Tax Landscape for Businesses in England and Wales: What You Need to Know

Depending on the nature of your business and the stage it is at, different types of taxes and at different levels are likely to be applicable. This article aims to provide an insight into some of the taxes a startup should be aware of. However, it is always recommended you seek professional tax advice to suit your specific business needs.

Income Tax, National Insurance Contributions and Capital Gains Tax

The tax applicable to a sole trader, or partner in a partnership, are likely to include: 

• Income Tax (IT); 

• Employee’s National Insurance Contributions (NIC); and

• (potentially) Capital Gains Tax (CGT). 

The Company Tax Return consists of Form CT600, any relevant supplementary pages, the company’s accounts and tax computations.

Most businesses will be familiar with the PAYE system rather than manually sending forms. This allows employees to tax on their salary throughout the tax year.

Employers will deduct the appropriate IT and NIC from the employees’ salaries, which will be paid to the HMRC on their behalf. The exact amount of tax will be reflected on their individual payslips.

The amount of IT deducted from the salary depends on the employees’ tax code and how much of their taxable income is above their Personal Allowance. For an overview of the various Income Tax brackets click here.

Corporation Tax

Entities that are liable to pay corporation tax include: 

• UK limited companies; 

• Foreign companies with a UK branch or office; 

• Co-operative associations; and 

• Unincorporated associations. 

Corporation Tax is paid on profits earned through: 

• business; 

• investments;

• selling assets at a profit (for more than what they originally cost). 

With Corporation Tax, founders are required to not only pay the tax themselves, but also work out, pay and report your tax. You can use an agent to help with this process if you prefer. Currently, the corporation tax main rate in the UK is set at 19% for all business profits.

Most business premises are charged with business rates and how much you will have to pay depends on the value of the property. HMRC’s calculator can be used to figure out your business rates.

Value Added Tax (VAT)

You will have to be registered for VAT if your business supplies VAT-able goods or services and your taxable turnover is above £85,000. 

As a small business, you can voluntarily register for VAT. If your Input Tax (VAT claimed on products and services bought) is greater than your Output Tax (tax bill for the total of VAT that you owe), this difference can be reclaimed in your VAT return.

- Author: Irene Correro Garcia

- Author: Irene Correro Garcia

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Sources

Service GD, “Capital Gains Tax: What You Pay It on, Rates and Allowances” (GOV.UKApril 8, 2015) <https://www.gov.uk/capital-gains-tax> accessed February 15, 2023 

Service GD, “Business Asset Rollover Relief” (GOV.UKOctober 29, 2019) <https://www.gov.uk/business-asset-rollover-relief> accessed February 15, 2023 

“HS393 SEED Enterprise Investment Scheme - Income Tax and Capital Gains Tax Reliefs (2020)” (GOV.UK) <https://www.gov.uk/government/publications/seed-enterprise-investment-scheme-income-tax-and-capital-gains-tax-reliefs-hs393-self-assessment-helpsheet/hs393-seed-enterprise-investment-scheme-income-tax-and-capital-gains-tax-reliefs-2020> accessed February 15, 2023 

“Apply to Use the Enterprise Investment Scheme to Raise Money for Your Company” (GOV.UK) <https://www.gov.uk/guidance/venture-capital-schemes-apply-for-the-enterprise-investment-scheme> accessed February 15, 2023 

Service GD, “Capital Gains Tax: What You Pay It on, Rates and Allowances” (GOV.UKApril 8, 2015) <https://www.gov.uk/capital-gains-tax> accessed February 15, 2023 

“Apply to Use the Enterprise Investment Scheme to Raise Money for Your Company” (GOV.UK) <https://www.gov.uk/guidance/venture-capital-schemes-apply-for-the-enterprise-investment-scheme> accessed February 15, 2023 

“Tax Relief for Investors Using Venture Capital Schemes” (GOV.UK) <https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investors> accessed February 15, 2023 

“HS275 Entrepreneurs' Relief (2020)” (GOV.UK) <https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2020> accessed February 15, 2023