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  • Writer's pictureBrian Pusser

Small Business Tax Rates

Updated: Oct 13, 2023



Running a small business is a great way to build your own business, earn an income and create jobs.


There are various tax rates and thresholds that need to be adhered to ensure that you pay the correct amount of tax each year.


If you fail to file the correct taxes, you could end up with hefty penalties and even jail time.

If you’re a small business owner, this blog can help you understand small business tax rates and how they affect your business. Make sure to talk to a tax specialist before filing your taxes.


Corporation Tax

If you operate your business as a limited company (Limited Liability Company or LLC), your tax affairs will be handled by the company’s registered director. You will be paying corporation tax on the profit made by your business. The corporate tax rate is 19% in the UK, which is applied to profits up to £50,000. If profits are more than that, the tax rate rises to 25%.


VAT

If your small business has an annual turnover of £85,000 or above, you are required to register for VAT. If you register for VAT, you will be required to pay VAT on the goods and services you provide to your customers. The rates for VAT are 20% (standard), 5% (reduced rate) and 0% (exempted) for most businesses.

If you register for VAT, you can also claim back VAT on purchases from other companies.


National Insurance Contributions (NICs)

Every employer in the UK is required to make contributions to the National Insurance Fund (NIF). The amount of NICs you will be required to pay depends on your income and your number of employees.

  • 13.8% on earnings up to £8,840 (as per the current rates)

  • 0% on earnings lower than £6,240 per year

Income Tax

If you are a sole trader and you earn from your business, you need to pay income tax on the profits you make. You are also required to pay income tax on your business expenses. Your tax-free personal allowance is currently £12,570.

The tax rate is set at a variable rate of between 20% (£50,270) and 40% (£50,270 to £150,000), depending on your income.

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