Running a small business in the UK involves managing tax obligations to stay compliant and avoid penalties. Whether you’re a sole trader, part of a partnership, or running a limited company, understanding tax returns is essential.
Why Taxes Matter for Small Businesses
Taxes fund public services, but they can be complex for small business owners. Missing deadlines or misunderstanding rules can lead to fines or missed opportunities to save money. This guide simplifies the process, covering everything from Income Tax to VAT, with clear steps to file your returns correctly.
Types of Taxes for Small Businesses
The taxes you pay depend on your business structure. Below is a breakdown of the main taxes for small businesses in the UK.
For Sole Traders and Partnerships
- Income Tax: Paid on your business profits through a Self Assessment tax return.
- National Insurance: Includes Class 2 (flat rate) and Class 4 (profit-based) contributions.
- VAT: Required if your turnover exceeds £90,000 in a 12-month period.
- Capital Gains Tax: Applies to profits from selling business assets, like equipment or property.
- Dividends Tax: Paid on dividends received from investments or shares.
For Limited Companies
- Corporation Tax: Paid on company profits, reported via a Company Tax Return (CT600 form).
- VAT: Same as above, if turnover exceeds £90,000.
- Employer’s National Insurance: Paid on employee salaries.
- Business Rates: A tax on business premises, based on their rateable value.
Tax Return Deadlines and How to File
Meeting tax deadlines is crucial to avoid penalties. Here’s how to file and when.
Self-Assessment for Sole Traders and Partnerships
- Paper Returns: Due by 31 October following the tax year (e.g., 31 October 2025 for the 2024/25 tax year).
- Online Returns: Due by 31 January following the tax year (e.g., 31 January 2026 for the 2024/25 tax year).
- Tax Payment: Due by 31 January following the tax year.
- First-Time Filers: Register with HMRC by 5 October after the tax year ends to avoid fines.
You can file online via the HMRC Government Gateway or by paper. Online filing is easier and allows more time.
Company Tax Return for Limited Companies
- Filing Deadline: Within 12 months of the end of your accounting period.
- Payment Deadline: Corporation Tax is due 9 months and 1 day after the accounting period ends. Large companies may pay in instalments.
- How to File: Complete a CT600 form and submit financial reports to HMRC. Many companies use accountants to ensure accuracy.
Penalties for Late Filing:
- £100 fine for late Self Assessment or Company Tax Returns.
- Additional £100 after 3 months for Company Tax Returns.
- After 6 months, HMRC may estimate your tax and add 10% of unpaid tax.
- Learn more about setting up your business correctly in How to Register Your Small Business.
Tax Rates and Thresholds for 2025/26
Tax rates and thresholds change annually. Below are the key figures for the 2025/26 tax year, based on the latest available data.
| Tax Type | Details |
|---|---|
| Income Tax (Sole Traders/Partnerships) | 0% on profits up to £12,570 (personal allowance) 20% on £12,571–£50,270 40% on £50,271–£125,140 45% on over £125,140 |
| Corporation Tax (Limited Companies) | 19% on profits up to £50,000 25% on profits over £250,000 Marginal relief for profits between £50,000–£250,000 |
| VAT Threshold | £90,000 turnover in a 12-month period |
| National Insurance (Self-Employed) | Class 2: £3.45/week (voluntary if profits < £6,725) Class 4: 9% on profits £12,570–£50,270, 2% on profits over £50,270 |
Note: Use HMRC’s Marginal Relief Calculator to determine your effective Corporation Tax rate if profits are between £50,000 and £250,000.
Deductions and Allowances
You can lower your taxable profits by claiming deductions and allowances. Common ones include:
- Business Expenses: Rent, utilities, business travel, office supplies, and professional fees (e.g., accountants or lawyers).
- Capital Allowances: Deduct costs for equipment or machinery. The Annual Investment Allowance lets you deduct up to £1 million in qualifying expenditure.
- Trading Allowance: The first £1,000 of trading profits is tax-free for sole traders and partnerships.
- Pension Contributions: Contributions to a personal pension can reduce taxable income.
Example: If you’re a sole trader and spend £2,000 on office supplies, you can deduct this from your profits, lowering your tax bill. Check out Top Tax Deductions for Small Businesses for more ways to save.
VAT for Small Businesses
VAT is a tax on goods and services. Here’s what small businesses need to know:
- Registration: You must register for VAT if your turnover exceeds £90,000 in any 12-month period. Register via HMRC’s website.
- Flat Rate Scheme: Simplifies VAT for small businesses. You pay a fixed percentage of your total sales (e.g., 7.5% for retailers) instead of calculating input and output VAT.
- Filing Returns: VAT returns are usually filed quarterly, but monthly or annual options are available for smaller businesses.
Tip: The Flat Rate Scheme can save time, but check if it’s cost-effective for your business.
National Insurance for the Self-Employed
Self-employed individuals pay National Insurance to qualify for benefits like the state pension. There are two types:
- Class 2: £3.45 per week, voluntary if profits are below £6,725.
- Class 4: 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
Payments are made through your Self Assessment tax return. Learn more at HMRC’s National Insurance page.
Business Rates
Business Rates are a tax on non-domestic properties, like shops or offices. They’re calculated by multiplying your property’s rateable value by a government-set multiplier.
- Reliefs Available:
- Small Business Rates Relief (SBRR): Up to 100% relief for properties with a rateable value of £12,000 or less.
- Retail, Hospitality, and Leisure Relief: Up to 40% relief, capped at £110,000, for eligible businesses in 2025/26.
Check with your local authority or Gov.uk for eligibility.
Planning for Taxes
Effective tax planning saves time and money. Here are practical tips:
- Keep Accurate Records: Use software like Xero or QuickBooks to track income and expenses. This makes filing easier and ensures you claim all deductions.
- Hire an Accountant: They can help with tax planning, filing, and compliance. Visit Forbes’ guide to choosing an accountant for tips.
- Minimize Tax Liability: Claim all eligible deductions and allowances. For example, investing in equipment can qualify for capital allowances.
- Stay Updated: Tax rules change often. Check HMRC’s Business Tax page for the latest updates.
Example: A sole trader earning £30,000 in profits can deduct £5,000 in expenses (e.g., travel and supplies), reducing taxable income to £25,000, saving hundreds in taxes.
People Also Ask: Common Questions
Here are answers to common questions from Google’s “People Also Ask” section:
- What is a tax return for a small business?
A tax return reports your business’s financial details (profits, losses, expenses) to HMRC to calculate taxes owed. Sole traders file Self Assessment, while limited companies file a CT600 form. - When are tax returns due?
Self Assessment is due by 31 October (paper) or 31 January (online). Company Tax Returns are due 12 months after the accounting period ends. - Can I file my own tax return?
Yes, you can file your own return using HMRC’s online system or paper forms. However, an accountant can ensure accuracy and maximize deductions. - What happens if I miss a deadline?
Late filing incurs a £100 fine, with additional penalties after 3 and 6 months. Interest may also apply to unpaid taxes. - How to Register Your Small Business
- Top Tax Deductions for Small Businesses
Final Thoughts
Managing taxes is a key part of running a small business in the UK. By understanding your obligations, meeting deadlines, and claiming deductions, you can stay compliant and potentially save money. Taxes can be complex, so consider using accounting software or consulting an accountant for peace of mind. Stay informed about changes, like the 2025–
