Any business owner knows that paying taxes is inevitable and whether you have just started out or have been running your business for a while, settling your taxes properly and on time is a requirement unless you are willing to pay a hefty fine. But there are a lot of complex tax rules in the UK, and most businesses have a difficult time keeping up with these rules and knowing exactly what taxes they have to pay. If you have a small business and would like to make sure that you are up to date with your taxes, here are the most important taxes you should know about.
- Income tax
If you are a sole trader, your tax will be paid based on the profit of your business. If you have no other income aside from what you make in your business, you will begin settling income tax on the profit of your business as soon as it is more than the personal allowance, which is at £11850 (if you are below 75 years old). If, on the other hand, you have a limited company, your income tax will be based on the dividends or salary you take from your business. If you have an additional job aside from your business, you can pay your income tax sooner. If you are paying tax on your salary, then your employer (your business) will then deduct it from your own salary under the PAYE scheme.
- National Insurance
National Insurance isn’t technically a tax, but it’s still money that you need to pay to the UK government. If you are a sole trader, you can settle two types of NI, Class 2 and Class 4. You will pay Class 2 unless your profits are lower than £6205, and Class 2 is at £2.95 every week. But even if your business makes less than £6205, you can still settle Class 2 voluntarily so you can protect your state pension. If your profits are over £8424, you will settle Class 4, which will be based on a percentage of your profit as a business. If you have a limited company and you are paid a sum per week that’s more than £162.01, your company would have to deduct the Class 1 employee National Insurance from your salary and pay it to HMRC.
- VAT
Even if you are a sole trader, a limited company, or a partnership, you will have to settle VAT if you make more than £85000 per year. VAT can be 20%, which is the standard rate for VAT, but it can also be 5%, the reduced VAT rate, or even 0%.
- Business rates
You may also have to settle business rates if you are operating from retail or office premises, which is similar to council tax but made expressly for properties used for business. Some business premises can be exempt from this, whilst others may take advantage of relief, and if you are running and operating from home, then you will most likely not have to pay business rates. There are some exceptions, however, such as if you employ staff who go to your home and work there as well, if you sell goods or services to customers who visit your home, you have changed or refurbished your home to become a workplace, or your property is a combination residence and business property, such as a pub where you live above the pub.
- Corporation tax
If you have a limited company, you will have to settle corporation tax, as the accounting experts from www.gsmaccountants.co.uk explain. Corporation tax is at 19% for all businesses, and you can pay it every 9 months and a day succeeding your business’ accounting year. If you are a sole trader, you don’t have to pay corporation tax.
Image attributed toPixabay.com