Which tax is which?
All businesses must pay tax but knowing which ones you need to pay and when is very important. Missing a payment deadline with HMRC can result in a considerable fine. Here at Lyel Accountants, we are happy to help you find your way through.
Corporation tax only applies to limited companies so sole traders and self employed people have nothing to worry about. This tax is based on the companies profit or taxable income. It is the business’ responsibility to file the corporation tax with HMRC, similar to a self assessment. Corporation tax is currently set at 17% as of 1st April 2020.
Value Added Tax (VAT)
Value Added Tax is a tax that applies that is added to most goods and services sold in the UK.
In general, the rate of VAT is set to 20% of the overall price of the product or service. A business can voluntarily register for VAT at any point but it is essential to register when the turnover exceeds £85,000.
National Insurance is essential if your business employs staff. Even the director of a limited company is liable to class 1 NICs and your company also has to pay Class 1 NICs too.
Employees pay 12% on earnings between £155 and £827, and 2% on higher earnings. Employers pay 13.8% on earnings above £156.
Sole traders must pay income tax based on the profits of their business. Once your profit exceeds your personal tax allowance (£12,500 – 2020), you will need to start paying income tax. If you are the director of a small company, you pay income tax on any wage you take from the business and you will pay the same tax thresholds as a normal staff member.
Business rates all depend on the type of business you have and where it is located. For example, office based businesses may need to pay business rates. They are most often applied when the business is based in a dedicated premises like offices or a shop. Different businesses will pay different rates so it is a good idea to find out what you need to pay.