Key tax considerations for small businesses

Running a small business for the first time is a brilliant experience. You finally get to do things your way and build an organisation from scratch. Still, responsibilities can get in the way, chief among them tax. Here are the key tax considerations, obligations, and opportunities you must remember to run the business your way.

 

Different types of taxes applicable to small businesses

Let’s start at the beginning and examine the main taxes small businesses usually deal with.

 

Income tax

Income tax is paid by most businesses, and a small business is no different, it is applied to your profit (the money you make minus certain business expenses). It’s a progressive tax, which means that different chunks of your income are taxed differently:

• Basic rate: 20% on income up to £50,270.
• Higher rate: 40% on income between £50,271 and £125,140.
• Additional rate: 45% on income over £125,140.

You don’t have to worry about working out your tax bill yourself. Instead, provide details of your income and expenses to us at Stapletons and we will calculate your tax liability and inform you of how much you owe before submitting your self-assessment tax return to HMRC.

 

National Insurance contributions

There are different types of National Insurance contributions (NICs) that you will have to contend with as a business owner.

First, you yourself will need to pay Class 2 NICs if your annual profits are below £6,725, at a rate of £3.45 per week on a voluntary basis. If your annual profits are £6,725 or more, you are treated as having paid Class 2 NICs automatically. Additionally, if you have annual profits over £12,570, you must pay Class 4 contributions as well. For 2024/25, you’ll pay 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.

If you have employees, you must pay employer NICs, which are 13.8% of earnings above £758 per month.

 

VAT

VAT (value added tax) is a tax added to most products and services sold by VAT-registered businesses. The threshold at which you must register for VAT is £90,000, so small businesses starting out shouldn’t have to worry about this immediately.

 

Common tax deductions small businesses can claim

As a small business owner, you can claim business expenses against your pre-tax profit, reducing your tax bill. Here are the main areas where you can claim:

• Office supplies: This includes rent, utility bills (such as electricity, gas, and water), office supplies (like stationery and postage), and office equipment (computers, printers, and software).
• Travel expenses: Fuel, vehicle insurance, repairs and servicing, parking fees, and public transport fares (train, bus, or taxi). Additionally, hotel accommodations and meals on overnight business trips are allowable.
• Staff costs: Salaries, wages, bonuses, employer’s National Insurance Contributions (NICs), pension contributions, training costs, recruitment expenses, and uniforms or work clothing can be deducted.
• Marketing and advertising: You can claim advertising costs (online and print ads), website expenses (hosting and domain names), promotional materials (flyers and brochures), sponsorships, and marketing campaigns.
• Professional fees: These include accountancy, legal, and consultancy fees, as well as subscriptions to professional bodies.

 

Top tax tips for small businesses

Tax can be tough work when you’re a small business, but you can help yourself manage with some simple practices, including:

• Keep detailed records: Accurate and organised records make it easier to claim deductions and handle HMRC inquiries.
• Plan for tax payments: Set aside money for tax payments to avoid cashflow issues when bills are due.
• Get started early: Don’t struggle with your taxes at the last minute.
• Use software: Use accounting software to streamline your financial management and ensure accurate reporting.
• Seek professional advice: An accountant can help you navigate the tax system, optimise your position, and ensure compliance.

Navigating the tax landscape as a small business can be daunting, but you don’t have to do it alone. As small business accountants who specialise in tax work, we can help.

Get in touch with us today.