Starting your very own small business can be an exciting, life-changing decision. It gives you freedom and independence, and it means that you can be your own boss – but if you do decide to start your own business, you should find out what you need to know about relevant taxes.
After all, many small UK businesses are unsure about tax rules, and this can result in some major consequences. We have put together an easy overview of what that you need to know about the relevant taxes for small business owners. So you don’t need to stress or worry – instead you can focus on growing your business!
Filing Taxes As A Small Business Owner
1. Corporation Tax For Small Businesses
Corporation tax is only paid by limited companies, and it is calculated as a percent of the businesses taxable income. This is basically the money that the business makes once all allowances have been deducted (such as salaries and tax relief).
Corporation tax is worked out by the company, rather than the government, and it is due nine months after the business year ends. Don’t worry if you don’t want to do this yourself; you can easily delegate the work to an accountant. This means you will have more time to work on the things that really matter to you.
2. National Insurance For Small Businesses
You will need to pay NI contributions if you employ staff. These taxes are paid to HMRC when you pay out staff salaries, and there are a few different classes so you must ensure that you are paying the right one. If you own a limited company you will need to pay Class 1 contributions, and if you are a sole trader you will need to pay Class 2 and Class 4 contributions.
3. Income Tax For Small Businesses
Sole traders will also need to pay income tax. This is based on the yearly profits from your business, but you only need to pay this once you hit the personal tax allowance of £11,000. Company directors will also need to pay income tax on the salary that they take from the business, and this is paid according to the sale tax threshold as any employees who work for the company.
4. Value Added Tax (VAT) For Small Businesses
Finally you may need to pay VAT if you are a small business owner who sells services or products over a certain threshold. You pay this tax per product (and it is set at 20% of the overall price), but it is worth mentioning that some products have a lower VAT rate, such as children’s car seats. Some products are also VAT free, such as children’s clothes.
5. What You Need To Know About Business Rates
Depending on the location of your business you may also need to pay some business rates. This is normally only the case if you work from a shop or an office, and the rates are similar to council tax. It is unlikely that you will need to pay business rates if you work from home and don’t have customers that visit the house (but if customers do visit the house, you may need to pay business tax).