Paying taxes as a UK business can be complex, whether you are a small start-up or a nationwide corporation. No matter if you handle your accounting yourself or prefer outsourced financial services, it can be helpful to know some key taxes you might face.
Here are our top tips for understanding UK corporate taxes.
There are a range of business taxes that apply in England — do you know which ones apply to your business?
Limited companies must pay corporation tax on their profits. If your taxable profits are more than £250,000, you will pay the main rate of corporation tax, which is 25%. If your company made a profit of £50,000 or less, you’ll pay the ‘small profits rate’ of 19%. You'll pay a marginal rate of tax on profits between £50,000 and £250,000.
If you are VAT-registered, you must charge VAT on all taxable products and services you sell (‘output tax’), then submit a quarterly return to HMRC. Businesses making a turnover of £85,000 (excluding VAT-exempt sales) must be VAT-registered, but some smaller businesses voluntarily register to pay VAT. This is because VAT can be claimed back on products and services that you buy (‘input tax’), and if your input tax exceeds your output tax, you can claim back the difference from HMRC.
Business rates are charged on business properties, and the amount you pay is based on the property’s value. This can apply to commercial properties, or to your home if a large proportion of it is used for business purposes, such as a shop with living space above it. HMRC’s business rates calculator can help you to work out your business rates liability.
If your business employs people, you are liable to make National Insurance contributions on their pay and benefits, called ‘secondary Class 1 NICs’. This usually amounts to 13.8% of the earnings or benefit, but there are exemptions for some employees.
If you run a limited company, as the director you will need to take an income on which you will be required to pay income tax and National Insurance, as you would with a salary from an employer. You can take your income as a salary, or you can take it as dividends, which involves a more complex process but is usually more tax efficient. Care would need to be taken to ensure your continued entitlement to State Pension benefits.
Complementing the variety of UK business taxes is a range of exemptions and reliefs designed to lighten the burden.
Some businesses are eligible for business rates relief in England, Scotland, Wales, and Northern Ireland, although this is handled differently across the nations. Some properties are also completely exempt from business rates.
Additionally, your business may be entitled to corporation tax allowances and reliefs for profits of a certain amount, the purchase of assets, or for other specific circumstances like closing your business to become a sole trader or partnership.
You will likely have come across these three terms when researching your corporate taxes and may even have seen them incorrectly used interchangeably.
Tax planning involves arranging your finances in an efficient way to pay the right amount of tax and no more. This could be by utilising reliefs and exemptions and making the most of tax-free allowances which are designed to help businesses thrive. Most importantly, though, tax planning refers to practices that are completely legal, both in the letter and spirit of the law.
Tax avoidance refers to the murky middle ground between legal and illegal. It usually involves exploiting loopholes in the law, which means that whilst technically not illegal, these practices aren’t in the spirit of the law and may even amount to evasion if put in front of a court. HMRC are increasingly cracking down on tax avoidance and new schemes to combat it are being introduced all the time.
Finally, tax evasion refers to deliberately withholding information, providing false information, or otherwise misleading HMRC in order to pay less tax. It amounts to tax fraud and is punishable with a hefty fine, or even a prison sentence.
While some larger businesses may benefit from an in-house tax expert, it can be more cost-effective to speak to an external financial management consultant. They’ll be able to guide you through which corporate taxes apply to you and ensure you remain both compliant and financially viable.
There is no room for guesswork when it comes to corporate taxes, so if you aren’t sure, working with a trusted accountant and business adviser takes the stress out of the process.
Whether you’re in need of an accountancy audit or have questions about corporate taxes, the team at Duncan and Toplis can help. Our financial management experts have been supporting organisations in the East Midlands and beyond since 1925. We take great pride in being a trusted partner to our clients who can rest assured their business taxes are being taken care of.
Get in touch to find out how we can make paying your corporate taxes easy.