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When does a small business have to pay tax in the UK?

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Last editedJul 20223 min read

When you start a business, a wide variety of issues can occupy your attention, with taxes often put on the back burner while you deal with more pressing concerns. However, it’s important to remember that there are substantial penalties for businesses that pay their taxes too late. Therefore, it’s always a good idea for small business owners to have a solid understanding of their tax obligations. So, when do you have to start paying taxes? How much tax does my business need to pay? Read our comprehensive guide for a little more information.

When do you have to start paying taxes?

The current tax year runs from 6 April 2022 to 5 April 2023. Different taxes have different payment schedules, so we’ll provide you with an overview of the different taxes and when payment is due.

Corporation tax

Corporation tax is a tax on the profits made by your business over the financial year. It must be paid nine months and one day after your business’s accounting period ends. Usually, this is March 31, which means you’ll need to pay corporation tax on January 1.

Currently, the corporation tax rate is set at 19%*. It's important not to file your corporation tax late, as this can subject you to penalties.

Income tax

Income tax is paid on income you receive personally, such as salary and dividends. If you’re a limited company director, income tax is paid through your business’s PAYE scheme. For sole traders, income tax will be paid based on the profit made from the business which is included on your self-assessment tax return.

National Insurance

National Insurance helps to build up your state pension and pay for public services. As is the case with income tax, National Insurance will be taken via PAYE for limited company directors. The payment process for sole traders is a little different. Essentially, it’s calculated as part of the annual self-assessment and paid to HMRC by January 31 and as part of your payment on account (July 31).

VAT

VAT (Value Added Tax) is a consumption tax that’s added to the cost of goods and services. Companies aren’t registered for VAT automatically, and unless your annual turnover exceeds the VAT threshold (£85,000) it doesn’t need to be paid. If you do need to pay VAT, it needs to be paid quarterly, with VAT returns submitted to HMRC within 37 days of the end of the quarter.

It’s also important to remember that your company’s tax obligations are determined by your business structure, which also dictates when your taxes are due.

Tax obligations for sole traders

As a sole trader, your tax-free personal allowance is £12,500. As long as you’re earning less than that, you won’t need to pay any income tax. If your business earns between £12,501-50,000, you’ll pay a basic 20% income tax rate. If your earnings fall between £50,001 and £150,000, you’ll pay 40%. A 45% rate applies to businesses with a taxable income of £150,000 plus.

You’ll also need to send a self-assessment tax return every year and pay National Insurance. Furthermore, if your earnings are expected to be above £85,000 over a 12-month period, you’ll need to register for VAT. Sole traders do not need to pay corporation tax.

Tax obligations for limited companies

Limited companies are required to send Companies House an annual tax return, compile statutory accounts, send a company tax return to HMRC, and register for VAT (if earnings exceed £85,000). In addition, a director of a limited company is required to return a self-assessment tax return and pay tax/National Insurance through PAYE if they receive a salary from the business.

Tax obligations for partnerships

Partnerships have similar tax obligations. Firstly, partners are required to pay income tax on their share of the business’s profits (the same breakdown for sole traders applies to partnerships). They also need to pay National Insurance, send a personal self-assessment tax return, and register for VAT if earnings exceed £85,000. In addition, the nominated partner is required to send a partnership self-assessment tax return on an annual basis.

Tax obligations for limited partnerships and limited liability partnerships

Partners of a limited partnership or limited liability partnership need to send a partnership self-assessment tax return every year and register the partnership for VAT if the business’s earnings meet or exceed the threshold. Furthermore, each partner is obligated to pay income tax on their share of the company’s profits, send a personal self-assessment tax return, and pay National Insurance.

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