6 Important Taxes Every Small Business Owner Should Understand

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If you’re paying yourself through dividends out of your business, naturally, you are also going to incur dividend tax. Here’s a quick and handy guide for the rates of dividend tax:

  • First £2,000 of dividends is free of tax
  • 7.5% for dividends within the basic rate tax
  • 32.5% for dividends within the higher rate tax
  • 38.1% for dividends within the additional rate tax 

Taxes Business Owners Should Know


Income Tax

Simply put, income tax is a tax on your income or your earnings. If you are a sole trader, calculating your income tax is fairly simple. Once your business’s profits exceed your personal allowance, which amounts to £12,570, you will need to pay for income tax. However, for owners of a limited company, your income tax is based on the salary or dividends that your company gives you or on how much you pay yourself.


Your income tax should be paid along with a self-assessment, which should be completed every January 31st (for online tax returns) and October 31st (for paper tax returns).


Value Added Tax (VAT)


Value Added Tax isn’t just important for individuals, but much so for businesses. Whatever type your company falls in (sole trader, partnership, limited liability partnership, or a limited company) or whatever you sell (physical goods or products or services), when your profit exceeds £85,000 per year, you are required to register your company for VAT, which is usually charged at the standard rate of 20%.


Your VAT is usually due one calendar month and seven days after your accounting period. Although it is still better to check the exact date provided on your VAT return or on your VAT online account to be sure.


Businesses that have registered for VAT must pay this tax throughout the course of conducting their businesses. They should also file a VAT return that declares the amount of VAT they charged or paid for. If you paid more VAT than what you charged, you can reclaim the difference from HMRC. But if you paid less than what you charged, you will also need to pay HMRC the amount you owe.


Were you able to keep track of the taxes you need to know? How do you stay on top of all the taxes that you should be aware of or that you should pay the government?


Let me know your thoughts in the comments section. I would love to hear from you!

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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