Small Businesses Taxes: What do you owe HMRC?
Running a small business in the UK comes with plenty of responsibilities, and one of the most important is managing your tax obligations. To help you stay on top of things, here’s a breakdown of the taxes you’ll need to consider.
What’s a Small Business?
In the UK, a small business is generally defined as one that meets the following criteria:
Turnover of £10.2 million or less
£5.1 million or less balance sheet assets
50 employees or fewer
If your business fits these criteria, you can apply for an exemption from having your accounts audited. You also have the option to decide whether or not to send your directors' report and profit and loss statement to Companies House.
What Taxes Will You Need to Pay?
Corporation Tax
Corporation Tax is charged on your Limited Company’s profits. To work out how much you owe, you’ll need to file a company tax return.
For the 2024/25 financial year, the main Corporation Tax rate is 25% if your profits are over £250,000. If your profits are below £50,000, the rate is 19%, and there’s a sliding scale for businesses with profits in between.
Note: If you have other Associated Companies (i.e. in your control) the profit thresholds are divided by the number of associated companies you have!
Value Added Tax (VAT)
VAT is a tax on goods and services. If your business turnover exceeds £90,000 in the 2024/25 tax year, you’ll need to register for VAT.
You need to keep a close eye on your turnover pre-registration to ensure that you don’t exceed the £90,000 threshold - it’s assessed by looking at your last 12 months revenue.
Once registered, you’ll start charging VAT on sales and reclaiming VAT on what your business buys. Keeping clear records is key here.
Business Rates
If your business operates out of commercial property—like an office, shop, or warehouse—you’ll need to pay Business Rates. It’s like council tax but for businesses. The amount is based on the rental value of your property, and you’ll pay it in instalments to your local council.
If you’re premises is small you can apply for small business relief.
Income Tax
Income tax isn’t something your business pays, but as a company director, it may apply to you personally.
If you take a salary from your company, and it’s over £12,570, you’ll need to pay income tax at the standard UK rates:
0% on earnings up to £12,570
20% from £12,571 to £50,270
40% from £50,271 to £125,140
45% on earnings over £125,140
Even if you’re the sole employee of your company, you still need to set up a payroll with HMRC!
National Insurance Contributions (NICs)
If you have employees, you’ll need to pay National Insurance contributions (NICs). For 2024/25, employers pay 13.8% on employee earnings over £12,570.
As a company director, you’ll also need to pay NICs yourself.
You also need to consider NICs if you provide company benefits to your staff (including yourself).
Dividend Tax
If you receive dividends from your company, you’ll be subject to Dividend Tax. For the 2024/25 tax year, the first £500 is tax-free, and anything above that is taxed at the following rates:
8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers
You’ll need to include dividends in your individual Self Assessment tax return.
Remember, the company can only pay dividends if it has sufficient reserves (i.e. after tax profits) to pay out. If the company has been loss making dividends may not be an option for you.
This is a quick round up of the common taxes applicable to small businesses, but if you need more detailed advice we have experts who can help!
Staying on top of your small business tax responsibilities is essential, and professional guidance can make things much easier. We're here to ensure everything is filed correctly and on time, helping you avoid any unexpected surprises.
