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Understanding the Tax Your Business Will Have to Pay

By: J.A.J Aaronson - Updated: 3 Apr 2018 | comments

For a business owner, tax can be one of their most arduous responsibilities. When you set up a business you take on some significant new responsibilities – and it is vital that you understand these. So what taxes will your new business have to pay?

Income Tax

If you choose to run your business as a sole trader, rather than as a Limited Company, your earnings will simply be treated as income. As such, you will have to pay Income Tax like everyone else. The difference is that you will pay it via Self Assessment, rather than PAYE.

As a Self-Assessment taxpayer, you will have to complete an annual tax return by 31 January. You will then pay your tax direct to HM Revenue & Customs (HMRC).

Corporation Tax

If you choose to establish a limited company, you will have to pay Corporation Tax. All of your taxable income, as well chargeable gains, will be liable for Corporation Tax.

Unlike most other taxes, Corporation Tax requires you to pay your bill before you file your Company Tax Return. Normally, you will be required to pay your Corporation Tax within nine months of the end of your accounting period. You will then be required to file your Company Tax Return within 12 months of the end of the accounting period.

Business Rates

Business rates are a tax charged on non-domestic properties. This includes offices, shops, pubs, and so on. They are formally called non-domestic rates, but are normally referred to as Business Rates.

You will probably have to pay business rates if you use a building, or a part of a building, for business purposes. In some cases, this might include home offices.

Much like Council Tax, your business rates will depend on the rateable value given to the property by the Valuation Office Agency. You will then be charged a certain percentage of that value, which will be determined by the business rate multiplier. This is set by the government.

It is important to remember that a range of business rate reliefs are available, particularly for small firms. You may wish to read the article on business rate reliefs elsewhere on this site.

Employment Taxes

If you employ anyone, you will take on a range of new responsibilities including setting up a PAYE scheme to deduct tax from their earnings. You then have a legal obligation to provide them with a payslip on or before pay day, as well as an annual P60 form. You will have to pay the deductions you make directly to HMRC, to whom you will also have to send an Annual Employer’s Return.

Employers must make Class 1 National Insurance Contributions (NICs) through PAYE. In addition, though, you will also have to pay employer Class 1A Contributions at the end of the tax year. Class 1A NICs relate to taxable benefits.

As can be seen, business owners have a range of important tax obligations. It is vital that you file your returns on time, and that your tax is paid promptly. If you are in any doubt about your requirements, contact your Tax Office or your local BusinessLink.