Mastering UK Taxes: A Small Business Owner’s Essential Guide

The UK tax year runs from April 6, 2024, to April 5, 2025, and for small business owners, understanding the taxes that apply during this period is crucial.

With a maze of deadlines and regulations to navigate, managing your tax obligations can feel overwhelming. That’s why we’ve created this guide to break down the key taxes UK businesses face, explain how they work, and outline the steps to pay them—helping you stay compliant and in control.

What type of business are you registered as?

The taxes you pay—and exactly how much you pay—all depends on the business structure you’re using.

According to the gov.uk website, most small businesses are registered as a sole trader, limited company, or a partnership, so these are the business structures we'll cover in this article.

Corporation tax

Corporation tax is paid by companies in the UK, as well as foreign-based companies with a UK branch. Both must pay corporation tax on profits made over the course of an "accounting period."

The current rate for corporation tax is 19% for companies with profits under £50,000 and 25% for companies with profits over £250,000.

If your profit falls between these amounts, you’re eligible for marginal relief, which gradually increases the tax rate from 19% to 25%. You can calculate this using the official marginal relief calculator.

You can also work out the tax owed using your personal records and company tax return form on your own or with an accountant’s help.

Your corporation tax bill is typically due 9 months and 1 day after the end of your accounting period.

You must also file your company tax return with HMRC. This is used to declare your profits (or losses) and calculate the amount of corporation tax owed. Again, the deadline for this is usually 12 months after the end of your accounting period.

Note that late payments or filings will incur penalties.

Corporation tax overview

Applicable to: Limited companies

How to file a company tax return: Complete a CT600 form and file it online via the tax return service.

How to pay corporation tax: You can use the "pay corporation tax" service. There are various methods you can use to pay, though postal is no longer an option.

Income Tax

The UK government levies income tax on individuals who earn profits from their businesses, but the amount owed depends on what you actually earn.

The country uses a progressive tax rate system and there are currently 4 tax bands based on your income:

When it comes to income tax, it's important to note your total taxable income isn't limited to just your work salary. If you have another source of income, for example, from renting out property, your tax band will be adjusted based on total income. You can find more information on what income is taxable on the government's "income tax" page.

The type of business you are registered as will affect how you pay your income tax:

Income tax for sole traders

Let's start with sole traders. In this structure, you are classed as self-employed so your business profits are considered as your personal income.

There is a £1,000 trading allowance, meaning the first £1,000 you earn as a sole trader is tax free, and you do not have to report this as part of your income.

If your trading profits are above £1,000, then you are required to fill out a self assessment tax return by the 31st of January for online submissions, and 31st of October for paper submissions. These dates apply for the tax year that you are in. Your income tax itself is payable to HMRC by the 31st of January.

Income tax for partnerships

In a partnership, each partner is responsible for paying income tax on their share of the partnership's profits. This is also done via self assessment with the same deadlines as above. Each partner is eligible for the £1,000 trading allowance.

Income tax for limited companies

Limited companies pay corporation tax on profits from the business.

If you pay yourself (or any employees) a salary, then this is a tax deductible expense, meaning you do not pay any corporation tax on salaries. Instead, PAYE and National Insurance is deducted at the source (payroll) and paid directly to HMRC.

Where dividends are paid to the directors of the company, they must submit a self assessment tax return to HMRC themselves. All of this depends on how much they’re paid in dividends and what tax bracket they’re in.

For more information, visit the government’s "tax on dividends" page.

Income tax overview

Applicable to: Limited companies, Sole Traders and Partnerships

How to file a company tax return if…

• You are a sole trader: For the main tax return (SA100), file your self assessment online. Alternatively, request a paper version of the self assessment to send it by post, along with any required supplementary pages
• For your partnership: File the SA800 partnership tax return along with any supplementary pages

How to pay income tax: You can pay through the "pay your self assessment tax bill" service, which accepts various payment methods.

VAT

Short for value added tax; VAT is a consumption tax that is added to most products and services.

