The easy way to complete your small business tax returns
When you start a business, you’ll have a million thoughts racing through your mind — with taxes often getting put on the back burner to deal with more pressing issues.
But, taxes aren’t just something you can ignore in the hope that they’ll go away. If you fail to pay, you could end up in a sticky situation with the taxman.
Have no fear, as Bionic has put together this handy guide to the easy way to complete your small business tax returns.
What is a tax return for a small business?
A tax return for a small business is the financial information that is used to report spending, losses, profits and corporation tax to HMRC.
It usually involves completing a CT600 form and submitting a financial report with calculations that show how much you owe in tax.
Can you do your own small business tax return?
Yes, you can prepare and file your own Company Tax Return. However, lots of companies choose to enlist the services of an accountant to help them out and make sure all information that’s submitted is correct.
What information do you need to provide?
When submitting your self-assessment tax returns, there are a few accounts that you’ll have to consider:
A set of accounts will consist of profits and loss accounts — which gives an overview of your businesses’ trading over a period of time, such as a month, quarter or year.
It will also feature a balance sheet that provides a snapshot of your business's financial condition at any given time, reflecting how stable your business is.
Finally, it will also contain a director’s report that gives an overview of:
- The principal activity within the business
- The names of any directors, including new appointments or resignations within the year
- Policies on employees
- Details of any political or charitable donations
It should be signed and dated by one of the directors of the business.
Corporation Tax calculation
A Corporation Tax calculation can be used to work out the adjusted profits for Corporation Tax purposes — the rules can be extremely complicated, so it’s worth hiring an accountant to help as the profits per account and taxable profits are often not the same figures.
Company Tax return
To submit a Company Tax return, you’ll need to provide information about:
- The details of the company
- Calculation of the Corporation Tax due
- Details of any capital allowances claimed
- Details of any losses claimed
If you do decide to file your return yourself, you must submit this information to HMRC.
What taxes do small businesses pay and how?
“The type of tax that you pay and the method that you’ll pay it will depend on the type of business that you run and the way your company is structured,” explains Laura Court-Jones, former freelancer and Business Comparison Expert at Bionic.
The type of tax that you pay when you run a small business and the method that you’ll pay it will depend on the way that your company is structured. A sole trader will pay different taxes than a limited company or a partnership, for example. These are some of the most common types of taxes that you’ll encounter.
If you’re running a limited company, corporation tax is applied to any profits — including those from trading and the sale of any investments or assets.
Corporation tax has a flat 25% charge, regardless of how much profit the company makes.
You’ll need to register for corporation tax within the first three months of starting to trade as a limited company. You’ll then be responsible for ensuring the right amount of tax is paid, so you must keep accurate company accounts and file the Company Tax Return by your deadline.
How to pay corporation tax
As each business’s accounting year is different, knowing when to file and pay your corporation tax can be a little bit tricky.
Each year, you’ll have to submit a CT600 form to HMRC that’s due 12 months from the end of your company’s accounting date. However, your corporation tax bill must be paid nine months and one day after the end of your company’s accounting date. So, in practice, it works best to complete your company tax return early to find out how much corporation tax you’ll owe.
Income tax is only payable by individuals, so businesses won’t have to pay any income tax on themselves. If a wage is above the personal allowance of £12,570 per year, they'll be liable to pay income tax (allowance figure accurate as of the 2023/2024 tax year).
"If you’re a sole trader," explains Laura, "you’ll pay income tax on the profit you make for your business. This can be done on an annual basis and you’ll need to submit a self-assessment tax return to HMRC to calculate how much you owe."
The rates for income tax are:
- Basic rate — 20%
- Higher rate — 40%
- Additional rate — 45%
How to pay income tax
The amount you’ll pay for income tax will depend on your tax bracket. Remember that other earrings like savings interest or capital gains may also count toward your income and push you into a higher tax band.
If you’re paid by a company, income tax will be taken through the company’s PAYE scheme.
No matter what kind of business you run — sole trader, limited company or anything in between — if your business makes VATable sales of more than £85,000 a year, you’ll have to register for VAT (value-added tax).
VAT is essentially a tax levied on the value added to a product when it moves through the product chain from a supplier to a buyer and then a customer.
The standard rate for VAT is 20%, but some products or services will sometimes have lower rates.
How to pay VAT
VAT-registered businesses must pay VAT throughout the course of doing business, with a VAT tax return being filed to declare how much VAT they’ve charged or paid for. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.
While it isn’t strictly tax, National Insurance (NI) is money that’s paid to the government.
If your business employs staff, you’ll need to pay the employer’s portion of National Insurance contributions directly to HMRC. Businesses pay 15.05% in NICs for employees that earn above £12,570 per year (as per the 2023-2024 tax year).
However, small businesses may be able to reduce their NICs by up to £5,000 if the business is eligible for the Employment Allowance — a scheme that aims to help small businesses to recruit more staff.
Sole traders also pay National Insurance as part of the self-assessment tax.
How to pay National Insurance
Similar to Income Tax, National Insurance will be taken via PAYE.
If you’re a shareholder in a company, you can pay yourself with dividends. This sum of money tends to come out of profits or reserves and the first £2,000 are tax-free.
The rate that you’ll pay depends on your income tax band but for the 20223-24 year, the rates are:
- Basic rate — 8.75%
- Higher rate — 33.75%
- Additional rate — 39.35%
How to pay dividend tax
You need to include any dividend income in your self-assessment tax return.
If your business is run from anywhere that isn’t a domestic property — like an office, shop, warehouse or factory — then you’ll most likely be charged business rates.
