Corporation Tax
If you have a limited company and your profits are £300,000 or more per year, then your business will be subject to Corporation Tax. This is currently a tax of 20% of your profits but is due to fall to 19% in April 2017 and again to 17% in April 2020.
Value Added Tax (VAT)
Businesses with an annual revenue of £82,000 or more must register for VAT (although businesses can choose to register sooner than this). VAT is a tax which is levied on the sale of goods and services. Any business registered for VAT must charge an additional 20% on their products and services which is then paid to HMRC, usually every 3 months. In return, they can claim back any VAT the business has spent.
Dividend Tax
As a director of a limited company, you can take money out of the business in a number of ways. One of those is to pay yourself dividends. No tax is paid on the first £5000 and after this your dividends are taxed according to your income tax band. If you fall within the basic band (your income is up to £43,000) then you will pay 7.5%. If your income between £43,001 to £150000 then you will pay a rate of 32.5% and anything over £150,000 incurs a rate of 38.1%.
Income Tax
As the name suggests, this is the tax that you pay on your income. You have a tax free personal allowance of £11,000. Most income over this will be subject to differing rates of income tax.
Income from £11,001 to £43,000 – 20%
Income from £43,001 to £150,000 – 40%
Income over £150,000 – 45%
National Insurance
National Insurance Contributions are paid in order to qualify for certain benefits such as a state pension. Your business doesn’t need to make these contributions but you will pay them as an individual, based on the income you take from it.
There are 3 classes of National Insurance and the class that you fall into will depend on a number of factors. As a business owner, you might fall into any one of these classes:
- Class 1A or 1B – paid if you have employees and based on their expenses or benefits.
- Class 2 – If you’re self-employed but earn less than £5995 per year you don’t have to pay National Insurance but you can still choose to make voluntary contributions.
- Class 3 – Additional contributions you may choose to make in order to fill gaps in your National Insurance record or top up your pension.
- Class 4 – paid if you earn profits over £8060 per year.
Pensions Savings Tax Relief
The current annual allowance for pensions savings in a registered pensions scheme is £40,000. Anything over this may be subject to tax.
HMRC have created a tool that you can use to work out if you may owe tax on your pension savings.
Business Rates
This is what you pay on any business property such as shops, factories, and offices. You will receive a bill from your local council in February or March each year.
You won’t normally be subject to business rates if you work from home although there are a few exceptions to this – for example if you live above your shop or if you have converted part of your home specifically for business use – eg. a hairdressing salon
Capital Allowances
When you purchase assets for your business you can usually deduct the full amount from the profits that you will pay tax on. This can be done using your Annual Investment Allowance. The current allowance is £200,000 per year. Not all business purchases can be deducted in this way. Cars, items you owned before using them for your business and gifts do not qualify. For these items you can use Writing Down Allowances instead. In this way, a percentage of the value of the asset will be deducted from your profits each year.
For more information, take a look at gov.uk.
What Small Business Expenses are Tax Deductable?
There are certain smaller business costs that you will also be able to deduct from your profits before paying tax. These are the main things that you should be able to include;
- Office Costs
- Travel
- Clothing
- Staff
- Financial costs such as bank charges
- Utilities
- Marketing