The complete guide to small business taxes, covering corporation tax, dividends, VAT and much more.

When it comes to business tax for small businesses, it can be overwhelming and complicated. Keeping on top of how much you need to pay, as well as meeting deadlines is one of the most stressful parts of running a business. For those staring up, it is crucial to ensure you pay the right taxes.

But what taxes are there for small businesses? How do you pay them? When are the deadline dates?

In this article, we cover everything you need to know about small business taxes, helping you keep on top of them. So, let’s begin.

VAT

VAT or value added tax is charged to customers if your business sells products and services. You are then due to pay this VAT to HMRC after submitting your VAT returns. In the UK, the standard rate is 20 per cent, with some products and services at reduced or even zero rates.

Rate	% of VAT	What the rate applies to
Standard rate	20%	Most goods and services
Reduced rate	5%	Some goods and services, such as home energy and children’s car seats
Zero rate	0%	Zero-rated goods and services such as children’s clothes and most food

Businesses with a turnover of more than £85,000 must register for VAT immediately. You can also voluntarily register if your business has a turnover of less than £85,000. For more information, check out our guide on VAT.

How Do I Pay VAT?

The easiest way to pay your business VAT is online with HMRC. To avoid fees and penalties, use gov.uk’s calculator to work out how much you need to pay.

When Is The Deadline?

Usually, the deadlines are the same for submitting your return and making the payment. This will be one calendar month and seven days after the end of an accounting period. You can also find your deadline on your VAT return which can be found on your VAT online account.

Corporation Tax

If you are a limited company or a foreign company with a UK office or branch, you will need to pay corporation tax. Remember, you won’t be billed for corporation tax, it is down to you to ensure you work it out and pay it. Since April 2016, corporation tax has been set at 19%.

We have a handy guide covering all this corporation tax here.

How Do I Pay?

There are various methods to pay your corporation tax. Different payment methods suit different people, but just remember to pay before the deadline to avoid fines. If you pay your tax early, HMRC will pay you interest. For more information, check out the gov.uk’s pay your corporation tax bill page.

Same day or next day	3 working days	5 working days
Through your online bank account	Online via direct or corporate debit card	Direct Debit (if it has not previously been set up)
CHAPS	Bacs
Online or telephone banking for faster payments	Direct Debit (if it has previously been set up)
	At your bank or building society

When Is The Deadline?

Businesses are required to pay corporation tax 9 months and 1 day after the end of their accounting period. In the year a business is set up, there may be 2 accounting periods, however, the accounting period is usually the financial year.

Income Tax

Simply, income tax is the tax paid on your income. However, not every source of income is taxable. Some of the common things you’ll pay income tax on include:

Interest on savings (if this exceeds your savings allowance)
Employment earnings
Income from a trust
Self-employed profits, including from services you sell through websites or apps
Most pensions
Some state benefits
Rental income (unless you’re a live-in landlord and earn less than the rent-a-room limit)
Benefits from your job

There is income tax relief available, as well as not having to pay anything on the first £1,000 of your self-employed income. If you’d like more information regarding allowances and reliefs, try the gov.uk’s income tax page.

How Do I Pay?

By filling in a tax return every year, you’ll usually use a self assessment form.

When Is The Deadline?

For online tax returns – 31 January
For paper tax returns – 31 October

For those filling in a tax return for the previous tax year, the tax year runs from 6 April to 5 April. The deadline is 31 July for your second payment on account.

Employers’ PAYE

All employers must be aware of employers’ PAYE. On your bill, you may see the following:

Student loan repayments
Apprenticeship Levy payments
Employee income tax deductions
Class 1 and 1B National Insurance (you pay your Class 1A National Insurance bill separately)
Construction Industry Scheme (CIS) deductions

How Do I Pay?

To begin, use the gov.uk’s payment page which has a timeline for how you’ll need to make your payment.

When Is The Deadline

If you pay monthly – the 22nd of the next tax month
If you pay quarterly – the 22nd after the end of the next quarter

Your National Insurance

To qualify for government benefits as well as the State Pension, you need to pay National Insurance contributions. Depending on what type of business you have, as well as if you have any employees will determine your National Insurance responsibilities.

For sole traders, you’ll pay Class 2 and Class 4 NICs. Limited company directors make Class 1 NICs through your PAYE payroll. For those with employees, NICs will be paid when you pay salaries.

How Do I Pay?

NIC Class 1 payments will be made through limited company directors own PAYE payroll. Self Assessment is the option for sole traders making Class 2 and Class 4 NICs payments.

When Is The Deadline?

Your company structure will determine when you pay your National Insurance. Each year on the 31st of January, the deadline for sole traders to make their NICs through Self Assessment is set. Limited companies must ensure they are up to date with PAYE arrangements, as well as NICs being factored in.

Stamp Duty

Stamp duty is paid by businesses for transactions such as:

Transfer of land or interests in land
Grants or assignments of leases
Transfers of chargeable securities such as shares in companies.

There are two different types of Stamp duty. Stamp duty land tax is applicable for those who rent or buy premises. Many small businesses forget about this tax when they are first starting up.

Stamp duty reserve tax applies when purchasing shares or other securities.

Business Rates

Those that are using a non-domestic property for your business will likely have to pay business rates. Examples of on-domestic properties include:

Shops
Pubs
Offices
Factories
Warehouses
Holiday rentals
Guest houses

If you are using a building, even part of it for non-domestic purposes, then you should check out the gov.uk’s website to get one step ahead and start estimating your bill. There are different rates for Scottish and Northern Irish businesses, so make sure to check out the specific government website regarding your area.

How Do I Pay?

In February or March every year, you will receive a bill from your local council that has the amount due for the upcoming tax year.

When Is The Deadline?

On the bill you receive from the local council, you will find the deadline. Each area will have different deadlines, so it will all depend on your individual council.

Capital Gains Tax

The UK Government has applied a flat 18% capital gains tax rate on business disposals since 6th April 2008. When a business makes a profit when selling or disposing of an asset that has increased in value, capital gains tax is the tax on the profit.

Some examples of disposing of an asset include:

Selling it
Giving it away as a gift
Transferring it to someone else
Swapping it for something else
Getting compensation for it, such as insurance pay-outs if it’s been lost or destroyed

Let’s take a real-world example. You purchased a painting for £10,000 and sold it later for £20,000, you have made a gain of £10,000.

The gain that the business makes is taxed, not the amount of money that is received. Business owners paid a reduced rate of 10% on business disposals up to a lifetime allowance of £1 million. However, in 2020, the lifetime allowance was reduced from £10 million.

Some assets are tax-free and you can find out which ones are tax-free here. If all your gains in a year are under your tax-free allowance, you do not have to pay Capital Gains Tax.

So, there we have it. A guide to some of the most common taxes that small businesses have to pay. One tip to remember, always keep a note of your tax deadlines and ensure you pay them on time to avoid fines.

If you cannot pay your tax bill, think you’ve missed a deadline or know you can’t pay on time, you should contact HM Revenue and Customs (HMRC) as soon as possible. There are support options available to help you. Best of luck.