Understanding business taxes
You must pay tax on your business income. You may have to pay other taxes depending on your business activities.
Budgeting for tax
To help your business plan and manage tax, you should:
- understand what taxes you will have to pay and when these are due
- incorporate tax planning into your budgeting and cash flow forecasting
- regularly set aside money to cover your tax bills and avoid spending these funds
- consider if you need an accountant or specialist software to plan and manage your business finances
Income taxes for sole traders and partnerships
Sole traders and partnerships must pay Income Tax and National Insurance contributions on business profits.
The Self Assessment system calculates how much you have to pay.
The deadline to register for Self Assessment is 5 October that follows the end of the tax year that you started trading in. The tax year begins on 6 April and ends on 5 April each year.
Self Assessment deadlines: Malia
Malia started trading on 13 February 2025.
She must register for Self Assessment by 5 October 2025.
She must submit and pay her first tax return by 31 January 2026. This will cover her business income from when she started trading to 5 April 2025.
Malia started trading on 13 February 2025.
She must register for Self Assessment by 5 October 2025.
She must submit and pay her first tax return by 31 January 2026. This will cover her business income from when she started trading to 5 April 2025.
Self Assessment deadline: Curtis
Curtis started trading on 13 May 2025.
He must register for Self Assessment by 5 October 2026.
He must submit and pay his first tax return by 31 January 2027. This will cover his business income from when he started trading to 5 April 2026.
Curtis started trading on 13 May 2025.
He must register for Self Assessment by 5 October 2026.
He must submit and pay his first tax return by 31 January 2027. This will cover his business income from when he started trading to 5 April 2026.
Self Assessment for partnerships
If your business is a partnership, each partner must register for Self Assessment and you must also register the partnership itself.
Calculating and paying your Self Assessment bill
Use your business accounts and financial records to prepare and file your Self Assessment return. This calculates how much tax you owe for the year.
You must complete an online Self Assessment return and pay your tax bill by 31 January each year.
Budgeting for your first Self Assessment payment
You must pay any tax due under Self Assessment by 31 January each year. This means paying:
- the tax you owe for the previous tax year
- an advance payment on what you will owe next year - usually 50% of the previous year's tax bill
You will have to make a second advance payment towards your next year's tax bill by 31 July.
These advance payments can surprise new businesses so make sure to budget for them when managing your cash flow and finances.
You must pay any tax due under Self Assessment by 31 January each year. This means paying:
- the tax you owe for the previous tax year
- an advance payment on what you will owe next year - usually 50% of the previous year's tax bill
You will have to make a second advance payment towards your next year's tax bill by 31 July.
These advance payments can surprise new businesses so make sure to budget for them when managing your cash flow and finances.
Corporation tax for limited companies
Limited companies must pay Corporation Tax on taxable business profits.
Taxable business profits
Your taxable business profits are your business income, minus any allowable expenses, allowances, and tax reliefs.
Your taxable business profits are your business income, minus any allowable expenses, allowances, and tax reliefs.
Calculating and paying Corporation Tax
Your Corporation Tax rate depends on how much profit your company made, and on whether you are entitled to any tax reliefs.
You will not get a Corporation Tax bill from HMRC. At the end of a financial year, your limited company must:
- prepare statutory accounts for Companies House
- submit a Company Tax Return to HMRC
These documents will tell you how much Corporation Tax to pay.
The deadline for paying Corporation Tax is 9 months and 1 day after your accounting year ends. You can find your accounting period dates in your HMRC business tax account.
Company tax returns
Limited companies must submit a Company Tax Return to HMRC.
The deadline for doing this is 12 months after your accounting year ends, but many limited companies find it easier to use accounting software to file their tax returns and Companies House accounts at the same time.
You will not be able to submit your Company Tax Return at the same time as your year-end accounts if your accounts have to be audited.
Tax returns if you are not currently trading
You must file a Company Tax Return even if you were not trading or made no profit unless you tell HMRC your company is dormant for Corporation Tax.
You must file a Company Tax Return even if you were not trading or made no profit unless you tell HMRC your company is dormant for Corporation Tax.
Self Assessment for company directors
You may need to complete an annual Self Assessment tax return, as well as your Company Tax Return, if you are a limited company director.
VAT
VAT is a tax added to most goods and services sold in the UK.
VAT-registered businesses collect this tax by charging VAT to customers and then paying this to the government through the VAT return system.
Registering for VAT
You must register for VAT if any of these apply:
- your business income for the last 12 months goes over £90,000
- you expect your income to go over £90,000 in the next 30 days
- you are based overseas, (or your business is), and you supply goods or services to the UK
Voluntary VAT registration
You can choose to register for VAT before you hit the £90,000 threshold. This makes sense for some businesses.
Consider voluntary VAT registration if:
- Your business income is likely to meet or exceed the thresholds in a 12-month period.
- Your business buys lots of goods or services that include VAT.
- You have a lot of business customers or want to attract more.
- Your business income is likely to meet or exceed the thresholds in a 12-month period.
- Your business buys lots of goods or services that include VAT.
- You have a lot of business customers or want to attract more.
Voluntary VAT registration may not be right if:
- Your income is unlikely to exceed the threshold in a 12-month period.
- Your customers are mostly individuals, rather than businesses.
- You want to keep costs of your goods and services low.
- You do not want to deal with more paperwork.
- Your income is unlikely to exceed the threshold in a 12-month period.
- Your customers are mostly individuals, rather than businesses.
- You want to keep costs of your goods and services low.
- You do not want to deal with more paperwork.
Responsibilities of VAT registered businesses
Once registered, you must:
- include VAT in the price of all goods and services, at the correct rate
- record how much VAT you pay for things you buy for your business
- account for VAT on any goods you import into the UK
- complete a VAT return every 3 months and pay any VAT that is due
Business rates
Business rates are a local property tax that you must pay if you own or rent non-domestic properties, like shops, offices, restaurants, warehouses, factories and holiday rentals. Business rates are set and collected by local councils.
Small businesses can apply for a discount on business rates, and some may pay nothing.
Business rates if you work from home
If you work from home, you will only need to pay business rates if part of your home is used solely for business.
If you work from home, you will only need to pay business rates if part of your home is used solely for business.
Employment taxes
You will need to deal with employment taxes if you hire people to work in, or on behalf of, your business.
Income tax and national insurance
You must register for PAYE if you have paid employees, even if these are short-term, part-time or members of your family. You will report their pay, deduct tax and National Insurance and pay this to HMRC through the PAYE system.
You are not usually responsible for PAYE or National Insurance if workers are supplied by an agency or umbrella company and paid by that company. Check the person’s employment status on GOV.UK if you are unsure.
Construction Industry Scheme
You must register for the Construction Industry Scheme (CIS) if you work in construction and:
- use subcontractors
- work for another business as a subcontractor
- are a company based abroad that is doing construction work in the UK
Other business taxes and duties
You may have to pay other business taxes and duties. This depends on what your business does. You may need to pay:
- duties if your business deals in alcohol, tobacco, soft drinks or gambling and gaming
- Stamp Duty Land Tax if your business purchases land or property
- Capital Gains Tax if you sell business assets