As a business owner, you are obliged to register for VAT if your annual taxable turnover exceeded the VAT threshold in the past 12 months, or is expected to exceed it in the next 30 days. As of April 1, 2024, this threshold is £90,000.

If you're a VAT-registered business, you must add the VAT rate to your regular price and invoice the total to your customers.

The standard rate for VAT is 20%, with reduced rate and zero-rates applying to certain services and products. You can find further details about VAT on the government’s official "VAT rates" page, or Sufio's own VAT guide for Shopify stores in the UK.

VAT is paid quarterly alongside submitting a VAT return to HMRC, in which you declare how much VAT you've invoiced and how much you've paid to other businesses. The deadline for both of these is 37 days after the end of your accounting period, which is 3 months for VAT.

Your return forms must be submitted digitally in accordance with the government’s Making Tax Digital policy. This requires you to have compatible software for MTD.

To make this easier, it's best to keep digital records of what you've invoiced and goods you've received. You can find a full list of the records you should keep on gov.uk's "keeping VAT records" page

You can choose to register for VAT voluntarily even if your turnover is below the threshold. You would be required to file VAT returns quarterly too, but you have the benefit of being able to claim VAT back for business expenses.

VAT overview

Applicable to: Limited companies, Sole Traders and Partnerships

How to file a VAT return: You will need to use software compatible with the UK’s Making Tax Digital policy.

How to pay VAT: You can pay using the official "pay your VAT bill" service.

National Insurance

National Insurance contributions (NICs) fund public services in the UK like NHS, state pensions, and unemployment benefits. This tax is taken from your earnings and profits alongside income tax.

The amount you pay depends on your class - there are 6 of these in total

• For Class 1, 1A, and 1B, refer to National Insurance rates and categories.
• For Class 2 and 4, refer to Self-employed National Insurance rates.

Now that we've tackled that, let's get into which classes you have to pay depending on your business structure.

Sole Traders and Partners in a Partnership

• If your profits are under £6,725 a year, you can choose to pay voluntary Class 2 contributions
• If your profits are more than £6,725 a year, your Class 2 contributions are treated as having been paid to protect your record
• If your profits exceed £12,570 a year, you'll pay Class 4 contributions Note that for partnerships, NICs work the same as income tax: Each partner is responsible for paying this tax on their share of the profits.

How to pay Class 4 NI: Through Self Assessment, usually alongside income tax.

Limited Companies

• Class 1 (Employee): Paid on salaries for employees/directors (including yourself).
• Class 1 (Employer): Secondary contributions on salaries—rates differ from employee NI. See Rates and thresholds for employers.
• Class 1A & 1B: Employer pays on taxable benefits/expenses for employees/directors.
• More info: Check National Insurance for company directors.

How to pay Class 1, 1A, 1B NI: Deducted via PAYE, same as income tax.

Business Rates

If your business uses a non-domestic property, you’re liable for business rates.

For example, if you use an office or a warehouse as part of your business, you'll pay business rates for that property.

These taxes are paid to your local authority, similar to council tax. You will receive a business rates bill from your local council in February or March for the upcoming tax year. You can also estimate your bill using the rateable value of the property.

You might qualify for business rates relief schemes if you meet certain criteria, such as being a small business.

How to pay your business rates: Pay your local council, most offer online payments via their websites, while some accept postal payments, depending on the council.

Conclusion: simplify your tax compliance and focus on growth

You’ve now got a solid grasp of the key taxes UK small business owners face, from corporation tax to VAT, income tax, National Insurance, and business rates. For additional support, consider exploring resources like capital allowances on gov.uk to claim tax relief on business assets.

Compliance can feel overwhelming, but it doesn’t have to be. For ecommerce merchants, tools like Sufio can streamline Shopify invoicing and ensure your records are accurate and tax-ready, saving you time and effort. Combine this knowledge with guidance from a tax expert to tailor it to your business. With the right approach and tools, you can stay compliant and focus on what truly matters—growing your online store.