With the abundance of complicated tax rules currently in place in the United Kingdom, it can be challenging to know strictly which ones apply to your business, which your hired accountancy practice needs to prioritise, and which types of taxes you’ll have to pay to Her Majesty’s Revenue & Customs (HMRC).

Here are a few business taxes you should check up on if you’re starting a business in the UK.

Income tax

These taxes are paid on your business’s profits if you operate it as a sole proprietorship or on the gains and dividends if you run it as a limited company. Assuming you don’t have any other sources of taxable income, such as a salary from a job, you’ll have to pay income tax at the standard rate when your business makes more than £12,570 (2022/23 rates).

If your company is structured as limited, you could be taxed on your salary or any dividends from the company. Whether you pay income taxes and how much you pay depends on how much money you take out of the company.

Income taxes are paid on your salary if it exceeds £12,570 (standard rate for 2022/23); you’re under 75 years old and have no other sources of taxable income based on 2022 or 2023 rates. If you work part-time and run your own company – you may begin paying income tax once your salary reaches £2,000.

If your business pays your income taxes through PAYE (Pay As You Earn) deductions, the total amount paid through PAYE is called National Insurance Contributions. National Insurance Contributions are not an additional tax; they simply collect income taxes through direct payments from employees and employers.

National Insurance

National Insurance is not a tax in the strict sense of the word but rather a compulsory contribution paid in exchange for benefits, such as access to the National Health Service (NHS). The government uses National Insurance to fund many public services.

If you have employees, you or your hired accountancy practice must pay Class 1 employee’s NI and Class 1 employer’s NI and any applicable redundancy payments or holiday pay. Those self-employed have to pay Class 2 NI (unless the business’s profits are under the Small Profits Threshold ) and Class 4 NI. Class 2 NI tax will be £3.05 per week; Class 4 NI will start at £9,880 and rise to £50,270, where it will be 11% and 3%. The rates will then increase to 13.25% for pay between £50,270 and £162,000 and 3.25% on any additional income over £162,000.

Corporation Tax

Businesses registered limited companies pay corporation tax on their profits. Compared to personal income tax, there are no tax allowances for limited companies, meaning that it does not matter if a limited company makes a loss. Once a limited company makes a profit, it will start paying corporation tax until it loses another.

This particular tax will be 19 per cent for the year 2022/23, and the rate will increase to 25 percent when profits are over £250,000.

Sole traders do not pay corporation tax.

Conclusion

When running a business, never forget to pay your income, national insurance, and corporation taxes to ensure everything is in working order. Consequences for non-compliance include steep fines and even lengthy jail time! To ensure your accounting department or the accountancy practice you hired has all these squared away!

Hire 1 to 1 Accountants so we can get all your fiscal concerns covered! We are an accountancy practice that specialises in small businesses and freelancers to ensure they remain compliant in all their corporate tasks. Create your account now!