Death and taxes

Death and taxes are certainties of life, according to Benjamin Franklin, and if you are in business, you should be aware which taxes you are liable to pay.

Our mantra is – by understanding the taxes that your business is required to pay – you can plan and budget accordingly. No surprises…

There are several types of taxes that businesses may be required to pay, depending on their structure and other factors. These include:

Corporation Tax: Limited companies pay 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 marginal relief will apply – in effect, the rate gradually increases from 19% to 25%.

These thresholds will be reduced if companies have associated companies.

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. Dividends are taxed as income but at different rates. 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 fall beneath the threshold, you can still register for VAT.

Business Rates: Business rates are charged on most business premises, based on the value of the property.

Employers' National Insurance contributions: 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.

Consideration of taxes is an essential part of any business planning operation. Being aware and planning accordingly are key to meeting your tax obligations.

We are here to help. Get in touch if there is anything you would like to discuss.