A Guide to Business Taxes in the UK

Business taxes in the UK can be a complex and overwhelming topic, but don't worry, I'm here to break it down for you.

The UK has a self-assessment system, which means you'll need to file your tax return annually. This applies to most businesses, including sole traders and limited companies.

You'll need to keep accurate records of your income and expenses, as you'll need to submit these with your tax return. HMRC will expect to see a clear picture of your business's financial situation.

As a business owner, you'll be required to pay Class 2 and Class 4 National Insurance Contributions. Class 2 is a fixed weekly amount, while Class 4 is a percentage of your profits.

So you've got an idea for a business, but setting it up correctly for taxes can be a bit of a minefield. You must register for corporation tax within three months of starting trading.

Registering your company with Companies House is the first step. You'll then receive more details from HMRC, which you'll need to add to your account to file tax returns and make payments.

To do this, you'll need to use your UTR to access your HMRC Gateway account and add corporation tax services. You'll also need to provide additional information.

If you're an unincorporated business, such as a sole trader or freelancer, you'll pay personal income tax instead of corporation tax. You can find the current income tax rates in our dedicated guide.

The decision on whether to be a sole trader or a limited company depends on a few factors, including how much you expect to earn from the business, how long you expect to operate it, and whether you want the protection of limited liability.

Here are some key things to consider when setting up your company:

You can claim back expenses for up to seven years prior to forming your limited company.

In the UK, all registered companies must file an annual tax return before the deadline, regardless of whether they made a profit. This includes private limited companies, public limited companies, foreign companies with an overseas branch or office, and clubs, cooperatives, and associations.

You can file your corporate tax return online via your HMRC Gateway account, using your annual accounts or provisional ones. However, there are several different methods for completing the corporation tax return, including filling in the online form (CT600) yourself, employing a tax accountant, using a verified account filing software package, or submitting a paper CT600 form.

The quickest way to file is online, and you can also file your annual accounts with Companies House within nine months of the end of the accounting period. However, you can file your accounts and tax return simultaneously using HMRC online or an accounting software package.

Business owners in the UK who run a limited company are treated as employees for tax purposes – you pay your income tax through Pay As You Earn (PAYE), while your company pays corporate tax on profits.

Here are the key rates and reliefs for corporation tax in the UK:

You can use the marginal relief calculator to work out what relief you are entitled to.

Tax rates in the UK can be complex, but understanding the basics can help you navigate the system.

The main corporation tax rate in the UK is 25%, but this can vary depending on your profits and industry. For example, if your business profits are under £50,000, you'll pay 19% corporate tax.

Businesses with a high turnover (above £150,000) or those dealing in second-hand goods may be eligible for simplified VAT schemes. This can help reduce the administrative burden of VAT compliance.

Here's a breakdown of the corporate tax rates in the UK:

If you're eligible for business rates relief, you may be able to reduce or even eliminate your bill. This includes properties with a lower value (£15,000 or under), those used for charitable purposes, and those in Enterprise Zones.

General Rates can be a complex and confusing topic, but I'm here to break it down for you in simple terms. The main rate of corporation tax is 25%, which applies to companies with profits in excess of £250,000.

If you're a UK resident company with augmented profits below £50,000, you'll pay a lower rate of 19%. This is a great relief for small businesses, as it can help keep costs down.

For companies with augmented profits between £50,000 and £250,000, there's a sliding scale of tax rates. This means your tax bill will be calculated based on your specific profits, rather than a flat rate.

The main rate of corporation tax and the small profits rate will remain at 25% and 19% respectively, for the financial year beginning 1 April 2025. This gives businesses some stability and predictability when it comes to their tax bills.

Businesses that exploit patents can enjoy a lower effective rate of tax, which is 10%. This applies to profits from the sales of products that include a patent, not just income from patent royalties.

Here's a quick summary of the corporation tax rates:

Keep in mind that these rates are subject to change, so it's always a good idea to check the latest information and consult with a tax professional if you're unsure.

If you're wondering whether you qualify for small business rate relief, the good news is that it's not just limited to small businesses. Lower-value properties, those used for charitable purposes, and those in Enterprise Zones are also eligible for various business rates reliefs.

You can reduce or even eliminate your business rates bill if you fall into one of these categories. For example, properties valued at £15,000 or under qualify for rate relief.

An accountant can help you work out your business rates bill and identify any reliefs for which you qualify. Some pubs and agricultural buildings may also be eligible for rate relief.