Business rates work similarly to council tax as the bills are calculated and sent out by local authorities. Bills will typically be received in February or March, detailing what you’ll need to pay for the following financial year.
They’re calculated on the property’s ‘rateable value’ which is its estimated rental value on the open market.
What can those who are self-employed claim back?
If you’re just starting out on your business journey, it can be difficult to know what you can and can’t claim as sometimes it simply just isn’t common knowledge.
“Self-employed people can claim back on office equipment, stationary and travel expenses or mileage allowances required for work, but there are other less obvious items to consider too" explains Laura.
Some of the most common allowable expenses that you can claim against your income tax include:
1. Office equipment and tools
Most office equipment and tools are generally deductible. This includes:
- Office furniture
- Printer ink
- Software used for over two years
- Stationary such as paper, envelopes and pens
Some large items may need to be depreciated over several years.
2. Phone and internet
If you use your phone and broadband for business purposes, you can deduct a portion of the cost. The portion you claim should be representative of its business use.
If you use your phone, mobile and internet for personal and business use, you’ll have to demonstrate a way of dividing the costs and only claim the tax for business use.
3. Business premises
If you rent a commercial property, whether an office, workshop, studio, or other premises solely for business, you can generally deduct the rent and utilities.
If you work from home, you may be able to claim a portion of your home expenses, like mortgage interest, property taxes, and utilities, based on the proportion of your home used for business.
If you use your vehicle for business purposes, you can typically deduct the business portion of your vehicle expenses, either by tracking all your vehicle expenses and calculating the business-use percentage or by using a standard mileage rate.
You can claim relief for expenses like petrol, insurance and repairs.
5. Legal and professional costs
Fees you pay for professional services such as accountants, lawyers, or business consultants are generally deductible.
Initial legal and accounting fees related to setting up the business might need to be amortised — gradually write off the cost of an asset — over multiple years.
6. Raw materials and stock
If you buy goods to sell or raw materials to make products, the cost of these is generally deductible. Remember to adjust for any inventory you have at the end of the year.
Just be advised that some costs you may consider as ‘marketing’ can actually fall under ‘entertainment’, such as taking a client out to lunch.
8. Professional insurance
Depending on the type of profession you’re in, you may require a special form of insurance such as:
Generally, everyday clothing is not deductible, even if you wear it to meet clients or to work. However, uniforms or protective clothing specific to your job — such as eye/ear protecton, gloves and hi vis workwear — (and not suitable for everyday wear) can be deductible.
You also can’t claim on non-uniform items like shoes and socks.
If you wear a uniform or special PPE, you can claim it as an expense if it needs to be washed, repaired or replaced.
10. Trade subscriptions
If you subscribe to magazines, journals, online platforms, or memberships related to your trade or profession, these are typically deductible.
“If you have the budget available," explains Laura, "it’s advised to hire an accountant to organise and keep track of your expenses for you, or else, to use an accounting software. If you do decide to try and keep track of costs by yourself on a spreadsheet, remember to stay on top of these on a weekly basis and organise expenses by category in order to make them more manageable — remember, keep track of all receipts and record any data needed.”
Are there any penalties for paying tax late?
Yes, if you’re late making a payment or fail to make it at all, then you’ll be penalised for this.
If you fail to pay your Company Tax Return by:
- 1 day — You’ll be charged £100.
- 3 months — An extra £100.
- 6 months — HMRC will estimate your Corporation Tax bill and add a penalty of 10% of the unpaid tax.
- 12 months — Another 10% of any unpaid tax.
If your tax return is later three times in a row, the £100 penalties are increased to £500 each.
Which tax type applies to your company?
The type of business you run will determine the different types of tax that you’ll have to pay.
1. Sole traders
If you’re a sole trader, you must pay Income Tax on any taxable profits you make from the business. This can be done on an annual basis as part of your self-assessment.
You’ll also have to pay National Insurance Contributions.
2. Private Limited Company
All Limited Companies must pay the 19% corporation tax on all of their profits. However, there are reliefs you can claim on corporation tax:
- Research and Development (R&D) — If you’re working on an innovation project to advance or develop your field of expertise, most often in science or technology.
- Creative Industries — Relief for creative industries must pass the cultural test to qualify. Some industries that fall under this include film production, museums and qualified galleries and video game production.
- Terminal, capital and property income losses — You need relief due to taking a loss on property income or the sale or disposal of a capital asset.
You’ll also need to pay NICs as an employee.
Partnership directors will usually be self-employed and that means they must pay income tax on their share of profits.
When to register for VAT
When your business reaches a turnover of £85,000 or higher, you’ll need to register for VAT through HMRC. Once you’ve registered, you’ll then be sent a VAT certificate which includes:
- A VAT number
- The date of registration
- The date that you must submit your first VAT return and first VAT payment
When does the tax year run from?
The current tax year runs from the 6th of April 2023 until the 5th of April 2024.
Different taxes have different payment schedules, so remember to make a note of when you need to pay each tax to avoid late fees.
What are the UK tax return deadlines?
Paper self-assessment tax returns must be completed by October 31. Online self-assessment tax returns must be completed by January 31. For example, when returning your self-assessment for the 2022/23 tax year, the deadline will be October 31, 2023, for paper forms and January 31, 2024, for online forms.
Cut your small business admin with Bionic
The world of tax can be complicated — especially when you’re trying to get your business off the ground. Whether you’re hiring employees or keeping on top of stock, the admin tasks can quickly pile up.
That's why it makes sense to let Bionic lighten the load. Our tech-enabled team can take care of all of your business essentials to save you time and money on business energy, insurance, and more. Get in touch now to see how we can help.