Tax Basics for Small Businesses in the UK

With the looming Brexit and COVID regulations, it’s imperative for SME owners to understand the tax basics for small businesses in the UK and how these can be impacted by the ongoing circumstances.

What taxes do businesses pay in the UK?

1. Corporation Tax

Limited companies and those companies with branches in the UK are subject to 19% Corporation Tax based on their annual profits.

To settle this with the HMRC and Companies House, You need to submit a company tax return (Form CT600) once a year.

2. Value Added Tax (VAT)

VAT is the tax levied on consumer products and goods at a standard rate (20%), reduced rate (5%), and zero rates.

However, due to Brexit, few changes in business tax compliance are imposed regarding VAT.

3. National Insurance

National Insurance is tax settled both by the employer and the employee to fund benefits such as the National Health Service (NHS) and State Pension.

4. Pay As You Earn (PAYE)

PAYE is HMRC’s way to collect income tax and National Insurance as employees earn them. It is calculated based on your income and your eligibility for personal allowance.

Above your personal allowance, you’ll be charged either 20%, 40%, or 45% depending on whether you’re a basic rate, higher rate, or additional rate taxpayer.

5. Stamp Duty

When you acquire land or property in England or Northern Ireland, you are levied with stamp duty tax. In Scotland and Wales, it’s called ‘land and buildings transaction tax’ and ‘land transaction tax’.

6. Capital Gains Tax (CGT)

CGT is a tax on the profit when you sell or dispose of something of value (e.g. shares, investment funds, and inherited properties, among others).

It’s calculated from the gain you made, and not from the total amount you received.

Getting a good grasp of small business tax guidelines is a great start for organisations, especially that regulations today are under perpetual disruption. When you know the basics, you know how to pivot your finances accordingly. 

Another efficient way to handle the tax basics for small businesses is to consult with professionals. And that’s where we can be of help. 

D&V Philippines have tax accountants specializing in the UK arena. With their extensive experience and up-to-date knowledge of the UK regulations, you are sure to be compliant with the government regulations at all times.  Grab your copy of our whitepaper Finding the Right Talents: D&V Philippines’ Solutions to Modern Accounting Firms to know how our F&A services can build you great accounting support and add value to your services.