Don't get tripped up by taxes
Don't get tripped up by taxes
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5 things every small business should know about taxes

Taxes in the UK can be dauntingly complicated, but entrepreneurs starting up their business typically don’t need to memorise the entire tax code. Here is a breakdown of five tax payments that every entrepreneur should be aware of.

Income tax

Income tax is payable on your business profits if you are a sole trader. You will start paying income tax once your profits go over your personal allowance, which is £11,500 for those under 75. Note that this assumes you don’t have any other income, such as a salary, on top of the revenue from your business.

National Insurance

Though National Insurance (NI) isn't technically a tax, it is a payment you are obliged to make to the government that is similar to taxes. You will start paying NI once your profits go over the Small Profits Threshold, which currently sits at £5,965. If your business is a limited company from which you draw a salary, the company will need to pay both employee and employer NI if said salary goes over £8,060.

Corporation tax

Limited companies are subject to a corporation tax rate of 20 percent on their profits. Sole traders don't pay corporation tax.

VAT

If your business makes over £82,000 of “VATable” sales per year, it will need to be registered for VAT. Most of VATable sales are subject to the standard 20 percent rate, although reduced rates of 5 percent or even 0 percent can apply to some sales. Goods and services that are considered quasi-essential typically fall under the reduced VAT rate.

Business rates

Similar to council tax, business rates are paid on the property that you run your business from. If you run your business from home, you won't need to pay business rates on top of your council tax unless you have employees coming to and from the property.