As a small business owner in the UK, navigating the intricacies of taxation is a vital aspect of maintaining financial stability and compliance.
In this comprehensive guide, we will delve into the key aspects of small business taxation, including important dates, types of taxes, and obligations based on your business structure.
When Are Tax Payments Due?
The tax year in the UK runs from 6 April to 5 April of the following year. Different taxes have distinct payment schedules, and it’s crucial to be well-versed in these timelines to avoid penalties.
Corporation Tax
Corporation tax is applicable to the profits your business generates over the financial year.
This tax must be paid nine months and one day after the conclusion of your business’s accounting period.
Typically, this date falls on March 31, implying that the corporation tax payment is due on January 1.
It’s essential to note that failure to file corporation tax on time may result in penalties.
The prevailing corporation tax rate is set at 19%*, impacting the taxable profits of your business.
Income Tax
Income tax pertains to the income received at a personal level, encompassing sources such as salary and dividends.
For limited company directors, income tax is facilitated through the PAYE scheme of your business.
Sole traders, on the other hand, pay income tax based on the profits derived from their business, which is outlined in their self-assessment tax return.
National Insurance
National Insurance contributions contribute to both your state pension and public services.
Similar to income tax, limited company directors pay National Insurance through PAYE, while sole traders calculate their contributions annually as part of their self-assessment.
Ensuring the timely payment of National Insurance is vital to secure your pension and access essential services.
VAT (Value Added Tax)
VAT is a consumption tax added to the cost of goods and services. Businesses are not automatically registered for VAT unless their annual turnover surpasses £85,000.
If your business is VAT-registered, payments are made quarterly, with VAT returns submitted to HMRC within 37 days after the quarter’s end.
Tailored Tax Obligations for Different Business Structures
Understanding your business structure is integral to comprehending your tax obligations.
Sole Traders
Sole traders enjoy a tax-free personal allowance of £12,500. Earnings below this threshold are exempt from income tax.
For earnings ranging from £12,501 to £150,000, income tax rates of 20% to 40% apply.
A 45% rate is relevant for taxable incomes exceeding £150,000. Additionally, sole traders must file a self-assessment tax return annually and pay National Insurance contributions.
If your earnings are projected to exceed £85,000 within a year, VAT registration becomes mandatory.
Limited Companies
Limited companies are required to submit annual tax returns to Companies House, compile statutory accounts, and provide a company tax return to HMRC.
VAT registration is mandatory for earnings surpassing £85,000.
Directors must submit a self-assessment tax return and fulfil tax and National Insurance obligations through PAYE if they receive a salary from the business.
Conclusion
By adhering to these guidelines, you can ensure a strong financial foundation and navigate the complexities of small business taxation effectively.
Sources: HMRC Corporation Tax Rates
