When Does a Small Business Pay Tax in the UK?
When you start a business, a wide variety of issues can occupy your attention, with taxes often put on the back burner while you deal with more pressing concerns. However, its important to remember that there are substantial penalties for businesses that pay their taxes too late. Therefore, its always a good idea for small business owners to have a solid understanding of their tax obligations. Read our comprehensive guide for a little more information. The current tax year runs from 6 April 2020 to 5 April 2021. Different taxes have different payment schedules, so well provide you with an overview of the different taxes and when payment is due. Corporation tax  Corporation tax is a tax on the profits made by your business over the financial year. It must be paid nine months and one day after your businesss accounting period ends. Usually, this is March 31, which means youll need to pay corporation tax on January 1. Currently, the corporation tax rate is set at 19%. Income tax  Income tax is paid on income you receive personally, such as salary and dividends. If youre a limited company director, income tax is paid through your businesss PAYE scheme. For sole traders, income tax will be paid based on the profit made from the business which is included on your self-assessment tax return. National Insurance  National Insurance helps to build up your state pension and pay for public services. As is the case with income tax, National Insurance will be taken via PAYE for limited company directors. The payment process for sole traders is a little different. Essentially, its calculated as part of the annual self-assessment and paid to HMRC by January 31 and as part of your payment on account (July 31). VAT  VAT (Value Added Tax) is a consumption tax thats added to the cost of goods and services. Companies arent registered for VAT automatically, and unless your annual turnover exceeds the VAT threshold (85,000) it doesnt need to be paid. If you do need to pay VAT, it needs to be paid quarterly, with VAT returns submitted to HMRC within 37 days of the end of the quarter. Its also important to remember that your companys tax obligations are determined by your business structure, which also dictates when your taxes are due. Tax obligations for sole traders  As a sole trader, your tax-free personal allowance is 12,500. As long as youre earning less than that, you wont need to pay any income tax. If your business earns between 12,501-50,000, youll pay a basic 20% income tax rate. If your earnings fall between 50,001 and 150,000, youll pay 40%. A 45% rate applies to businesses with a taxable income of 150,000 plus. Youll also need to send a self-assessment tax return every year and pay National Insurance. Furthermore, if your earnings are expected to be above 85,000 over a 12-month period, youll need to register for VAT. Sole traders do not need to pay corporation tax. Tax obligations for limited companies  Limited companies are required to send Companies House an annual tax return, compile statutory accounts, send a company tax return to HMRC, and register for VAT (if earnings exceed 85,000). In addition, a director of a limited company is required to return a self-assessment tax return and pay tax/National Insurance through PAYE if they receive a salary from the business. Tax obligations for partnerships  Partnerships have similar tax obligations. Firstly, partners are required to pay income tax on their share of the businesss profits (the same breakdown for sole traders applies to partnerships). They also need to pay National Insurance, send a personal self-assessment tax return, and register for VAT if earnings exceed 85,000. In addition, the nominated partner is required to send a partnership self-assessment tax return on an annual basis. Tax obligations for limited partnerships and limited liability partnerships  Partners of a limited partnership or limited liability partnership need to send a partnership self-assessment tax return every year and register the partnership for VAT if the businesss earnings meet or exceed the threshold. Furthermore, each partner is obligated to pay income tax on their share of the companys profits, send a personal self-assessment tax return, and pay National Insurance. Who is GoCardless  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.