Here are some examples of business properties that may be eligible for rate relief:

As a business owner, it's essential to understand how income tax and national insurance work, especially if your business is a limited company. If your business is a limited company, you'll still need to take an income as a director, which could be subject to income tax and NI contributions.

There are two main ways to take an income from a limited company: as a salary or as dividends. You have some flexibility about how you do this, and it can help you reduce the tax you need to pay.

If you're a non-resident company, any other UK-source income you receive is subject to UK income tax at the basic rate, currently 20%, without any allowances. This charge has most commonly arisen in relation to UK rental income earned by a corporate non-resident landlord.

Here are the two main ways to take an income from a limited company:

Remember, taking an income from your limited company can help you reduce the tax you need to pay.

Expenses are a crucial part of running a business, and good management can significantly improve your cash flow situation.

Many essential costs of running a business are tax-deductible, meaning you won't be taxed on the money spent on these costs.

Businesses can deduct expenses such as buying stock, paying staff, and business travel from their taxable income.

Good expense management can help you keep track of your finances and make informed decisions about your business.

Business travel is a tax-deductible expense, but make sure to keep receipts and records of your trips.

Paying staff is also a tax-deductible expense, and you can claim it as a business expense on your tax return.

Filing and submitting your business taxes in the UK can be a daunting task, but don't worry, I've got you covered. You must file an annual tax return before the deadline, regardless of whether your company made a profit.

There are several methods for completing the corporation tax return, including filling in the online form (CT600) yourself, employing a tax accountant, using a verified account filing software package, or submitting a paper form. You can also file your annual accounts with Companies House within nine months of the end of the accounting period.

You can file your accounts and tax return simultaneously using HMRC online or an accounting software package, but you must submit your annual accounts before your tax return. Filing methods for corporation tax return:Fill in the online form (CT600) yourselfEmploy a tax accountantUse a verified account filing software packageSubmit a paper CT600 form

So, you're wondering how and when to submit your tax returns? Well, let's break it down. You'll need to submit a VAT return every three months if you're a VAT-registered business.

You can do this online through your HMRC Gateway account, and your VAT bill will be the VAT you've charged minus the amount you've paid to other VAT-registered businesses. If you've paid more than you've charged, HMRC will reimburse you this amount.

To make sure you get it right, include your VAT registration number, the rate of VAT charged per item, and the total invoice amount, including VAT, on your invoices.

If you're a limited company, you'll need to submit an online form called a CT600 annually. This contains details of your company's income, minus any tax allowances and expenses.

You'll need to pay any Corporation Tax you owe by nine months and one day after your company's accounting period ends. You can pay at any time during this period, but it's highly recommended to get it out of the way as soon as possible to avoid fines.

Here's a quick rundown of the payment options for Corporation Tax:

Note that you can no longer pay at a Post Office, and personal credit cards are not an option. You can find more information about paying your Corporation Tax bill on the Gov.uk website.

For National Insurance, it's calculated and paid in a different way, depending on whether you're a limited company director or a sole trader or self-employed individual. If you're self-employed, you'll need to pay National Insurance by 31st January and in your 31st July payment on account every year.

You can estimate your NI contributions using a free National Insurance calculator. And if you're registered for VAT, you'll need to submit a quarterly return, even if you have no VAT to pay or reclaim.

You can submit a return for your business through various methods, including online, with the help of a tax accountant, or using verified account filing software. The quickest way to file is online via your HMRC Gateway account.

To file online, you'll need your annual accounts or provisional ones to complete the return. You can choose from four different methods: filling in the online form (CT600) yourself, employing a tax accountant, using a verified account filing software package, or submitting a paper CT600 form.

You must also file your annual accounts with Companies House within nine months of the end of the accounting period, so three months before submitting your tax return. However, you can file your accounts and tax return simultaneously using HMRC online or an accounting software package.

If you're a VAT-registered business, you'll have to submit a VAT return and pay VAT bills every three months. You can do this online through your HMRC Gateway account. Your VAT bill will be the VAT you've charged minus the amount you've paid to other VAT-registered businesses.

Here are the different methods for submitting a return:

You can't pay corporate tax in the UK by post, and you can't use a personal credit card to pay your Corporation Tax bill. You can choose from online or telephone payment, direct debit, via your bank, or use a company credit card.

In the UK, there are specific exemptions and credits available to help reduce your corporate tax bill. Registered charities don't pay corporate tax, a significant advantage for organizations focused on giving back.

