UK Business Taxes Made Simple
Starting a business in the UK? Understanding taxes is crucial to staying compliant and avoiding unexpected costs. Whether you're a sole trader, freelancer, or limited company, this guide covers the essentials—VAT, Corporation Tax, Self-Assessment, and PAYE—along with common mistakes to avoid and key deadlines to remember. Let's break it down below:
1. The Key Business Taxes in the UK
Value Added Tax (VAT)
VAT is a 20% tax added to most goods and services. You only need to register for VAT if your turnover exceeds £90,000 (new threshold as of April 2024).
✅ Standard Rate: 20% (most goods and services)
✅ Reduced Rate: 5% (e.g., home energy, children’s car seats)
✅ Zero Rate: 0% (e.g., books, children’s clothing)
📌 Who Needs to Register?
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If your annual turnover exceeds £90,000.
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If you expect to hit this threshold within the next 30 days.
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If you want to voluntarily register (to reclaim VAT on expenses).
📅 VAT Deadline: Returns are usually filed quarterly via Making Tax Digital (MTD).
🔗 Register for VAT here: Online VAT registration
Corporation Tax (For Limited Companies)
If you run a limited company, you must pay Corporation Tax on profits.
📌 Rates for 2024/25:
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19% for profits up to £50,000
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25% for profits above £250,000
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Marginal rate of 26.5% on profits between £50,001 and £250,000
📅 Deadline:
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File your company tax return within 12 months of your accounting year-end.
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Pay your Corporation Tax within 9 months and 1 day after your accounting period ends.
🔗 More details: Corporation Tax Overview
Self-Assessment Tax (For Sole Traders & Directors)
If you’re a sole trader or earn income outside PAYE, you must file a Self-Assessment tax return.
📌 Income Tax Rates 2024/25:
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0% (Personal Allowance) – up to £12,570
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20% (Basic Rate) – £12,571 to £50,270
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40% (Higher Rate) – £50,271 to £125,140
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45% (Additional Rate) – above £125,140
📅 Deadlines:
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31 October (paper tax return)
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31 January (online tax return & payment)
🔗 File your return: Self-assessment returns
PAYE & National Insurance (For Employers)
If you hire employees, you must deduct tax and National Insurance (NI) from salaries via PAYE.
📌 National Insurance Rates 2024/25:
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Employees (Class 1):
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8% on earnings between £12,570 and £50,270
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2% on earnings above £50,270
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Employers: Pay 13.8% on salaries above £9,100
📅 PAYE Deadlines:
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Real-Time Information (RTI) submissions every payroll run.
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PAYE tax due by the 22nd of each month (or 19th if paying by cheque).
🔗 Learn more: PAYE for employers
2. Common Business Tax Mistakes (And How to Avoid Them)
🚨 Mistake 1: Missing Tax Deadlines
Fix: Use HMRC’s tax calendar or digital tools like business banking apps that offer tax reminders.
🚨 Mistake 2: Not Keeping Receipts & Records
Fix: Maintain digital records of invoices, expenses, and receipts. HMRC requires you to retain records for at least 6 years.
🚨 Mistake 3: Forgetting to Budget for Tax Bills
Fix: Set aside 20-30% of your earnings for tax payments to avoid cash flow issues.
🚨 Mistake 4: Not Claiming Tax Reliefs
Fix: Check for allowable expenses (e.g., home office costs, travel, marketing expenses). Limited companies can also benefit from R&D tax credits.
3. How to Stay on Top of Your Taxes
✅ Use Business Banking Apps – Many modern banking apps provide tax estimation tools and invoice tracking.
✅ Hire an Accountant – A professional can help reduce your tax bill and ensure compliance.
✅ Set Up a Business Tax Savings Account – Keep a separate account for VAT, Corporation Tax, and Self-Assessment payments.
✅ Register for HMRC Alerts – Get email reminders for tax deadlines.
Final Thoughts
Understanding UK business taxes is essential for staying compliant and maximising your profits. By keeping track of VAT, Corporation Tax, Self-Assessment, and PAYE, you can avoid penalties and reduce tax stress.