How much tax does a business pay?

If you’re in business in the UK, then it’s essential that you have a firm grasp on your tax obligations.

This is crucial not only for financial planning, but also ensures that you are fully compliant with HM Revenue & Customs (HMRC) regulations.

The amount of tax a business pays will depend on various factors, including its legal structure, profits, turnover, and activities.

How much is business tax in the UK, and how can you better manage your business tax affairs and reduce your liability?

How much tax should your business be paying?

Any business owner wondering how much is business tax will need to take into account the legal structure of their business.

Limited companies in the UK are subject to Corporation Tax on their profits. This is a calculated tax on the taxable profits of the business, taking into account allowable expenses and deductions.

Currently, Corporation Tax is applied at 19 per cent for companies with profits of less than £50,000, and 25 per cent for companies earning more than £250,000 a year.

Sole traders and partners in business partnerships will be liable for income tax and National Insurance (NI) based on business profits.

The amount of tax your business should be paying depends on its taxable profits, which are calculated by deducting allowable expenses from total income.

Allowable expenses include costs directly related to running the business, such as salaries, rent, utilities, supplies, and other operating expenses.

Businesses with a turnover above £90,000 are required to register for Value Added Tax (VAT).

How to calculate how much tax your business should be paying

It’s critical for financial planning and compliance that you understand how business taxes for your business are calculated and how much you should be paying.

The answer to the question ‘How much tax does a business pay?’ depends to a large extent on the structure of that business:

Limited companies

To calculate a limited company’s taxable profits, allowable expenses should be deducted from total income.

The Corporation Tax rate should then be applied to the taxable profits to determine the liability.

A Corporation Tax return should be submitted to HMRC by a specified deadline, along with any payments that are due.

Sole traders and partnerships

A sole trader’s taxable profits are calculated by deducting allowable expenses from total income.

The Income Tax, and Class 2 and Class 4 NICs liability is based on the taxable profits and the relevant tax rate.

A self-assessment tax return should be submitted to HMRC by the deadline.

Comprehensive small business tax advice from Digital Accounting & Finance

At DAAFL, we’re committed to helping small businesses grow, develop and achieve their financial goals.

We can provide a comprehensive range of small business tax services to help maximise profits, reduce your liability and meet your tax obligations.

With our support, you can place your business on a firmer financial footing.