You can also claim capital allowances on equipment, machinery, and vehicles, which can be a substantial deduction. Research and Development (R&D) relief is another valuable credit if your company is involved in innovative projects.

To give you a better idea, here are some of the corporate tax credits and exemptions available in the UK:

Exemptions can be a game-changer for businesses, but not all are created equal. Registered charities in the UK don't have to pay corporate tax.

In the UK, membership organizations, clubs, associations, cooperatives, and social enterprises must pay corporation tax on their profits.

In the UK, corporate tax credits can significantly reduce a company's tax bill.

Companies can claim capital allowances on equipment, machinery, and vehicles.

Research and Development (R&D) relief is available for companies working on innovative projects, which can be a huge benefit for businesses looking to invest in new ideas.

Patent credits can be claimed if a company makes profits from inventions kept in the UK.

Charitable donations are also eligible for tax credits.

Creative industry relief is available for companies operating in the creative sector.

Disincorporation relief is a tax credit that can be claimed if a company closes or changes to a sole trader or partnership.

Here's a summary of the tax credits available in the UK:

In the UK, there are various types of business taxes beyond income tax and corporation tax. For a full overview of UK taxes, read our article on the British tax system.

The UK has a complex tax system, and businesses need to be aware of the different types of taxes that apply to them. One of the key taxes is Value Added Tax (VAT), which is a consumption tax levied on the value added to goods and services.

Businesses in the UK with a turnover above £85,000 must register for VAT. This means they'll need to charge VAT on their sales and pay it to HMRC.

Other types of taxes that apply to businesses in the UK include Capital Gains Tax (CGT) and National Insurance Contributions (NICs). CGT is levied on profits made from the sale of assets, such as property or shares.

In the UK, there are special tax regimes for certain types of businesses. The Qualifying Asset Holding Company (QAHC) regime was introduced in April 2022 to mitigate tax roadblocks for holding companies.

The QAHC regime provides tax exemption or benefits for gains on the disposal of certain shares and non-UK property, profits of an overseas property business, and more. Payments made by a QAHC are also subject to capital treatment in the hands of investors.

For a company to qualify as a QAHC, it must be at least 70% owned by diversely owned funds managed by regulated managers or certain institutional investors. This allows QAHCs to facilitate the flow of capital, income, and gains between investors and underlying investments.

Here are some benefits of the QAHC regime:

Diverted profits tax is a special tax regime designed to counter multinational corporations' aggressive tax planning strategies.

It's a complex issue, but essentially, it's a way for governments to catch companies that are shifting their profits to low-tax jurisdictions to avoid paying their fair share.

In the UK, diverted profits tax was introduced in 2015 to target companies that use artificial arrangements to avoid paying corporation tax.

This tax is charged at a rate of 25% of the diverted profits, and it's applied to companies that have a UK presence.

Companies that use transfer pricing to shift profits to low-tax jurisdictions may be subject to diverted profits tax.

The tax is designed to be a deterrent, and it's had a significant impact on the way companies approach tax planning.

For example, in 2016, the UK's HMRC collected £1.3 billion in diverted profits tax from just 14 companies.

Companies that have been caught by diverted profits tax have faced significant penalties, including fines and reputational damage.

In one notable case, a major multinational was forced to pay £1.1 billion in back taxes and penalties after being caught by HMRC's diverted profits tax.

Diverted profits tax is an important tool for governments to ensure that companies pay their fair share of taxes.

It's not a perfect system, but it's a step in the right direction towards a more level playing field for businesses.

A UK REIT is a UK resident company or a group of companies carrying on a property investment business, with property let to third-party tenants.

Subject to certain conditions, UK REITs are taxed under a special regime that exempts them from UK tax on rental income and gains related to their property rental business.

Profits from activities other than the property rental business are subject to corporation tax in the normal way.

Tax is effectively levied at the investor level on their share of rental income that is distributed to them by the REIT as a property income distribution.

20% withholding tax is applied to property income distributions, subject to certain exemptions.

Distributions of exempt gains are treated in the same way as PIDs.

Investors who are exempt from UK tax can reclaim any withholding tax to put them into a position equivalent to investing directly in UK real estate.

For non-resident investors, it may be possible to reclaim some or all of the withholding tax on dividends, depending on the terms of any relevant double tax treaty.

The Asset Holding Company Regime, also known as the Qualifying Asset Holding Company (QAHC) regime, was introduced in April 2022 to help mitigate tax roadblocks for UK companies acting as holding companies or intermediate holding companies.

