The HM Revenue and Customs (HMRC) estimates that the amount of tax lost in the UK due to non-payment, fraud, and avoidance has increased to £35 billion. However, if you are a law-abiding citizen, it’s almost a surety that you will have to pay some form of tax. However, there are several complicated tax rules currently in the UK, so it can be challenging to know which ones apply to your business and which forms of taxes you will need to pay to the HMRC. Here are some of the small business taxes you need to know about.
- Value-Added Tax (VAT)
Your business will pay VAT irrespective of its industry, as long as it makes VATable sales of over £85,000 annually. This tax is levied on the value added to products as they proceed from a supplier to the final consumer. Essentially, VAT is paid every time a sale is made. As a VAT registered business, you must pay this tax throughout your operations and file a tax return to declare how much VAT you have charged or paid. If you have paid less VAT than you have charged, you will have to pay HMRC what you owe. Similarly, if you’ve paid more VAT than you have charged, the HMRC will pay you the difference.
- Corporation tax
Corporation tax is a direct tax your enterprise must pay if it is a limited or foreign company registered within the UK. If you run a limited company, you will pay this corporation tax on your profits. Presently, the main corporation tax stands at 19% for all companies minus those that profit from oil extraction or oil rights in the nation. Corporation tax can be tricky to keep up with because you will never receive a bill for this. Therefore, it is your duty to calculate how the exact you owe or hire great accountants for assistance to ensure accuracy.
- Income tax
Income tax is simply a tax on income. It is estimated that 23 million adults in the UK pay no income tax. However, you are expected to pay tax on any income you earn as a sole trader, partner, or director. If your enterprise is a limited company, you could pay income tax on any dividends or salary you tax from it. Whether you pay this tax and how much you pay depends on the amount you take out. Income tax applies to you if your salary exceeds £12,570, you are aged below 75, and have no other income. Also, if you are paying income tax on your salary, your company will deduct this tax from your earnings under the PAYE (Pay As You Earn) scheme.
- Business rates
You must pay business rates if you run your company in a shop, office, or warehouse. This tax also applies to any part of a domestic property used for business purposes, like a home office. Nevertheless, you may be exempt from these business rates if you run a company from home. You have to pay business rates if you employ staff who work from your home or have renovated your house to operate a business. If your customers also visit your home to buy products, you must pay business rates.