As a small business owner in the UK, understanding business tax is crucial to ensure that you comply with the law and avoid any penalties. Business tax in the UK is a complex subject, and it can be overwhelming for small business owners who are not familiar with the tax system. This comprehensive guide will provide you with all the information you need to know about business tax in the UK.
What is Business Tax?
Business tax is a tax that is levied on the profits of a business. In the UK, businesses are required to pay various types of taxes, including corporation tax, value-added tax (VAT), and business rates. The amount of tax that a business is required to pay depends on its profits, turnover, and other factors.
Corporation tax is a tax that is levied on the profits of limited companies and other organizations, including clubs, societies, and associations. The current rate of corporation tax in the UK is 19%, and it applies to all profits earned by a company, regardless of whether they are generated in the UK or overseas.
- Small businesses with profits of up to £50,000 are eligible for the small profits rate of corporation tax, which is currently set at 19%.
- Businesses with profits between £50,000 and £250,000 are subject to the main rate of corporation tax, which is also currently set at 19%.
- Businesses with profits over £250,000 are subject to the main rate of corporation tax, which is currently set at 30%.
Value-Added Tax (VAT)
VAT is a tax that is levied on the sale of goods and services in the UK. Businesses that are registered for VAT are required to charge VAT on their sales and pay VAT on their purchases. The current standard rate of VAT in the UK is 20%, although some goods and services are subject to reduced rates or are exempt from VAT.
- Businesses with a turnover of less than £85,000 are not required to register for VAT, although they can choose to do so voluntarily.
- Businesses with a turnover of over £85,000 are required to register for VAT and submit regular VAT returns to HM Revenue and Customs (HMRC).
Business rates are a tax that is levied on non-domestic properties in the UK, including shops, offices, and factories. The amount of business rates that a business is required to pay depends on the rateable value of the property and the location of the property.
- Small businesses with a rateable value of less than £12,000 are eligible for small business rate relief, which means that they do not have to pay any business rates.
- Businesses with a rateable value of between £12,000 and £15,000 are eligible for tapered relief, which means that they pay a reduced rate of business rates.
- Businesses with a rateable value of over £15,000 are subject to the full rate of business rates.
How to Pay Business Tax
Businesses in the UK are required to pay their taxes to HMRC. The method of payment depends on the type of tax that is being paid.
Businesses can pay their corporation tax online using the HMRC website. They can also pay by bank transfer or by cheque.
Value-Added Tax (VAT)
Businesses can pay their VAT online using the HMRC website. They can also pay by direct debit or by bank transfer.
Business rates can be paid online, by direct debit, or by cheque.
Understanding business tax in the UK is essential for small business owners to ensure that they can navigate the complex tax landscape and comply with all legal obligations. By gaining a comprehensive understanding of business tax, entrepreneurs can make informed financial decisions, optimise their tax liabilities, and avoid penalties or legal issues that may arise from non-compliance.