Five Taxes to Be Aware of When Starting a Small Business in the UK

The Conservatives’ somewhat surprise triumph in this year’s general election ensured that the UK had its first Conservative majority government for the first time in nearly twenty years. Since then there have been a variety of both positive and negative reactions to the Tories’ triumph. While there was an initial surge in the financial markets, the extent of the SNP’s victory in Scotland and the prospect of Britain’s continued membership in the European Union coming to an end has led to elements of growing uncertainty.

However, the Conservatives’ victory was greeted with a greater amount of enthusiasm by small-business owners due to the small-business manifesto, which includes a pledge to cut red tape by £10bn, treble the number of start-up loans and conduct an in-depth review of current business rates.

If you are currently considering starting up your own small business then are a variety taxes that you need to take into consideration. An ideal solution for this would be to hire one of the numerous small business accountants offering their services, but this is often a costly outlay that the majority are simply unable to afford when starting out.

Step 1: Income Tax

If you are running your business as a sole trader, then you are required to pay income tax on any profit that your business makes. You will usually be required to pay income tax on your business’ profit once it reaches the personal tax free allowance threshold of £10,600.

If your business is a limited company, you are also required to pay income tax on your salary. As above, you are required to start paying income tax once you exceed the personal allowance threshold of £10,600. However, if you also have an additional income, you will be required to pay a rate of 20% income tax on any earnings from your second income.

Step 2: National Insurance

National Insurance is not technically considered a tax, but as it is money that is paid to the government, it is more often than not referred to as a tax. Sole Traders are required to pay a flat-rate of National Insurance called Class 2 NI unless their profits are below the small profits threshold of £5,965. However, if you are eager to protect your entitlement to a State Pension and various other benefits, it is worth considering making voluntary contributions. Once your profits exceed £8,060, you will be required to pay a percentage of your businesses profits in National Insurance in the form of Class 4 NI.

Step 3: VAT

All businesses are required to pay VAT if it makes VAT sales of more than £82,000 per year. This includes the sale of goods or services that have had VAT added to them. This could include the standard rate of 20%, the reduced 5% rate, and even 0%.

Step 4:

All limited companies are required to pay corporation tax once they start to return a profit. There is currently no tax-free allowance for businesses; the only exception that enables businesses to be excused is when they have previously been posting loses.

The rate of corporation tax is set at 20% and it is payable nine months and one day after the company’s accounting year ends. If corporation tax is deliberately not paid, there are tough penalties imposed

Step 5: Business Rates

We are all familiar with council tax, and business rates is the business equivalent but for business properties. Various types of buildings are exempt from paying business rates , including farm buildings and those that are used for the training and welfare of disabled people.