The Inevitable: Death and Taxes

Benjamin Franklin famously asserted that death and taxes are certainties of life. For business owners, understanding their tax obligations is paramount. Our guiding principle is simple: knowledge of your tax liabilities empowers you to plan and budget effectively, minimising surprises along the way.

Businesses face various tax obligations depending on their structure and other factors. Here’s a breakdown of some common taxes:

Corporation Tax

Limited companies are subject to corporation tax on their taxable profits. Companies making more than £250,000 profit, will pay the main rate of Corporation Tax, currently 25 per cent, but smaller companies, with taxable profits of £50,000 or less, will pay the ‘small profits rate’ of 19%. If profits are between £50,000 and £250,000 then marginal relief will apply – in effect, the rate gradually increases from 19% to 25%.

Income Tax

Sole traders and partners pay income tax on their adjusted business profits earned in the tax year. The amount they pay depends on their taxable income. In England, Wales and Northern Ireland rates vary from a 20% basic rate, a 40% higher rate and a 45% additional rate.

Scotland has different rates to the rest of the UK. They vary from 19% to 48% and for 2024-25 there are six rates.

Dividends

Taxed as income, dividends are subject to varying rates depending on income bands. The rates in England and Wales are:

  • Up to £500 per year – no tax payable.
  • Above £500 up to £12,570 (if personal allowance is not used elsewhere) no tax to pay.
  • If dividends form part of basic rate band – taxed at 8.75%.
  • If dividends form part of higher rate band – taxed at 33.75%.
  • If dividends form part of additional rate band – taxed at 39.35%.

VAT

VAT is added to most goods and services with the rate of 20 per cent. You can take a look on gov.uk for guidance on what items are zero-rated, like books, children’s clothing and, oddly, motorcycle helmets. If your business has a turnover of more than £90,000, you must be VAT-registered. If your turnover is beneath the threshold, you can still register for VAT voluntarily.

Business Rates

Charged on business premises, rates are based on property value.

Employers’ National Insurance Contributions (NICs)

If your business has employees, you must pay employers’ National Insurance contributions (NICs) on their wages and any benefits you provide. Smaller firms may be eligible to claim the Employment Allowance and reduce the impact of employer’s contributions in certain circumstances.

Capital Gains Tax

Sole traders, partners and companies may have to pay capital gains tax when selling assets that have increased in value. For sole traders and partners this tax is collected as part of self-assessment, company capital gains are added to trading profits and subject to corporation tax.

Business assets you may need to pay tax on include disposals of:

  • land and buildings
  • fixtures and fittings
  • shares
  • registered trademarks
  • your business’s reputation.

 

Tips for Business Owners:

Keep accurate records: Keeping accurate records is crucial to ensure that you pay the right amount of tax. You must keep track of all your business transactions, expenses and income, and make sure to file your tax returns on time.

Plan ahead: Planning ahead can help you budget for your tax payments and avoid any surprises. Make sure to know when your tax payments are due and set aside money to cover them.

Seek professional advice: Tax laws can be complicated, and seeking professional advice can help you navigate them. We can help you understand your tax obligations and identify any tax reliefs that you may be eligible for.

Take advantage of tax reliefs: There are several tax reliefs available for businesses, such as small business rates relief and capital allowances. Make sure to check if your business qualifies for any of these reliefs.

Consider your business structure: Your business structure can have a significant impact on your tax liabilities. See if a limited company or a sole trader/partnership structure is more suitable for your business.

Considering taxes is essential for business planning. Awareness and proactive planning are key to meeting obligations. Please reach out to us for assistance.