Starting your own business can be a truly liberating experience, enabling you to make big, bold decisions and do things your way. However, the risk and reward also comes with some other responsibilities, none bigger than business taxes.

In a bid to help you stay on the right side of the law, we’ve highlighted some key areas that apply to a freelancer, contractor and small business owner. Here’s a quick explanation of the main small business tax areas that apply.

Corporation Tax

What is corporation tax?
Corporation tax is relevant to limited company profits and is calculated by taking into consideration income minus employees’ salaries and other allowable business expenses – before dividends have been withdrawn. Self-employed / Sole traders do not need to pay corporation tax.

When is Corporation Tax due and how do you pay?
UK businesses must submit a CT600 to HMRC annually. This form contains company income, expenses and tax allowances. Corporation tax is due 9-months and 1 day after a limited company’s year end. It should be paid before this deadline to avoid a fine.

Income Tax

What is Income Tax?
Income Tax is paid on salaries and other income you receive.

When is Income Tax due and how do you pay?
Income Tax is due to HMRC before the annual 31st January deadline and is paid on all profits you earn above the personal allowance. Income tax will either be taken at source through a company PAYE scheme or via a HMRC Self Assessment tax return.

National Insurance

What is National Insurance?
Also know as N.I, National Insurance contributions affect your entitlement to a state pension and help pay for public services. Contributions begin when you are over 16 and making a profit above or equal to the current primary threshold.

When is National Insurance due and how do you pay?
If you’re a director of a limited company your National Insurance will be taken via PAYE. Sole traders have their National Insurance contributions calculated via Self Assessment and must pay it before 31st January every year. This is paid along with income tax.




VAT

What is VAT?
Value Added Tax (VAT) is added to the price of most goods and services. Companies that are VAT-registered must charge VAT to customers, but also benefit from being able to claim any VAT back that has been paid on business expenses. Companies that exceed the current threshold must register for VAT.

When is VAT due and how do you pay?
VAT is different in that it’s paid quarterly from the date of your registration. Any VAT owed must be declared and paid within 37 days of the end of the relevant quarter. If you have no VAT to pay or reclaim you must still submit a return.

Business rates

What are business rates?
If you run a business from a commercial premises you’ll need to pay business rates.

When are business rates due and how do you pay?
Business rates are normally sent via post in Feb or March each year. You can choose to pay monthly (12 installments). Business rates are a legal requirement.