The legal structure you choose for your business impacts how much tax you pay, as detailed in this guide. When deciding on how to register your business, you should take into account the tax implications. Further information about taxes can be found on the HM Revenue & Customs website.

What taxes do sole traders pay?

• Must pay income tax on your business’s taxable profits
• This income tax is calculated each year by you or your accountant when completing your Self Assessment tax return
• The standard tax-free Personal Allowance for 2018 is £11,500, and you wont pay any income tax until you earn more
  • If your sole trader business’s annual net profit (sales minus costs and allowances) combined with any other taxable income falls between £11,501-£45,000, you’ll pay the basic income tax rate of 20%
  • A higher rate of 40% income tax applies to profits and other taxable income above £45,001 but not exceeding £150,000
  • A higher rate of 45% income tax is payable on profits and other taxable income of £150,000 and above
  • Income tax bands are different in Scotland
• Must pay National Insurance contributions

What taxes do private limited companies pay?

• Limited companies pay Corporation Tax on their profits (minus any reliefs they can claim), and the rate is currently 19%
• Employees pay income tax and NICs through the company’s PAYE (pay as you earn) scheme)
• The limited company must pay employer’s NICs at 13.8% on emmployees with wages more than £157 per week
• The company’s Corporation Tax bill must be paid within nine months and a day at the end of your accounting period– calculate your Corporation Tax deadline here
• You or your accountant must file your company’s Corporation Tax return within 12 months in accordance with HMRC requirements

What taxes do partnerships pay?

• Members of an ordinary partnership are usually self-employed and taxed accordingly
• The standard tax-free Personal Allowance is £11,500 and no income tax is due until you earn more
  • The basic income tax rate of 20% is payable on profits and other taxable income between £11,501 and £45,000
  • The higher rate of 40% applies to profits and other taxable income between £45,001 and £150,000
  • The additional rate of 45% income tax is payable on profits and other taxable income more than £150,000
  • Income tax bands are different in Scotland
• Must pay National Insurance contributions

What business rates have to be paid?

• Business rates have to be paid for the use of commercial properties (shops, offices, warehouses, industrial units, factories, etc)
• Local councils send business rates bills in February or March each year for the coming tax year
• Find your business rates valuation here
• Estimate your business rates here

When do you need to register for VAT?

• When your gross VAT-able year-to-date turnover reaches £85,000, you must register for VAT with HMRC—register for VAT here
• After registration, you will be sent a VAT registration certificate with your VAT number, date that you went over the threshold, and the date by when you need to submit your first VAT return and make your first VAT payment

Sources:

• HM Revenue Customs
• Informi: What Taxes Do Small Businesses Pay?
• A Guide to UK Taxation
• Self Assessment Tax Returns
• Corporation Tax Rates and Reliefs
• Business Rates
• Find and Check Your Business Rates Valuation