If you’re running a business in the UK, you need to ensure you understand and meet all of your tax obligations – such as knowing what taxes business owners need to pay.

As a general rule, the larger your business, the more complex your tax affairs are likely to be.

That said, even smaller businesses can encounter a range of challenges when it comes to business taxes. Get it wrong, and the consequences can be costly.

Before setting out in business, many would-be entrepreneurs wonder what taxes do business owners pay, and how they can reduce their liability.

What taxes do business owners pay in the UK and how can you make managing your affairs easier?

What taxes should businesses pay?

UK businesses are subject to a variety of potential taxes.  These include:

Corporation Tax

This is the main tax paid by limited companies on their taxable profits. This includes income from trading activities, investments, and capital gains.

Value Added Tax (VAT)

VAT is a widely applied consumption tax that is levied on most goods and services.

VAT-registered businesses are required to collect VAT on their sales, which they can then reclaim on their purchases. The difference between these amounts is paid to HM Revenue & Customs (HMRC).

Employers National Insurance Contributions (NICs)

Employers are required to pay NICs on employee earnings when they reach a certain threshold.

Business rates

If a business uses a non-residential property for business purposes, such as a shop, office, or warehouse, then the owner will be required to pay business rates.

These are set by local authorities, and can vary considerably depending on the property’s location and rateable value.

Income Tax and National Insurance (NI)

If you’re a sole trader, partner in a business partnership, or other unincorporated business, then you will be required to pay Income Tax as well as Class 2 and Class 4 NICs on profits.

Income Tax rates will vary depending on an individual’s earnings, while NIC rates are determined by the profits and earnings.

Dividend Tax

Shareholders of limited companies may be liable to pay tax on dividends received from the company. The rates of dividend tax depend on the individual’s total income and tax band.

What tax do you need to pay as a limited company?

Limited companies are subject to Corporation Tax on their profits.

Limited companies must also fulfil their obligations regarding VAT, employers’ NICs, and business rates, depending on their activities and circumstances.

Directors and shareholders of limited companies may also be liable for Income Tax and Dividend Tax on any earnings and dividends they receive from the company.

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.

Contact us for further information and advice.