How Much Tax Does a Small Business Pay in the UK?

Small Business Tax: The Complete Breakdown

One of the first questions new business owners ask is: "How much tax will I actually pay?" The answer depends on your business structure, profits, and turnover, but we'll break it down clearly.

Corporation Tax for Small Businesses

Small Profits Rate (2024/25):

• 19% on profits up to £50,000
• 25% on profits over £250,000
• Marginal rate between £50,000-£250,000

Example:

• Profit: £30,000 = £5,700 corporation tax (19%)
• Profit: £100,000 = £21,250 corporation tax (blended rate)
• Profit: £300,000 = £75,000 corporation tax (25%)

VAT Obligations

VAT Registration Threshold: £90,000 annual turnover

• Standard Rate: 20% on most goods/services
• Reduced Rate: 5% on certain items (energy-saving materials, children's car seats)
• Zero Rate: 0% on books, food, and children's clothes

Other Business Taxes

Business Rates

• Based on the property rental value
• Slight business rate relief available
• Can be £0 for properties with a rateable value under £12,000

PAYE and National Insurance

• If you employ staff or take a salary as a director
• Employer NI: 13.8% on earnings above £175/week
• Employee NI: 12% on £12,570-£50,270, then 2%

IR35 (Off-Payroll Working)

• Affects contractors working through limited companies
• Can significantly increase the tax burden if caught

Tax Allowances and Reliefs

Annual Investment Allowance

• 100% tax relief on qualifying equipment up to £1 million

Research & Development Credits

• 86% additional deduction for qualifying R&D costs

Structures and Buildings Allowance

• 3% annual allowance on commercial property costs

Real-World Examples

Sole Trader (£40,000 profit):

• Income tax: £5,486
• National Insurance: £3,089
• Total: £8,575 (21.4%)

Limited Company (£40,000 profit):

• Corporation tax: £7,600
• Director's salary £12,570: £0 tax/NI
• Dividend tax on remaining: £2,428
• Total: £10,028 (25.1%)

How Nunns Accounting Minimises Your Tax Bill

Our strategies include:

• Optimal salary/dividend splits for directors
• Maximising allowable expenses
• Strategic timing of income and expenses
• Pension contributions for tax efficiency
• R&D and investment allowance claims