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An overview of the main UK business taxes

If you run a company, in the UK, you will need to pay several taxes. Below is an overview of the main business taxes, with a brief explanation of each.

Corporation tax

This tax is paid on the profit made by UK registered limited companies. Sole traders and partners do not have to pay this tax, as they pay the tax owed on their profits in another way.

Value Added Tax (VAT)

Firms that have a turnover of £82,000 or more usually have to register for VAT. They then need to charge VAT on the products and services that they sell, and pass those funds on to the government.

Working out whether you should be registered for VAT is not easy, but it is not something you want to get wrong. Not paying VAT is a serious offence, so ask your accountant to explain this aspect of business tax in detail. If you’re under the threshold, review your accounts regularly to ensure that you do not miss the point where your turnover reaches the level at which you need to start paying VAT.

If you employ people, you will have to pay the following taxes too. If you are a sole trader, you will have to pay these two taxes on your earnings.

National Insurance (NI)

NI payments go towards paying for services like the NHS and the state’s welfare schemes. As a result, everyone who works in the UK has to pay this tax.

Pay As You Earn (PAYE)

The PAYE system is the main way income tax is collected in the UK. Before you pay your employees, you need to deduct the tax they should be paying the government from their wages. You then pass that money, along with the NI and your contributions, to HMRC.

A word of caution about employing freelancers

If you employ freelancers, you do not need to pay these two taxes. They are responsible for paying these taxes themselves. However, you do need to be careful when working out if you can employ someone as a contractor.

If they work for you on a regular basis, eventually a freelancer could be classified by the taxman as a “disguised employee”. Put simply, you do not want the hassle that goes with this situation, so be sure to understand the employee tax rules properly.

Other taxes

There are other taxes that you need to pay, but you are more likely to have to pay them occasionally rather than regularly like the ones above. Examples include stamp duty when you transfer land, or capital gains tax when you sell your business or assets.

Posted by Peter
January 6, 2016

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