UK Business Taxes: Understanding Your Tax Obligations

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Today I'm going to be talking about something that affects all UK businesses: taxes, what they are and how to handle them. In this week's I Hate Numbers podcast, I'm going to be talking about the different types of taxes you're likely to encounter as a business owner and some tips along the way as to how to deal with them.

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Now, taxes may not be the thing that you've gone into business for, but it is a cost of doing business and understanding them is key, critical to keeping your business running smoothly. Now, stick with me. And by the end of this episode, you will have a good overview, a good grasp of the main taxes your UK business needs to pay.

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Plus, as I said, some tips along the way to make it slightly less painful and less stressful. Let's crack on.

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Firstly, I want to talk about corporation tax. Now, if your business is a limited company, typically it has LTD at the end of it or PLC perhaps, you will have to pay corporation tax on your tax profits. Currently, the rates from 2025 onwards are set at 19 percent if your tax profits are up to 50, 000. If your profits exceed a quarter of a million pounds, you'll pay 25% And if there's somewhere between those two lines, you pay 25 percent less a reduction for what's called marginal relief.

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Please note, by the way, these rates and those figures that I've quoted are assuming you only have one company. If you've got more than one company that you own, control, then those rates will be affected accordingly. More of that in a future episode. Now as a tip, keep on top of your accountant tax estimate as you go along.

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You're not going to get an invoice from HMRC. You don't want any nasty shocks. And that way, as you progress through your business year, you're putting money aside to take care of that tax, so no nasty shocks when the deadline comes to pay. The second group of taxes I want to look at is, collectively, income tax

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and National Insurance. Now, if you are self employed, a sole trader or a freelancer, if you wish, instead of paying corporation tax on your profits, you pay something called income tax on your business profits and also National Insurance. Now, the rates that you pay are influenced based on how much you earn.

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So, assuming no other income for you in that particular year of assessment, then after your personal allowance of 12,570, then you'll pay tax at 20%. If you happen to be generating profits in excess of 52,070, and that's the figure by the way that makes you a higher rate taxpayer, you pay 40%. And if your profits are going up even more and they're in excess of 125 odd thousand 125,140, you'll pay 45 percent on that excess.

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Now it's worth pointing out by the way that if you are a sole trader, a freelancer, there may be good reasons for staying as an individual freelancer. If there isn't, then you need to seriously consider becoming a limited company. Now, National Insurance is also a tax. You have a small Class 2 and a Class 4.

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Worth checking out last week's episode, by the way, folks, on self-employed profits. But as a reminder, you're paying National Insurance at Class 4, where your profits exceed 12,570, and you pay a smaller amount, Class 2, which feeds into your state pension. Now as a rule of thumb, subject to what your level of expenses are, put aside an amount of your profits to take care of the tax and National Insurance.

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Now you can either do that as so much per every hundred pounds that you're invoicing or you put a percentage of your profits away. You don't want to be scrambling for cash when it comes time to settle for tax. Now the third tax I'm going to have a look at is something called VAT, stands for Value Added Tax.

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Some people call it very awkward tax. Now this is a tax that applies to whether you're a limited company or a sole trader. Now under current rules, if your taxable turnover is over 90,000 over a 12-month basis, you have to register for VAT. Now in this context, you are a tax collector. Now that means you've got to charge VAT typically 20%, which is called a standard rate on your taxable supplies and pay that over to HMRC.

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You are now to deduct any VAT yourself that are paid on your purchases on your supplies. Now there are a variety of schemes applicable for VAT One such example is what's called the flat rate scheme. It keeps things simpler, but it doesn't necessarily save you money. Now it may be by the way as a little tip something to bear in mind if you are below the VAT threshold, it may still be worthwhile Registering for VAT on a voluntary basis. And if you're selling B2B, then you will pay less overall, and you will make more profits.

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Tax number four, business rates. Now if your business is located in commercial premises, there's a possibility you may have to pay business rates. Think of it like poll tax or council tax, but for businesses. Now how much you pay depends on something called the property's rateable value. If, however, you qualify for what's called small business rates relief, it will cut your bill significantly.

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In my experience, many small businesses will not be paying business rates because of the space they occupy. Tax number five, PAYE, or pay as you earn, and Employers National Insurance. Now, if you do have employees and not freelancers, or a mix, then if you have employees, there is an obligation to take off income tax and National Insurance from the wages of your employees and remit that and pass that over to the HMRC.

