What Business Taxes Will Your Company Need To Pay?
As the founder of a new company, there’s a long list of compliance tasks to get your head around – and one of the key tasks will be registering your company for business taxes.
Once you’ve registered as a limited company, you become liable for paying taxes on the profits you make. These taxes are collected by HM Revenue & Customs (HMRC) and provide the funds used by HM Treasury to pay for the running of the country. Paying your taxes isn’t just a compliance task – it’s part of your social and community responsibility as a business.
But what business taxes are there? And how do you know which of these taxes to pay?
To answer this, we’ve created a short ‘Back to Tax Basics’ email series, to give you the full lowdown on your tax responsibilities as a company director.
Understanding the main business taxes
Despite HMRC’s motto of ‘tax doesn’t have to be taxing’, the UK tax code can be a complex thing to get your head around.
If you’re not a trained accountant and have limited experience in financial management, understanding the rules around business taxes can be confusing. So, to start with, let’s look at the main business taxes you’re likely to register for.
Key business taxes include:
Corporation tax (CT) – corporation tax is a tax that’s levied on your profits as a limited company. At the end of your accounting period, you must submit a corporation tax return, and pay the CT that’s due. The rate from 1st April 2023 will be up to 25%, although companies with profits not exceeding £50,000 will pay 19%, with the full 25% rate applying to companies earning over £250,000.
Value-added tax (VAT) – VAT is a consumption tax that’s levied on goods that have had value added at each stage of the supply chain. When you buy these goods, you’ll pay VAT. And when you sell these goods, you will collect VAT. At the end of each quarter, the VAT funds that you’ve collected must be paid to HMRC. You can also claim back the VAT you’ve spent on certain qualifying goods and services too. The standard rate of VAT is 20%, the reduced rate is 5% and certain goods can also be zero-rated. Some supplies may be exempt, where no VAT is charged but it isn’t the same as zero-rated!
Pay-as-you-earn (PAYE)– PAYE is a way to collect income tax and National Insurance Contributions (NICs) from your employees. If you have employees and run a payroll, then you’ll need to collect the required amounts of income tax and NICs from your employees’ wages as part of your payroll process. Then you must report on these deductions and pay the tax and NICs to HMRC, either monthly or quarterly after the pay period, depending on the amount involved. In addition to the income tax and NICs you deduct from your employees, the company may also have to pay Employer's NICs as a business expense.
Learn more about the basics of business tax
So, there you have it. That’s the basics of the key business taxes you’ll need to think about as a new business owner. In the next part of this series, we’ll look at the taxes you’ll be liable for as a director, and how these personal taxes tie in with the profits you take out of your business.