Company Taxation

The amount of tax paid by profitable companies is determined by the type of business and their level of profit. There are distinct differences between Limited Companies and non-incorporated bodies like Sole Traders and Partnerships.

Sole Traders and Partnerships

Sole Traders and Partnerships are liable for Income Tax (similar to an employed person). This is calculated through a self-assessment on their earnings minus allowable business expenses and tax allowances.

The tax is usually paid in two instalments, no later than January 31 & July 31 of the following tax year.

Income Tax Rates & Thresholds (England, Wales and Northern Ireland)
Rate2021 – 2026
Personal Allowance 0%First £12,570
Base Rate 20%£12,571 – £50,270
Higher Rate 40%£50,271 – £125,140
Additional Rate 45%Over £125,140
Income Tax Rates & Thresholds (Scotland)
Rate2023/24
Personal Allowance 0% £0 – £12,570
Starter Rate  19% £12,571 – £14,732
Scottish Basic Rate 20% £14,733 – £25,688
Intermediate Rate 21% £25,689 – £43,662
Higher Rate 42% £43,663 – £125,140 
Top Rate 47%Above £125,140 

These figures apply to non-dividend income, including income from savings, employment, property or pensions. 

Individuals, Sole Traders and Partners have a Personal Allowance – the amount they can earn each year that is not taxable. 

Earnings over £100,000 will see a reduction to the Personal Allowance by £1 for every £2 of income above the £100,000 limit.  

Corporation Tax Rates

Limited companies are responsible for calculating their own tax liability and must pay their tax without prior assessment by HMRC.

Limited Companies pay Corporation Tax, based on their accounting profits for a particular financial year. For most private limited companies, the payment of Corporation Tax is due nine calendar months and one day after the end of the accounting period (for PLCs the timescale is six months and one day).

Tax is calculated on the net profit made by the company during the taxable period.

Corporation tax rates
2021/232023/24
Main Rate19%25%
Profits under £50,000 (Small Profits Rate)19%
Profits between £50,000 and £250,000 (Lower / Upper Threshold)Tapered
Profits over £250,00025%

The main rate of corporation tax will increase to 25% with effect from 1st April 2023. The previous rate of 19% lives on as the ‘standard small profits rate’.

The small profits rate applies only to companies with profits at or below the lower limit (£50,000).

Other companies will calculate tax at the main rate (25%) but, if their profits are below the upper limit (£250,000), will deduct marginal relief calculated by applying the ‘standard marginal relief fraction’ of 3/200 to the difference between their profits and the upper limit.

Essentials Tips: Keep it simple!

The calculation is equivalent to applying a marginal rate of 26.5% to profits between the lower and upper limits.
 
e.g., A company with profits of £150,000 will calculate their Corporation Tax as follows:
 
£50,000 at 19% = £9,500 and £100,000 at 26.5% = £26,500.
 
Corporation Tax will be £36,000  (equivalent to 24%)

Dividend Rates

Dividends are the distribution of a company’s earnings to its shareholders. The amounts are determined by the board of directors and agreed upon by the shareholders. 

Shareholders have a dividend allowance which is tax-free. Any payments above this allowance are taxable. 

Table
2022/232023/242024/25
Tax Free Allowance£2,000£1,000£500
Basic Rate8.75%8.75%8.75%
Higher Rate33.75%33.75%33.75%
Additional Rate 39.35%39.35%39.35%

National Insurance (NI)

Class 1 National Insurance contributions

This is paid by employed taxpayers and is a combination of employee salary deductions through PAYE and employer payments.

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Thresholds (Monthly – rounded to the nearest £)
2023/24
Lower Earnings Level (LEL)£533
Primary Threshold (PT) – Employees start paying NI£1,049
Secondary Threshold (ST) – Employers start paying NI£758
Upper Earnings Level (UEL) – Employees pay a lower rate over this£4,190

Class 1 National Insurance – Employee Rates

The Employee Rate is the amount employers deduct from an employee’s pay.

Employee Rates
2023/24
Between PT and UEL12%
Above UEL2%

Class 1 National Insurance – Employer Rates

The amount an employer pays towards their employees.

Employer Rates
2023/24
Rate above ST13.8%
Class 1A on expenses & benefits13.8%

National Insurance Rates for the Self Employed

Class 2 and Class 4 National Insurance contributions are paid by the self-employed and based on their profits. 

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Class 2 National Insurance – Self Employed (Annually rounded to nearest £1) 
2023/24
Small Profits Threshold (SPT) per year£6,725
Lower Profits Threshold (LPT) £12,570
Amount below SPT (Voluntary £3.45 per week) £105
Amount above LPT (£3.45 per week) £105

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Class 4 National Insurance – Self Employed (Annually rounded to nearest £1) 
2023/24
Lower Profit Limit (LPL) – start paying Class 4 NI£12,570
Upper Profit Limit (UPL) – pay lower NI over this£50,270
Rate between LPL and UPL9%
Rate above UPL2%

VALUE ADDED TAX (VAT)

VAT

VAT is a tax that is charged on most business transactions in the UK. Businesses add VAT to the price they charge when they provide goods and services. A business must register for VAT once the turnover for the previous 12 months has gone over a specific limit – called the ‘VAT threshold’. Under this threshold a business can voluntarily register for VAT.

VAT Registration

The taxable turnover threshold, which determines whether a business must be registered for VAT remains at £85,000 until 2026. The taxable turnover threshold for VAT de-registration remains at £83,000.

When is VAT charged?

For VAT-registered businesses, VAT is charged on any goods and services provided in the UK that are VAT taxable. VAT is charged on the full sale price, even if the goods are accepted in part exchange or through barter instead of money.

The VAT charged on the sale price of goods or services is called ‘output tax’.

The VAT paid when a business purchases goods or services is called ‘input tax’.

VAT-registered businesses submit a VAT Return at regular intervals – usually quarterly – and send it to HM Revenue & Customs (HMRC). If the amount of output tax is more than the input tax, then the difference is paid to HMRC with the return. If the input tax is more than your output tax, the difference is claimed back from HMRC.

Non-VAT-registered businesses cannot reclaim VAT paid on purchased goods or services.

Customer Questions: VAT on LCVS

Here are some common VAT questions your customers may ask you when purchasing aN LCV for their business.

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