There are several things that small businesses can do to minimise their tax liability and ensure that they comply with all applicable laws and regulations.
Small businesses often face unique challenges when it comes to taxation. With so many different taxes to keep track of, it can be difficult to know where to start. In heavily regulated industries like finance, it may result in a firm's staff not being licensed to offer certain services.
Common business structures for small businesses
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- Corporation
Each business structure has advantages and disadvantages, so choosing the right one for your business is important.
Taxes for small businesses
Some taxes are relevant to all small businesses, and others depend on their activities and circumstances.
- Corporation Tax (CT): CT is paid by limited companies on their profits. The current CT rate is 19% for profits up to £50,000 and 25% for profits over £50,000.
- Value Added Tax (VAT): VAT is a tax on the sale of goods and services in the UK. The standard VAT rate is 20%. Businesses must register for VAT if their turnover exceeds £85,000.
- National Insurance (NI): The amount of NI paid depends on the employee's earnings and the employer's Class 1 NI rate.
- Income Tax: Sole traders and partners pay income tax on their business profits. The income tax rate depends on the individual's total taxable income.
- Business Rates: Business rates are a tax on the occupation of non-domestic property in the UK. The amount of business rates paid depends on the size and location of the property.
- Capital Gains Tax (CGT): CGT is paid on the profit made when an asset is sold. Small businesses may need to pay CGT on the sale of business assets, such as property, equipment, and inventory.
- Dividends Tax: Dividends tax is paid on dividends received from a limited company. The rate of dividends tax depends on the recipient's individual income tax rate.
- Employer's NI contributions: Employers must pay NI contributions on their employees' earnings. The amount of NI contributions paid depends on the employee's earnings and the employer's Class 1 NI rate.
- Construction Industry Scheme (CIS): CIS is a scheme that helps to reduce tax evasion in the construction industry. Contractors working on CIS projects must register with HMRC and deduct tax from their payments to subcontractors.
Small business tips for tax compliance
- Register your business with HMRC. You set up a business online or by phone.
- Keep good records of your business income and expenses. This will help you to deduct all your allowable expenses and file accurate tax returns.
- Choose the right business structure for your business. This can help you to minimise your tax liability and protect your personal assets.
- Stay up to date on tax changes. HMRC makes changes to the tax laws regularly. It is important to stay up to date on these changes so that you can comply with the latest requirements.
- Consider hiring a tax professional to help you plan and prepare. This can save you time and money in the long run.
Useful small business tax resources
- HMRC: HMRC offers various support services to help small businesses with their tax compliance. You can find more information on their website.
- Federation of Small Businesses (FSB): The FSB is a membership organisation that provides support and advice to small businesses. They have several resources on tax compliance, including a tax guide for small businesses.
- Small Business Tax Helpline: The Small Business Tax Helpline is a free service that can provide you with advice and support on tax compliance.
Need help with SME compliance?
Our blog offers small business best practice tips on data protection, employment law, money laundering, taxation, and health and safety can be found in our blog.
Our comprehensive roadmaps help you navigate the compliance landscape. They are supported by e-learning courses in our Skillcast Basic plan, which is designed and priced specifically for small businesses.
We also have 100+ free compliance training aids, including assessments, best practice guides, checklists, desk aids, eBooks, games, posters, training presentations and even e-learning modules!