Resource guide for Business tax

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Tax resources for UK businesses

Running a business is hard enough without having to navigate the complex field of tax. With a plethora of different taxes applying to UK businesses, knowing what you’re required to pay can be incredibly difficult – but that doesn’t make it any less important to get it right. 

Whether you manage an international corporate group or are just a one-person-outfit, this guide will help you to find the resources you need to not only pay what you owe but also to better understand how tax affects your business.

This guide is intended for reference purposes only, and should not be relied upon or used as an alternative to qualified tax or accounting advice. The taxes that apply to your business will vary depending on its structure, commercial activities, and financial performance. The inclusion of a link in this guide does not constitute an endorsement of any company or service.

Regardless of whether you just want to pay your taxes or review and restructure your business to limit liability, you need to have a good understanding of which ones apply to you. Below we summarise the key taxes that apply to UK businesses, and have included links to the official government webpages for each.

 

Types of UK business tax

Just as the name suggests, this is tax that you pay on your personal income. It’s particularly important for self-employed people to understand income tax as this will often be their primary form of tax liability. It covers income generated from employment, any profits from self-employment, many pensions, and other forms of income such as money generated from rental properties. If you’re a sole trader or are self-employed, you may have to complete an income tax self-assessment which will help HMRC to determine what you owe.

More information is available from the GOV.UK website, whilst the Money Advice Service have prepared a helpful guide to help people understand how much Income Tax they should pay.

Applicable to limited companies, foreign companies with a UK branch, and certain other organisations, Corporation Tax is payable on profits from doing business. Corporation Tax is not simply billed to those who owe it, and instead you will have to work out and pay what you owe – usually with the assistance of an accountant.

This tax is payable each financial year, and more information can be found on the GOV.UK Corporation Tax page. The consumer group Which? has also created a handy Corporation Tax guide here.

Businesses that trade in products and services with a turnover of over £85,000 may be required to charge their customers VAT (value-added tax). With a usual rate of 20%, VAT liability sees businesses submitting VAT returns and paying what they owe directly to HMRC.

For a helpful overview, visit the GOV.UK VAT page. Business site the Entrepreneur Handbook also plays host to a VAT ‘how to’ guide covering off how it works and explaining which businesses need to register.

PAYE is a form of taxation that applies to UK businesses who employ staff. It generally includes employee Income Tax deductions, certain National Insurance payments, student loan repayments and other similar taxes that are passed from employee to HMRC via the business.

There is a helpful overview of PAYE liability available on the GOV.UK website. Renowned recruitment site Reed.co.uk also provides a complete overview of PAYE – available here.

National Insurance contributions (NICs) are made by individuals in order to qualify for certain benefits and for the State Pension. How National Insurance applies to a business will depend on the way the business is run, along with whether it employs anybody. If your business has employees, their National Insurance contributions will be taken via Employers’ PAYE – however this works differently for limited company directors and sole traders. For more information, visit the GOV.UK National Insurance page.

Business owners might also benefit from reading the National Insurance guide available at corporate advisory firm CompanyBug

Self-employed company owners may choose to pay themselves wholly or partly via dividends. These are shares of the company’s profits, however income from this route is still subject to taxes. There are various tax-free income allowances that relate to dividend payments, and more information can be found on the GOV.UK dividend taxes page.

High street bank Barclays has also created a useful guide on how dividends are taxed, so to find out more head over to their site available here.

If your business operates from a non-domestic property such as a shop, office or warehouse, you may need to pay Business Rates. These are collected by local area authorities (councils) and bills are usually sent in February or March. Whilst Business Rates apply to a wide range of businesses, there are multiple relief schemes and it’s possible that you may qualify for a discount. For more information, visit the GOV.UK Business Rates overview page.

Broadland District Council have created a particularly helpful and easy to understand overview of Business Rates, which can be found at the following link.

Income tax

Income tax is a fact of life for many of us, but it features as an even more important part of the year for the self-employed. That’s because many self-employed traders and entrepreneurs are required to file a Self-Assessment tax return each year to provide HMRC with enough information to tax them on their personal income.

For a detailed overview of income tax in the UK, see the Citizens Advice page available at the following link.

