Running a small business comes with plenty of challenges and understanding taxes is a big one. So, what taxes do small businesses pay? From Corporation Tax to VAT and National Insurance, staying on top of your obligations is essential to avoid penalties and keep your business running smoothly.  Let’s break down the key UK business taxes, when they need to be paid and how to manage them effectively.

Types of taxes small business pay in the UK

Small businesses come with several tax responsibilities, and knowing which ones apply to you can help you stay compliant and avoid unexpected costs. Here’s a breakdown of the key taxes that small businesses in the UK need to consider:

Corporation tax

If you run a limited company, you’ll need to pay Corporation Tax on your profits. The rate varies depending on your earnings, and companies must file a tax return even if they make no profit.

More on Corporation Tax

 

VAT (Value Added Tax)

Businesses with a turnover above £90,000 (as of 2024) must register for VAT and charge it on most goods and services. Even if your turnover is lower, voluntary registration is sometimes beneficial.

Income tax (for sole traders and partnerships)

If you're self-employed or in a partnership, you don't pay Corporation Tax, but you do pay Self-Employed Tax, which is essentially Income Tax on your profits. This is calculated through the Self-Assessment system.

Self-Assessment Tax Returns

 

National Insurance Contributions

Another thing to consider is National Insurance for businesses. Employers need to pay Employer’s NI for their staff, while self-employed people must cover their own contributions to access state benefits and pensions.

More on National Insurance Contributions

National Insurance Calculator

 

Business Rates

If your business operates from a commercial property, you may need to pay business rates – essentially the business equivalent of council tax. Some small businesses qualify for relief, so it’s worth checking what support is available.

When do you need to pay these taxes?

Each tax has its own deadline, and missing payments can lead to fines. Key dates include:

  • Corporation Tax: Due nine months and one day after the end of your company’s financial year.
  • VAT: Paid quarterly, with returns submitted to HMRC.
  • Income tax for the self-employed: Due by 31st January following the tax year, with a second payment on account by 31st July if required.
  • National Insurance: Paid alongside payroll for employers, and via Self Assessment for the self-employed.
  • Business rates: Usually paid in monthly instalments to your local council.

How much tax do small businesses pay?

The amount your business pays depends on its structure and earnings. Here’s a rough guide:

  • Corporation Tax: 19–25% on company profits.
  • VAT: Standard rate of 20%, with reduced and zero-rated goods.
  • Income Tax: 20–45% depending on profit levels.
  • National Insurance: Varies by employment status and earnings.
  • Business rates: Based on your property’s rateable value.

For more details on managing limited company tax, check out this guide.

What happens if you don't pay?

Failing to pay taxes on time can result in:

  • Fines and penalties from HMRC.
  • Interest on late payments, increasing your overall tax bill.
  • Legal action, which could impact your business operations.

Tips for managing small business taxes

Staying on top of tax doesn’t have to be a headache. Here’s how you can manage your responsibilities efficiently:

  • Use book-keeping software: Digital tools can track expenses and generate reports.
  • Set money aside: Keeping a portion of your earnings for tax payments can prevent cash flow problems.
  • Hire an accountant: A professional can ensure compliance and even help reduce your tax bill legally.

Take control of your business taxes

Understanding small business tax is important when it comes to keeping your finances in order and avoiding costly penalties. Whether you need help filing tax returns, claiming travel expenses or think you could be owed a tax rebate, RIFT is here to simplify the process. Get in touch today and let’s take the stress out of tax.