Small Business Tax – What Do You Have to Pay?

24 October 2022|Related :

For any type of industry, tax is a very important matter and one that can be a tad confusing due to its variables and complexities.

Here at Ryans, we aim to deliver some clarity in order to help you best deal with tax for your business.

Types of Tax

Corporation Tax (19% – limited companies)

Corporation tax is only applied to the profits of limited companies and is calculated after salaries and other expenses are paid out, but before any dividends are withdrawn.

The charge for corporation tax is a fixed rate 19%, irrespective of profit amount for the company.

This type of payment must be made to HMRC (HM Revenue and Customs) within nine months and one day of your company’s year end, and a CT600 tax return form must be filed every year, 12 months after your business’ accounting year ends.

Failure to comply with corporation tax can result in serious penalties, interest payments or a rise in tax bills, so it’s always best to get it paid well on time.

VAT – Value Added Tax (20% – customers of VAT registered companies)

This type of tax is charged against the sale of goods or services by UK businesses. Once you have registered for VAT, you must pay HMRC the financial difference between the amount you’ve been charging your customers, known as output tax, and how much you have paid for your own business’ purchases, known as input tax.

The VAT rate is standardised at 20%, however, if it’s more beneficial to your company you can register for a flat rate fee programme. The necessary threshold for businesses having to register for VAT is £85,000, although you can freely register before this threshold is met if you prefer.

You must subtract the amount of input tax from the total output tax you have received from custom at the end of every fiscal quarter, the remnants must be then sent to HMRC.

National Insurance Contribution 

As a business owner, if you employ staff, you are responsible for paying their National Insurance for their salary and benefits. The amount will depend on the age, salary, and pension status of the individual.

You can expect to pay up to 15.05% for Class 1 NIC (employer’s national insurance) regarding employees whose earnings exceed £12,570 (until 5th April 2023).

You may be able to reduce these outgoings by up to £5,000 if your business is eligible for a government employment allowance initiative.

Employees of a limited company will have their NIC taken automatically within the payroll process then documented for the employer/employee to view

Income Tax

As income tax is only applicable to individuals, small businesses won’t be taxed as a company, however, if employees wages exceed the threshold of £12,570, they’ll be liable to pay income tax. The exact cost will be dependent on a few variables including the tax bracket of the individual.

If the employee is paid by the company, income tax will be deducted via the PAYE scheme at the same time as NIC deductions. Sole Traders pay income tax on profit and will need to complete a self-assessment tax return and send it to HMRC.

Tax rates 

  • Basic Rate 20%
  • Higher Rate 40%
  • Additional Rate 45%

CGT – Capital Gains Tax (Basic Rate-10%, higher and additional rate 20%)

CGT in relation to a small business can pertain to the sale of assets, shares or the business itself.

For small businesses CGT, is dependent on the owner’s individual income tax, 10% basic rate and 20% higher and additional rate. Capital gains count toward yearly income, therefore could push you into a higher tax bracket.

For a sale of your business, simply deduct the original cost from the sale price, as well as any business or additional sales costs, the remaining figure is capital gains. From this number you can deduct your capital gains allowance, an individual can earn up to £12,300 before tax (couples may combine their allowances).

Entrepreneurs Relief 

You may be entitled to claim business asset relief (entrepreneurs relief)

In some circumstances, you may be able to claim entrepreneurs’ relief to reduce the amount of CGT your business must pay. If you meet a pre-set qualifying criteria you’ll pay a lower CGT rate of 10% on the first £1m of business gains. This relief is applied to an individual rather than per business.

Business Rates

Any small business that works out of a premises not deemed domestic will often be charged business rates on this property.

You will receive billing information from the relevant authorities in February or March with regards to what you will need to pay for the fiscal year following April 1st.

These rates will be calculated according to the property’s ‘rateable value’ (estimated rental value in the current market) and are carried out by the VOA (Valuation Office Agency).

You can be charged business rates if you run a business from your home and if any of the following applies.

  • Your staff come and work out of your home
  • Your home has been altered or adapted for work
  • You sell goods or services to visiting customers
  • The property is partially domestic and partially business.

If the value of the property is below £15,000 and only contains one site you can apply to your local council and check if you can gain some payment relief.

Let Ryans Help You with Your Taxes

Here at Ryans we have a history of client service excellence spanning three centuries. As a chartered accountancy and business solutions firm, we offer our expert tax services to efficiently manage your business and corporate requirements.

We simplify our expansive expertise to ensure full transparency and maximum efficiency of our solutions and planning when dealing with you or your business.

Contact us today!

Made by Statuo