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What Tax Do Small Businesses Need To Pay?

Wednesday 8th May 2024

Corporation Tax

Corporation tax is the tax applied to any profit made by only applies to Limited Companies. If you are a partnership or sole trader, this tax does not apply to you. Corporation tax is applied after salaries and business expenses have been paid, and the corporation tax rate is 19%.

Value Added Tax (VAT)

VAT is only applicable for businesses that register for VAT or meet the VAT threshold of £90,000. The VAT rate is 20% of most goods and services. If you are a VAT-registered business, you need to charge 20% VAT on any services or products that you sell to your clients. You can also reclaim the VAT you have to pay on business expenses. 

Business Rates

If your company is being run from a business premises such as an office, shop, or factory building, you will likely be charged business rates. This works similarly to the domestic property council tax. The rates are calculated based on the estimated rental value of the property and are determined by the local council. 

Income Tax

Income tax only applies to you as the business owner and not the business itself. The current personal allowance is £12,570. Anything earned above this is subject to income tax. Basic rate taxpayers pay 20%, higher rate pays 40%, and the additional rate pay 45%. 

Dividend Tax

If you own shares in your company, you can pay yourself up to £2,000 tax-free, but anything more than this will be subject to dividend tax. The rate of this tax depends on your income band. Basic rate taxpayers pay 8.75% dividend tax, the higher rate is 33.75% and the additional rate is 39.35%

Capital Gains Tax

Capital gains tax is the tax paid when you sell something as a business asset for profit. Assets include machinery, other equipment, and even property. CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate taxpayers, the rate is either 20% or 24%. 

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