To qualify, a QAHC must be at least 70% owned by diversely owned funds managed by regulated managers, or certain institutional investors, and exist to facilitate the flow of capital, income, and gains between investors and underlying investments.

One of the key benefits of the QAHC regime is tax exemption or benefits in respect of certain gains and profits, including gains on the disposal of certain shares and non-UK property.

The QAHC regime also provides modified rules for deductions of interest and other finance costs on debt funding the QAHC, which can be a significant advantage for companies operating in this space.

Additionally, the QAHC regime allows for capital treatment of payments made where a QAHC redeems, repays, or repurchases its own shares, and an exemption from stamp duty/stamp duty reserve tax (SDRT) on repurchases by a QAHC of share and loan capital.

Here are the key benefits of the QAHC regime:

The Tonnage Tax regime is an alternative method of calculating corporation tax profits by reference to the net tonnage of operated ships. It's a great option for companies that are strategically and commercially managed in the United Kingdom.

To be eligible, a company must be liable to corporation tax and operate qualifying ships. They must also make a Tonnage Tax election within 12 months from the day they became eligible.

A new window for entry into the Tonnage Tax regime was announced in Budget 2023 and implemented by a Statutory Instrument made on 9 May 2023. This allowed eligible companies to enter the regime from 1 June 2023 to 30 November 2024.

Finance Act 2024 extended the scope of Tonnage Tax to include elections into the regime by companies that manage qualifying ships. This change applies to elections made on or after 1 April 2024.

Companies that lease ships to companies within Tonnage Tax can also benefit from increased capital allowance limits. This change applies to leases entered into on or after 1 April 2024.

In the UK, certain industries are subject to specific taxes that can impact their bottom line. The Residential Property Developer Tax (RPDT) is one such tax, introduced on April 1, 2022.

This tax applies to companies or corporate groups that hold or have held interests in land/property as trading stock in the course of a trade. They must also be subject to corporation tax on trading profits from residential property development activity.

The RPDT applies at a rate of 4% to annual profits exceeding £25 million, on a group basis where relevant. This means that companies with significant residential property development profits will need to factor in this additional tax liability.

The oil and gas regime is a complex system of laws and regulations that govern the extraction, production, and sale of oil and gas. It's a critical aspect of the industry, with far-reaching implications for the environment, public health, and the economy.

The tax regime for the oil and gas industry is a key component of this system, with various types of taxes applied at different stages of the production process. For example, the royalty tax is a percentage of the revenue generated from oil and gas sales.

In the US, the oil and gas industry is subject to a range of federal and state taxes, including the federal corporate income tax and state severance taxes. The federal corporate income tax rate is 21%, while state severance taxes can range from 1% to 7.5% of the value of the oil and gas extracted.

The oil and gas industry is also subject to environmental regulations, such as the Clean Air Act and the Clean Water Act, which aim to reduce the industry's impact on the environment. For instance, the Clean Air Act requires oil and gas companies to reduce emissions of volatile organic compounds (VOCs) and other pollutants.

In addition to taxes and regulations, the oil and gas industry is also subject to safety standards and guidelines, such as those set by the Occupational Safety and Health Administration (OSHA). These standards aim to protect workers from hazards such as explosions, fires, and toxic chemicals.

The Residential Property Developer tax is a significant consideration for companies in this industry. Introduced in the UK in 2022, it applies to companies or corporate groups that hold or have held interests in land/property as trading stock.

A company is subject to the tax if it is subject to corporation tax on trading profits from residential property development activity. This tax is a key expense to factor into your business plans.

The tax rate is 4% and applies to annual profits exceeding £25 million, on a group basis if relevant. This means that companies with significant residential property development profits must be prepared to pay this tax.

Companies with profits below this threshold are exempt from the tax, so it's essential to monitor your profits closely.

Non-resident companies in the UK are subject to corporation tax on trading profits from a UK Permanent Establishment (PE) and profits from a UK property rental business.

Trading profits from a UK PE are taxed at the standard corporation tax rate, but profits from a UK property rental business are taxed at the standard corporation tax rate, with no allowances.

Non-resident companies are also subject to UK corporation tax on gains from direct and certain indirect disposals of UK property.

Income from UK sources, such as UK rental income earned by a corporate non-resident landlord, is taxed at 20% without any allowances, unless a Double Taxation Treaty (DTT) applies.

The UK operates an NRL scheme that requires the letting agent or tenants to withhold income tax at 20% at source unless the non-resident landlord has applied for and been given permission to receive gross rents.