Factsheet: tax pointers for SMEs

Corporation tax is a tax on a company’s overall taxable profits. If you run your business via a company (as opposed to via a partnership or as a sole trader) then you may need to pay corporation tax. The Corporation tax rate is currently 19% for all companies. From 1 April 2023, the tax rate is expected to increase for companies with profits over £50,000 (up to a maximum rate of 25%).

• Companies must file their accounts with Companies House and their company tax returns with HMRC every year
• Generally these must be filed online and any corporation tax must be paid electronically.

If you file your accounts or your company tax return late, or pay your corporation tax late or do not pay enough, you may be charged interest and/or may have to pay a penalty. You will not get a bill for this tax, so it’s up to you to remember, work it out and pay it on time and in full.

You can learn more about corporation tax and find more information on registering your company here.

The UK has two different schemes to support businesses doing research and development (R&D) to advance science or technology (and/or resolve scientific or technological uncertainty) by giving them corporation tax relief: one for large companies, and one for small and medium-sized enterprises (SMEs). R&D has a specific meaning for tax purposes which is set out in the government guidelines.

Under the SME scheme, small or medium businesses have two options. They can either:

1. Take a deduction of up to 230% of the value of qualifying costs, or
2. (If they are loss making) receive a cash payment worth up to 14.5% of the qualifying costs.

You can find out more about what you can claim for and how and when to make a claim here.

Business rates are a devolved tax. This means that slightly different rules apply in England and Wales to Scotland or Northern Ireland. Business rates bills are usually sent annually ahead of the tax year they relate to, and billing authorities will often have arrangements to spread the cost of business rates across the year. You may still be responsible to pay business rates, even if you do not receive a bill. You can find out who is responsible for preparing your bill and how to contact them here.

You will probably need to pay business rates if you use a non-domestic property for your business – such as a shop, office, pub, warehouse, factory or holiday rental/guest house. You might also have to pay if you use part or all of your home for business purposes. The amount you have to pay depends on the value of the building you are using. There are a number of exemptions or reliefs that apply – particularly for smaller businesses

For example, you can benefit from Small Business Rates Relief if your property is in England, you only use one property, and its value is under £15,000. Small businesses also pay a lower tax rate on their property value (known as the multiplier). The small business multiplier is currently 49.9p for properties valued under £51,000, compared to a standard multiplier of 51.2p. The two multipliers will apply until the end of March 2023 and are subject to change from 1 April 2023. They are also typically up-rated with the CPI inflation rate every April. You can learn more about business rates reliefs here.

The value of your property is determined regularly by the Valuation Office Agency at a revaluation, which, from April 2023 will take place every 3 years. The aim of the revaluation is to reassess property values in the current market context. There is currently a revaluation underway and the new property values will be used to calculate your bill from April 2023. If your property has increased in value compared to 2017 (or since you have opened your business, whichever is sooner), your business may no longer benefit from reliefs it did before.

National Insurance contributions (or NICs) are paid by almost everyone who works for a living. Find out more about who it covers and who is exempt here.

If your business has employees, you will generally need to collect any employees’ NICs from their salary via your Pay As You Earn (PAYE) system, and pay employers’ NICs. Some businesses can claim an employment allowance that can reduce the cost of employers’ NICs by up to £4,000 per year if their employers’ NICs liability for the previous tax year was £100,000 or less.

If you are self-employed, a sole trader, or a director of your own company, you will also need to pay NICs.

To find out more about National Insurance contributions you can visit the government website. For more details about the employment allowance see here.

If your business has employees (yourself included, even if you are the sole director of the business) you are responsible for setting up a PAYE system to report information to HMRC in real time. This means that you must send HMRC information every time employees are paid, at the time they are paid. You must register your business with HMRC and use payroll software that is compatible with HMRC’s systems to do this. If you want to run payroll yourself HMRC provides a system called Basic PAYE Tools, or you can use a payroll provider.

PAYE can be used to:

• Deduct from employees’ salaries and pay to HMRC income tax, employees’ NICs and student loan repayments
• Pay on behalf of the business any employers’ NICs on benefits provided to employees, Construction Industry Scheme (CIS) deductions, and apprenticeship levy payments.

You must also know whether your workers are entitled to work in the UK, comply with National Minimum Wage rules and make sure that you are using the correct tax code for your employees.

You can find out more about being an employer here.

VAT is a tax charged on most sales of goods or services in the UK. VAT registered businesses (usually those with a turnover of at least £85,000 a year) are required to provide VAT invoices to customers, and to collect VAT from their customers – as long as the goods or services they sell are not exempt.

As a business you may have to pay VAT to your suppliers (called input VAT), as well as collecting it from your customers (called output VAT). The purpose of VAT is to tax only the value added at each step of the supply chain. To make sure supplies aren’t taxed twice, you can generally offset any input VAT you pay against the output VAT you collect. This will generally reduce the overall amount you have to pay to HMRC.

All VAT registered businesses must submit their returns online and pay any VAT that is due electronically. In most cases, these returns have to be filed every three months – your deadline will be shown on your VAT return (there are different deadlines if you use the Annual Accounting Scheme or payments on account).

For more information visit the VAT general enquiries page, and the guidance specifically for VAT online services.