A Guide to Business Tax for Startups in the UK
Every business in the UK is obliged to pay tax of several different kinds. The money collected through this taxation is ultimately used to build public services, roads, and other infrastructure that business then comes to rely on.
Starting a business in the UK can be an exciting time, but it also comes with a range of responsibilities. One of the most important of these is ensuring that you comply with all the relevant tax laws and regulations. In this guide, we’ll take a detailed look at business tax for startups in the UK, including the different types of tax you may need to pay, when and how to pay them, and some useful tips for staying on top of your tax obligations.
What is business tax?
A business tax comes in many forms, and they must all be pro-actively paid by the business in question. If you fail to pay an appropriate tax, whether through accident or malice, then you might be at risk of severe legal penalties.
For this reason, it’s a good idea to bring in experts in taxing law, to make sure you have paid sufficient business tax. These experts might pay for themselves in the long run, by identifying ways in which your contributions might be optimised. After all, any money that you aren’t putting toward the exchequer is money that can be invested in your business.
What types of business tax are there?
There are many types of business tax, some of which are specific to certain industries. For the most part, businesses in the UK need to concern themselves with the following:
Income tax
This is paid by sole traders on the income from their business, or from salaries paid out of limited companies. If you are self-employed or run a limited company, you will need to pay income tax on your profits. This tax is calculated on your profits after you have deducted your allowable expenses, such as office rent, equipment, and employee salaries.
National insurance
A tax in all but name, National Insurance comes in many varieties. Sole traders, for example, pay a flat weekly ‘Class 2’ National Insurance contribution. As a self-employed person or business owner, you will also need to pay NICs on your profits. This contribution goes towards state benefits such as the state pension and the National Health Service (NHS).
Corporation tax
Corporation tax is paid by limited companies on their profits. If you run a limited company, you will need to pay corporation tax on your profits. The current rate of corporation tax is 19%, although this is set to increase to 25% from April 2023 for profits over £250,000.
When to Register for Business Tax
If you are starting a new business in the UK, it is important to register for the relevant taxes as soon as possible. The deadlines for registering for each type of tax vary, but it is always best to register as early as possible to avoid any potential penalties.
To register for income tax and NICs, you will need to register as self-employed with HM Revenue and Customs (HMRC). You can do this online via the HMRC website or by calling their helpline. You should register as soon as you start trading, or at the latest by 5 October following the end of the tax year in which you started trading.
To register for VAT, you will need to register online via the HMRC website. You must register for VAT if your turnover exceeds the VAT threshold of £85,000 in a 12-month period, or if you expect it to exceed this amount in the next 30 days.
If you run a limited company, you will need to register for corporation tax within three months of starting your business. You can do this online via the HMRC website or by post.
Who is responsible for managing business taxes?
The business is responsible for paying its own taxes. For this reason, it’s worth putting in place procedures and personnel to ensure that it gets paid without fail. Do your research in detail, and determine which taxes you’re expected to pay. Then have an accounts department calculate them.
For small businesses, a simple spreadsheet, or even pen and paper, might be enough to stay on the right side of the law. When your financial affairs become complicated, however, it might be a good idea to instead look at digital solutions. There are many kinds of bespoke software out there which make the process much easier than it otherwise might be.
While business tax might seem a burden, it’s part of what makes business possible. You should monitor them, and seek to minimise them, as you would any other kind of expense. If you fail to do this, you could find yourself in legal hot water. What’s more, you might develop a poor reputation with your would-be clients. For the sake of your business and your sanity, it’s better to be proactive when it comes to tax!
Conclusion
Starting a business in the UK comes with many responsibilities, including complying with various tax laws and regulations. As a startup, it is essential to understand the different types of taxes that may apply to your business and when to register and pay them. Income tax, National Insurance Contributions (NICs), Value Added Tax (VAT), and Corporation Tax are some of the key taxes that businesses in the UK may need to pay. Registering for taxes and paying them on time is critical to avoid any potential penalties. By following this guide and seeking professional advice, you can stay on top of your tax obligations and ensure your startup’s financial success.
