If you are starting a business in the UK, you need to pay special attention to SME’s tax structure. Failing to do so can open you up to substantial penalties, even if you pay the taxes late. So, it would be best if you had a solid understanding of the taxes, so you can not only avoid expensive penalties but also claim capital allowances for a property that you own. Here are the different taxes that you have to pay for your SME in the UK to get you started.
Corporate tax is levied on the profits made by your SME over a financial year, and it is set at 19%. This tax is levied as soon as your business starts making any profit. You need to file this tax nine months and one day after the accounting period ends for your business, usually 1st January for most years. Do note that if you are a sole trader, you need not pay corporation tax because you will be paying income tax on your income.
On the other hand, the tax levied on your income, salary, and dividends is known as income tax. If your SME is a limited company, then your income tax needs to be filed through your SME’s PAYE scheme if you are the company’s director. And if you are a sole trader, your income tax needs to be paid based on your business’s profit. Do note that you only have to pay income tax if your salary or income is over £12,500 and you have no other income sources. If you have another source of income, you need to start paying income tax sooner.
Value-added tax, or VAT, is a form of consumption tax levied on the cost of goods and services. Do note that you don’t need to pay VAT if your company’s annual turnover is less than £85,000. And if it is over £85,000, then you need to pay it quarterly, with returns submitted to HMRC within 37 days of the quarter’s end. The value-added tax is set at 20% for the standard rate, 5% for the reduced rate, and 0% for exceptional goods. These rates are supposedly set to last for the next nine to ten years.
Lastly, you need to pay National Insurance to pay for public services while also growing your state pension. Yes, National Insurance is not a tax, but it is still referred to as one by everyone. This tax is similar to income tax, where the money is taken via your PAYE scheme if you are the company’s director. And if you are a sole trader, your National Insurance tax is calculated as part of your annual self-assessment, to HMRC by 31st January, and as part of your account payment by 31st July.
Business rates are similar to council tax. You have to pay business rates if your business operates out of a retail or office premises. You do need to check with your accountant or HMRC to see if you are required to pay business rates, as some premises are exempt from this tax, and some others enjoy tax relief for this tax. Plus, if you are exempt if you run your business out of your home in most cases, unless you have employees working from your home, you have visiting customers at home, or you have adapted your home to operate the business.
Filing taxes may seem confusing for many, but it need not be. Always take the extra step to make sure you pay all the right taxes on time and apply for rebates and allowances against the same to safeguard your business against penalties.