If you’re a sole trader, a company director who receives a salary and dividends, or are in a business partnership, you can read Simply Business’ guide to Self-Assessment Income tax returns at the following link.

Even those who receive income from rental properties may be required to fill in a Self-Assessment tax return, and a further guide on income tax for landlords can be found here.

It might be that you have a rough idea of how much you earn on a regular basis, and if that’s the case, you can use the HMRC tax prediction tool to give an indication of your tax liability. The tool can be found here, and although it doesn’t account for complex personal circumstances, it could help you to plan for an upcoming tax bill.

To learn how to work out your taxable profits, visit the Low Incomes Tax Reform Group page here

It’s worth keeping in mind that many self-employed people will be eligible to deduct certain business expenses from their total income, bringing down their income tax liability in the process. To find out more, read the Money Advice Service guide found at the following link.

To access a comprehensive and up-to-date technical guide to Income Tax, visit the site of big four accountancy firm PWC to find out more.

Finally, HMRC provides a number of different ways for individuals to pay their Self-Assessment tax bill, including via debit or corporate credit card or cheque. For more information, see their page here.

Corporation Tax

Corporation Tax is payable from all taxable profits made by any company based in the UK, regardless of where in the world the profits were generated. Even companies based outside of the UK are liable to pay corporation tax on any taxable profits made in the UK.

Companies are liable to pay corporation tax on any profits from a given accounting period, with rates applying for a Financial Year. With a Financial Year running from 1 April to 31 March, businesses may find that it’s necessary for their profits to be apportioned either side of the year-end if their internal accounting period overlaps.

The consumer and business firm Which? has created a very useful and comprehensive guide that explains Corporation Tax and sets out how it could affect you and your business. 

Corporation Tax rates for the current and previous Financial Years can be found here.

There are a number of online tools that could help you to calculate your Corporation Tax liability, simply by inputting a few simple details. These include:

For a more comprehensive guide to calculating your Corporation Tax liability, visit AccountancyAge.com, where you will find a detailed discussion of everything from capital allowances through to loss utilisation.

Another useful guide has been prepared by UK-based law firm Pinsent Masons. You can find their “Introduction to Tax for UK Companies” guide here.

For tips on how to reduce your Corporation Tax, visit the explanatory guide on Crunch.co.uk, which discusses expenses, tax-efficient spending and early payments.

If you need help settling your corporation tax bill, a tax loan could be just the answer you’re looking for. Whether you need funds quickly or don’t want to dip into your capital, visit Business Comparison’s tax loan page for more information.

Many businesses turn to specialist software to help them deal with their tax liabilities, so for a rundown of the best UK tax software products read that latest guide at TechRadar.

VAT

VAT (Value Added Tax) is a levy that’s added to the cost of goods and services. Not all companies are registered for VAT and it only needs to be paid by those with an annual turnover of £85,000 or over (known as the “VAT threshold”).

For a detailed guide to VAT payments, including how to register and why you might consider a voluntary registration, read Crunch’s guide to VAT.

For information about the EU VAT regime (which will remain in force until at least 31 December 2020), visit the Avalara VATlive page.

VAT is usually paid quarterly, and VAT returns should be submitted to HMRC within 37 days of the end of each quarter. More information about VAT returns can be found on the dedicated GOV.UK page.

Small businesses can gain a better understanding of the UK’s VAT regime and how it affects them by reading the following guide prepared by merchant services firm PaymentSense.

For an overview of the rate of VAT payable on goods and services, visit the GOV.UK page which sets out these details. The site also contains a page that provides details on which items and services are exempt from VAT payments, which can be accessed via the following link.

VAT payments can be made via Faster Payments, CHAPS or Bacs. For information about how to pay, visit the GOV.UK VAT payments page.

If your business is facing an accounting error crisis or liquidity issues, paying VAT could prove difficult. To find out how a tax loan could help, click through to Business Comparison’s information page.

Employers’ PAYE (including National Insurance)

PAYE (standing for “Pay As You Earn”) Is a method of paying income tax and making National Insurance Contributions. For employers, it means deducting tax and National Insurance contributions from their employee’s wages and passing them onto HMRC. For an overview of PAYE, click through to the following guide prepared by AccountsCo. Information is also available at the GOV.UK site’s dedicated PAYE page.

