean?
In order to cut your overall tax bill, you can deduct certain costs and expenses from your turnover to reduce your taxable profit. Tax-deductible expenses differ between sole traders and limited companies.
For the self-employed expenses can include:
- office costs, such as business rent and stationery
- staff costs, including salary
- travel costs, such as train tickets, or filling your fuel tank (but not for travel between home and work)
- specific work clothing, such as uniforms and protective gear
- advertising and marketing costs (but not entertaining clients or event hospitality)
- legal and financial costs, such as accountants, solicitors and surveyors
- banking charges, such as overdraft and credit card fees
- certain training courses (but not those related to starting a business, or expanding into new areas)
However, if you are self-employed, you cannot claim expenses if you have used your £1,000 trading allowance.
The ability to more easily keep track of your tax-deductible expenses is one reason to open a business bank account as a sole trader or freelancer. This is because running your business from your normal current account makes it harder to separate personal expenses that cannot be deducted from those allowable business expenses listed above.
» ROUNDUP: Best business bank accounts
Image source: Getty Images
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