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This is the second area where you act as a tax collector. Also, you are liable to pay Employers National Insurance. Now under current rates for 24-25 or up to March 25 effectively, your Employers National Insurance is 13.8 percent when salaries are in excess of 9,100. Please note that from the 2025, those rates will change and National Insurance moves up to 15%.

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Now well worth by the way folks, cause rates amounts and allowances change all the time. Payroll - certainly I would recommend highly outsource that. Get either somebody in your in house team to do it, but also choose an employer provider, payroll provider, that can actually help you do that. We've got many clients that we look after, who come to us just for payroll services, but may not need us for anything else.

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Tax number six, Dividend Tax. Now if you withdraw dividends from your limited company, and that's a company limited by shares, a common tactic I should say, then there's tax to pay after your dividend allowance. Now currently for the 24-25 tax year, and that runs between the 6th April 24 and the 5th April 25, you're allowed 500 worth of dividends to receive free of tax.

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After that, you'll pay income tax at a rate from 8.75%, which is the lower rate if you're a basic rate taxpayer, up to an eye watering 39 percent plus rate if your dividends makes you an additional rate taxpayer. There's a big jump also from basic to higher rate from just under 9 percent to just under 34 percent when you become that higher rate payer receiving dividends.

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Now, one thing to flag up, a tip is it's typical, certainly for our clients, that we advise them a mix of salary. Some dividends and also what we call benefits in kind. That could be a tax efficient mix to extract money from your company. My tip there would be also to talk to your accountant, cough, cough, to find the best setup for yourself.

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Now we haven't completely finished all our taxes. We still have a few more to go. This sounds a little bit exhaulting, doesn't it, folks? Tax number seven - Capital Gains Tax. Now, as the name implies, it's a tax that's paid on what's called capital transactions. Typically you own a property either as an individual or your company does.

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You sell that asset. There's a gain that might arise between what you paid for it and what you sell it for, plus any other adjustments. And if there is a gain, a capital gain as an individual, you pay capital gains tax. If you sell it through a company, you pay corporation tax on those gains. And again, the rates for an individual will change between if you're a basic rate payer or a higher rate payer.

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In addition, selling your business can qualify you for what's called business asset disposal relief. For those with longer memories, it used to be called entrepreneurs relief. Now, my big tip here is if you have got something like property, then it's essential that you keep records of what you spent on those items, what you spent on the enhancement and improvement, because when the time comes to make that sale and work out the tax, evidence is going to be really your best friend.

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No, that's not all folks. There are a few more taxes to throw into the mix. And then again, this will depend on your circumstances, your business and what you're up to. So if you purchase business property. You might be liable to stamp duty land tax. If you operate in the construction industry, either as a company who has subcontractors, or you're a subcontractor yourself, you're going to be under the umbrella of something called the CIS scheme, or construction industry scheme, to give it its full title.

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If you're a business that deals in alcohol, tobacco, or fuel, petrol station, off license, brewery company, you're going to have excise duties. Now in summary, in terms of some tips to help you manage your taxes. Number one, stay organised. Cloud accounting software, digital accounting is a really useful tool to use in your business.

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It tracks income and expenses, and also it keeps an eye on the liabilities as well. Obviously it has other uses beyond that. But that's certainly one thing to think about. Number two, if you've got corporate taxes or personal taxes, save as you go along, put the money aside into a tax savings account so you can stop and minimise those cash flow challenges when you find that you've got to pay taxes, but you don't have the money put to one side.

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It's not yours. It doesn't belong to you. Save as you go along. Number three, be familiar, understand when your tax deadlines are. Now, in my business, I Hate Numbers. We send reminders out to clients telling them when things are due. Even when you're advised by your accounting team when things are due, make a diary note, set it as a reminder flag so you don't actually miss out the deadline.

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Deadlines missed equals penalties and stress and interest. And lastly, make sure you seek competent professional help. A good accountant will save you money, reduce your stress and anxiety and offer inputs and advice to help you carry on minimising your tax exposure and keeping on top of things. Folks, I hope you found this episode useful.

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I hope you got some confidence, a bit more confidence about what you need to pay, how you handle it, having an awareness. Be very careful of talking down to Karen or Kevin down the pub for advice. Make sure you've got good solid advice. Make sure you recognise it as a necessity. It's one of those things and it is a sign of success.

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If you're paying tax, you must be doing something right. If you think there's others in your network that will benefit, then please do share the episode with them. Until next week, remember numbers aren't scary when you know how to handle them. Plan it. Do it. Profit. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

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We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.