Small business tax explained

Tax can be a complicated matter. Not only are there lots of different levies to deal, they all need paying at different points during your company’s financial year.

Getting it wrong can prove costly, so it’s essential that you know exactly what you’re dealing with. To help, we’ve created this handy guide.

Corporation Tax

Put simply, Corporation Tax is a levy on your profits (the amount you have left over once your expenses have been deducted from the turnover). The current rate is set at 20%, but is likely to drop to 19% from 1st April 2017 and fall further to 18% from 1st April 2020.

Corporation Tax payments need to be made to HMRC within nine months and one day of your company’s year end. You will also have to file a CT600 tax return every year, 12 months after your accounting year end.

Failure to comply with the rules could see you hit by a penalty, interest, or even an increase in your tax bill, so it’s important that you get everything to HMRC as soon as it’s due.

Value Added Tax (VAT)

VAT is levied on the sale of goods or services by UK businesses. If you register for the tax, you will need to pay HMRC the difference between the amount of VAT you’ve charged customers (output tax) and how much you have paid on your own purchases (input tax).

The standard rate of tax is 20%, though you are able to register for a flat-rate scheme if you feel it will be more beneficial to your business. All companies must register for VAT once their annual turnover reaches £82,000, though you are able to voluntarily register beforehand if you want.

At the end of every quarter, you need to calculate how much output tax you have received from customers and subtract the amount of input tax you have paid. The remaining amount should be sent to HMRC.

For more information about VAT, please see our essential guide.

National Insurance Contributions

If you employ staff, you’ll be responsible for paying Employer’s National Insurance on their earnings and benefits. The amount of tax you pay depends on your employees’ salary, age and whether they are members of a contracted-out pension scheme.

Employer’s National Insurance (also known as Class 1 NIC) is currently set at 13.8% on all earnings above the secondary threshold. This stands at £156 per week.

If you employ workers under the age of 21, you won’t have to pay National Insurance on their salary – as long as they earn between £156 and £827 per week. You also won’t be charged anything if your annual NIC payment is less than £3,000 – known as the Employment Allowance.

Employer’s NIC is charged each time you run a payroll, with payments going to HMRC.

Business rates

This is a tax on business properties and is payable to local authorities. The money is then used by the council to pay for public services.

The amount of tax you pay is based on your property’s ‘rateable value’ – an estimate of its open market rental value from the Valuation Office Agency (VOA). You can estimate your business rates by multiplying this value by the correct ‘multiplier’ (an amount set by central government).

Your property may be eligible for a reduction in business rates, known as relief schemes. These are available from your local council. Although some are automatic, others will need to be applied for.

Since business rates are essentially a form of Council Tax for commercial properties, you usually won’t have to pay them if you run your business from home.

However, there are circumstances where you will need to pay both business rates and Council Tax. These include:

  • If your property is part business and part domestic – for example if you live above your shop
  • You sell goods or services to people who visit your property
  • You employ other people who work at your property
  • You have made changes to your home for your business – for example converting a garage into a workshop

Can ClearSky Business help?

As you can see, there are a number of different taxes that you need to be aware of as a small business owner. If staying on top of everything seems like too hard a task, don’t worry as help is at hand.

At ClearSky Business, we’ll be with you all the way through the life cycle of your company – whenever we are needed. We’ll help you stay compliant with your responsibilities, while suggesting ways to run things more efficiently.

This gives you complete peace of mind that everything’s being taken care of, so you can concentrate on what you do best.

For more information, or to join us, please call 08000 149 597 or email

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