Much like VAT, businesses can make PAYE payments to HMRC via Faster Payments, CHAPS, or Bacs. Further payment information can be found at the following GOV.UK page.

Following the passing of the Pensions Act 2008, UK employers are obligated to provide workplace pension schemes for certain employees. For information about auto-enrolment and payment of employer pension contributions, visit the guide prepared by The Pensions Regulator. The scheme requires employers to make minimum contributions unless their employees opt-out, and information about the minimum contribution totals can be found here.

If you want to devise a strategy for handling PAYE in your business, you can read a guide on the topic at smallbusiness.co.uk.

Digital accountancy tech firm QuickBooks also provide a guide covering off the basics of dealing with payroll, which can be found here.

For information about who qualifies as an employee under PAYE, and to inform HMRC that you’ve taken on a new member of staff, follow this link to access the GOV.UK information page and portal.

Dividend Tax

The income generated from shares in a company can be subject to dividend tax. This is tax that is payable on income that you receive either as part of your share of a company’s profits, or from selling the shares at a profit. For a full explanation of Dividend Tax, read the Which? guide at the following link.

For an overview of the current UK dividend tax rates and thresholds, click through to FreeAgent’s dividend tax guide.

You may also find it useful to use a dividend tax calculator like the one created by Which?. This will not only help you to work out your liability but also confirm whether you have used up your dividend allowance – which is different from any income tax allowances.

Although it’s labelled for IT Contractors, you can find a useful dividend tax calculator for limited company shareholders at the following link.

For guidance on dividends you can receive tax-free, read the following guide by finance site MoneyDonut.

Business Rates

If you operate from a business property, the chances are that you’ll be liable to make business rate payments. As a tax on business property, business rates can even be charged where only part of a building is used for non-domestic purposes, with the total amount owed calculated by using the property’s estimated market value. For more information about Business Rates, read the full guide prepared by SimplyBusiness.

Business rates are generally collected by local councils, and Wirral council has prepared a helpful guide of their own to set out the process and what businesses can expect. You can find the guide here.

UK business tax FAQ

In most cases, UK sole traders will pay income tax on anything they earn beyond their tax-free personal allowance. This means that they usually have to send their own self-assessment tax return to HMRC each year, in addition to paying National Insurance contributions. It may also be necessary for those who earn over £85,000 over a 12-month period to register for VAT. Sole traders do not pay Corporation Tax in the UK.

For more information about taxes relevant to UK sole traders, read the comprehensive guide prepared by High Speed Training.

Formerly known as an Annual Return, a Confirmation Statement is a document confirming the information held about a company by HMRC and Companies House. It is mandatory for all companies, including those who are dormant and non-trading, to file a confirmation statement at least once a year. For more information, read the GOV.UK guide to confirmation statements.

To learn how to write and file a confirmation statement, read the following guide by company formations firm 1st Formations.

The flat rate VAT scheme is designed to simplify the VAT taxation process. Businesses registered for this scheme still charge VAT at 20% but pay a reduced percentage of the gross invoice in VAT to HMRC depending on the sector that they trade within.

Corporation Tax is due 9 months and 1 day after the end of a business accounting period.

To calculate your Corporation Tax deadline, visit small business site informi’s page here.

Company directors may pay their National Insurance in a different way to other forms of workers and employees. This is because they generally have the power to influence when and how they receive their remuneration. For company directors, National Insurance contributions are calculated by looking at cumulative earnings from a single tax year.

To gain a better understanding of the tax rates and allowances for limited company directors, visit the Quality Company Formations guide to the subject at the following link.

You do not usually need to pay business rates for home-based businesses if you use a small part of your home for your business (e.g. using a bedroom as an office), or if you sell goods by post. You are more likely to be required to make payments on account of business rates if any of your customers visit your premises. For more information, visit the GOV.UK site.

Contact HMRC

HMRC (Her Majesty’s Revenue and Customs) is the UK’s tax, payments, and customs authority. Responsible for collecting both personal and business taxes, HMRC is the first port of call for anybody who has a tax query or who needs to address an issue with their tax liability.

How you contact HMRC will depend on what you need to know. The HMRC contact page provides a number of links to specific queries that will help you to get through to the right team – whether by telephone, email, or post.