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What business taxes do I have to pay as a tradesperson?

In this article, we look at the definition of business taxes and what taxes businesses have to pay. If you're wondering what business taxes you have to pay as a tradesperson, then this article is for you.

Business taxes definition

When you are running your own trade business, you’ll want to know: “How much does a small business have to make before paying taxes?”. After that, you’ll need to ask yourself: “What small business taxes do I have to pay?’.

Knowing the business taxes definition helps you keep on top of things. Remember, if you submit your tax return late or miss the deadline to pay your tax bill, you’ll face a penalty fee. Plus any interest on late payments.

Paying your business taxes on time is one thing you can’t afford to let slide.

What taxes do small businesses have to pay?

For all small businesses you usually have to pay tax that is payable to HMRC.

The amount you’ll need to pay for your tax is based on your business profits, losses, and the type of company you own.

What taxes do limited companies pay?

Knowing what taxes limited companies pay depends on your business size.

As a limited company, the main tax you’ll have to pay is corporation tax. For the tax year starting on 1 April 2023 and ending on 5 April 2024, the rates are:

  • A 19% small profits rate of corporation tax if your profits are profits under £50,000
  • The main rate of corporation tax of 25% for profits above £250,000
  • Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by marginal relief.


Running a limited company, you may need to pay VAT and employer national insurance (NI) contributions if have employees.

Plus, there may be personal tax liabilities of company directors. If you’re unsure, we recommend finding an accountant to help.

What taxes does a self-employed person have to pay?

If you’re a sole trader, you’ll need to pay income tax and NI.

The tax you pay as a self-employed person depends on the taxable income you’ve earned in that particular tax year.

Your gross income minus your business expenses will give you a taxable income figure. The tax bracket you fall into is based on your taxable income.

Once you’ve deducted expenses from your gross income, you’ll pay:

  • Up to £12,570 – you don’t have to pay income tax: this is your personal allowance
  • 20% tax on earnings between £12,571 and £50,270
  • 40% tax on earnings between £50,271 and £125,140
  • 45% tax on earnings over £125,140

To budget for your self-assessment tax bill as a self-employed tradesperson, enter your estimated weekly or monthly profit into HMRC’s ready reckoner tool.

If you fail to submit your tax return on time, you’ll receive a penalty fine. Pay your tax late and you’ll receive a further fine, plus you’ll be charged interest on the amount owed. For many reasons, be organised when it comes to tax.

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How much does my business have to make to pay taxes?

The personal allowance means that if you earn under £12,570 (for the tax year 2023/24), you don’t pay any income tax.

When does my business need to pay taxes?

Limited companies

If you run a limited company then submit an online CT600 form to HMRC every year to find out how much corporation tax is owed. This is calculated by deducting tax allowances and expenses from the company’s income.

The corporation tax owed must be settled no later than nine months and one day after the end of your company’s accounting period ends.

You set your own accounting period as a limited company, but it must remain the same every year.

Sole traders

You usually pay two tax payments yearly as a business owner – by 31 January and 31 July. This differs from employees, who pay tax from their payslip every month under PAYE.

The tax year starts on 6 April and ends on 5 April the following year.

You have from the end of the tax year in April until the following January to submit your tax return, but it’s recommended to do it as soon as possible. This way, you’ll know how much you’ll owe in good time, giving you more time to cover the cost.

Payments on account

The first tax payment you make as a small business can often be significant. When you make your initial January payment toward your first tax return, you will pay what you owe, plus half again as a ‘payment on account’.

Work out what you’ll owe and set this money aside. That way, you prepare when the bill is due.

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What are ‘payments on account’?

Payments on account are advance payments toward your tax bill. You make two payments on account each year – in January and July.

Each payment is half your previous year’s tax bill. Stay on top of your tax payment this way when self-employed.

You will make two payments on account every year unless:

  • Your last self-assessment tax bill was less than £1,000
  • You paid more than 80% of the previous year’s tax you owed, for example through your tax code or because your bank already deducted interest on your savings.

FAQs

What business taxes do I have to pay?

Sole traders pay income tax and national insurance contributions. The main tax that limited companies pay is corporation tax, although some limited companies will also need to pay VAT, employer national insurance contributions, and personal tax liabilities for company directors.

Do you pay tax in the first year of business?

If you’re self-employed, you must complete a self-assessment tax return and pay tax by 31 January following the year that you started your business. For example, if you started your business in May 2021, you will pay your tax in January 2023. This bill is likely to be large as there’ll be a long time between starting your business and making your first tax payment.

How much does my business have to make before paying taxes?

The personal allowance for the tax year 2023/24 is £12,570. This means you don’t pay any income tax on earnings up to this amount.

What happens if a business doesn’t pay taxes?

If you fail to submit your tax return on time, you’ll receive a penalty fine. Pay your tax late and you’ll receive a further fine, plus you’ll be charged interest on the amount owed.

Do you pay tax on revenue or profit UK?

Revenue is the gross income you generate. Profit is the net income you’re left with after deducting expenses from your gross income. You pay tax on profits (also referred to as your net income).

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DISCLAIMER
This is information – not financial advice or recommendation. The content and materials featured or linked to on this blog are for your information and education only and are not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such. Checkatrade website is not regulated by the Financial Conduct Authority (FCA), its authors are not financial advisors, and it is therefore not authorised to offer financial advice.

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