What Are The Current Tax Rates for Businesses?
Perhaps one of the most complicated areas of running a business is having to deal with tax liabilities. For many entrepreneurs, the varying tax bands and rates makes the whole process of paying tax a daunting process.
In this guide we cut through the confusion and list the tax rates and thresholds you will be expected to pay in both a business and personal capacity. This is by no means an exhaustive list, but rather a compilation of the most common tax liabilities.
Income tax
This tax is fairly self-explanatory; you pay tax on your income in any given year. The amount you pay is dependent on what bracket you fall into. There are three rates: basic, higher and additional.
In the below table, we break down each of these so you can see which bracket applies to you.
|
Taxable income |
Tax rate |
How much you pay |
|
Up to £12,500 |
0% |
|
|
£12,501 to £50,000 |
Basic rate |
20% |
|
£50,001 to £150,000 |
Higher rate |
40% |
|
Over £150,000 |
Additional rate |
45% |
Personal allowance
The tax-free element of your income, the personal allowance currently stands at £12,500. Once your income rises above £100,000, the personal allowance threshold begins to decrease. 50% of your income above £100,000 will be deducted from £12,500. The remaining amount will represent your non-taxable component.
The personal allowance ceases if your income exceeds £125,000.
Dividends
For dividends with a value less than £2000, no tax is paid. However, this can change if the dividends you receive are higher. The below table explains the relationship between the rate of tax and your income.
|
Taxable income |
Tax rate |
How much you pay |
|
Up to £12,500 |
0% |
|
|
£12,501 to £50,000 |
Basic rate |
7.5% |
|
£50,001 to £150,000 |
Higher rate |
32.5% |
|
Over £150,000 |
Additional rate |
38.1% |
Capital gains tax
A tax on the profit when you sell an asset that's increased in value, capital gains tax is applied on the sale of items worth over £6,000, properties that aren’t your main residence, or shares that are not currently in an ISA, as well as all business assets.
The first £12,000 is free of tax, and you will only be liable if your profits exceed this threshold.
|
Your taxable income |
The income tax rate |
Gains from residential property |
Gains from other assets |
|
£12,501 to £50,0000 |
Basic rate (20%) |
18% |
10% |
|
£50,000 to £150,000 |
Higher rate (40%) |
28% |
20% |
|
Over £150,000 |
Additional rate (45%) |
28% |
20% |
National insurance
National Insurance is payable if you are over 16 and earn over £166 a weak as an employee, or earn a profit of over £6,365 per year. If you are employed, your employee is responsible for calculating and paying National Insurance contributions.
For the self-employed, contributions are paid when annual earnings exceed £6,365. If you earn more than this, then Class 2 NICs are applied, whereupon you pay a fixed rate of £3 per week. If earnings are higher than this, then Class 4 NICs are implemented. This means you pay 9% on profits between £8,632 and £50,000 and 2% on earnings over £50,000
Corporation tax
Every limited company that is profitable in the UK has to pay corporation tax. In 2019/20, this rate is 19% and is applied to profits after business expenses have been paid, but before dividends are paid.
VAT rate
Value Added Tax only applies to your business if you have registered. Between 2019/20, the registration threshold was £85,000. If a company sells goods/services worth more than £85,000 in 30 days, they must register for VAT.
However, from 15th July 2020 to 12th January 2021, a reduced rate of 5% VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars and similar premises. This temporary reduction will apply to all qualifying VAT-registered businesses in the UK.
Authors: Sacha Bright & Oliver Murphy
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. Nextfin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site.
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