Business finance

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:

Pexels Polina Tankilevitch 6927541

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?

If your annual turnover exceeds £90,000.
If you expect to hit this threshold within the next 30 days.
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:

19% for profits up to £50,000
25% for profits above £250,000
Marginal rate of 26.5% on profits between £50,001 and £250,000

📅 Deadline:

File your company tax return within 12 months of your accounting year-end.
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:

0% (Personal Allowance) – up to £12,570
20% (Basic Rate) – £12,571 to £50,270
40% (Higher Rate) – £50,271 to £125,140
45% (Additional Rate) – above £125,140

📅 Deadlines:

31 October (paper tax return)
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:

Employees (Class 1):

8% on earnings between £12,570 and £50,270
2% on earnings above £50,270

Employers: Pay 13.8% on salaries above £9,100

📅 PAYE Deadlines:

Real-Time Information (RTI) submissions every payroll run.
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.

UK Business Taxes Made Simple