When does a small business have to pay tax in the UK?.

When you’re starting up a small business, taxes are probably the last thing on your mind. But ask anyone in business — your taxes are far too important to put on the back burner.   To complicate matters, you won’t be paying every single form of tax straight off the bat. So, the question remains, when does a small business have to pay tax in the UK? This article should clear that up for you.

What taxes will I have to pay?

Each tax year, starting from 6 April, you’ll have fresh income thresholds to work with. This usually means you can make a certain amount of money completely tax-free. Once you surpass the threshold, your contributions will begin to kick in.   The tax you pay will vary depending on your chosen business structure. The main forms of tax in the UK are:

  • income tax
  • VAT
  • corporation tax
  • National Insurance.

Each of these has different rates, changing even more so depending on your annual profit or turnover.

Income tax

Regardless of your business structure, you’re likely to have to fill out and submit a self-assessment tax return (even if you’re a director of your own company).   Self-employed business owners will have to start paying 20% income tax on their profits once they reach the £12,570 personal allowance threshold. The more you make, the more tax you’ll pay.   Once you surpass an annual profit of £50,270, you’ll have to pay the higher rate of income tax at 40%. Any profits over £125,140 will fall into the additional tax rate of 45%. 


Many small businesses won’t need to worry about VAT in their early days. Once you’re nearing the annual turnover threshold of £85,000, you’ll have to register for VAT.   The amount of VAT you pay will depend on the goods and services you provide, as some can be exempt from VAT or charged at a zero rate. Every financial quarter, you’ll have to submit a VAT return as well as settle any outstanding balance you owe HMRC.   Not all businesses will need to pay VAT continuously. If you’re likely to dip under the threshold, you can deregister. If you do deregister, you’ll have to stop charging VAT on your goods and services, as well as keep six years’ worth of records for HMRC.

Corporation tax 

If you decide to go down the incorporation route and register with Companies House, you’ll also have to register for a corporation tax return.    Depending on your annual profit margin, paying corporation tax can actually work out cheaper than paying income tax if you’re self-employed. The main rate of corporation tax currently sits at 25%, with smaller profit companies paying just 19%. 

National Insurance

If you employ even just one member of staff, you’ll have to make National Insurance contributions (NICs). Even if you’re the director of your company, the company will have to pay class 1 NICs as you’re seen as an employee.   All NIC rates and thresholds can be found here.

Stay compliant

Running a small business in the UK means meeting all of your relevant HMRC obligations. Because your contributions are tied to certain thresholds, keeping track of your income and turnover is essential.    If you’re uncertain about when you should start paying your business taxes, an accountant is the perfect person to speak to. We work closely with businesses like yours to keep you on the right track. So, if you need help meeting your tax obligations, we’ll gladly help.   Get in touch with a member of our team to discuss your small business taxes.

Please feel free to get in touch