A Brief Overview of Business Taxes

When you come to start your own business, you need to understand the various revenue duties it may be subject to—so you can budget accordingly. Failing to do this could lead to an unwelcome shock when HMRC comes calling—potentially involving penalties or even, in extreme cases, prosecution.

This article offers a concise overview of the main corporate taxes in the UK. It doesn’t cover levies that employees or shareholders might face—those are separate issues. Your accountant will be able to clarify which of the duties below apply to your particular situation.

Corporation Tax

Corporations must pay Corporation Tax on their profits. For the financial year starting 1 April 2025, the rates are as follows:

• 19% (Small Profits Rate): for profits up to £50,000
• 25% (Main Rate): for profits over £250,000
• Marginal Relief: applies on profits between £50,000 and £250,000, providing a tapered effective rate between 19% and 25%

These thresholds are apportioned if your company has associated companies or if your accounting period is shorter than 12 months, which may affect your eligibility for the Small Profits Rate or Marginal Relief.

VAT

Corporations must register for VAT if their VAT-taxable turnover exceeds £90,000 in any 12-month rolling period (or if they expect to exceed that threshold in the next 30 days). Once registered, businesses must charge the standard rate of VAT—currently 20%—unless the goods or services qualify for reduced (5%) or zero rates.

National Insurance Contributions (NICs)

NICs are contributions paid by both employers and employees, granting entitlement to state benefits. The classes include:

• Class 1: deducted from employees’ gross wages and paid by employers
• Class 1A: on employee benefits in kind
• Class 1B: when employers use a PAYE Settlement Agreement
• Class 2: flat-rate contributions by self-employed workers
• Class 3: voluntary payments to fill gaps in contribution history (e.g., for pension eligibility)
• Class 4: a percentage of profits for the self-employed above a threshold

Capital Gains Tax (CGT)

When an asset increases in value and is then sold, the profit—known as a capital gain—is taxable. Both individuals and corporations can be liable, though companies can claim indexation allowance up to December 2017 (after which it is frozen).

Business Rates

Companies occupying commercial property are required to pay business rates. These are collected by local authorities but first pooled centrally before being redistributed.

Business Energy

Beyond taxation, energy is a major cost for businesses. It’s worthwhile to shop around for better tariffs—whether for business electricity or business gas. Most businesses pay the standard VAT rate of 20% on these; however, those using limited amounts may be eligible for a discounted VAT rate of 5% (known as the "de minimis" rate). For eligibility:

• Electricity usage under 33 kWh per day (or ~1,000 kWh/month)
• Gas usage under 145 kWh per day (or ~4,397 kWh/month)

If eligible, your energy supplier should apply the reduced VAT rate automatically—just check your bills to ensure it’s applied.

Other Duties and Fees

This article has covered the key corporate taxes you’ll need to consider. Depending on your circumstances, other duties or fees—such as environmental levies or licensing charges—may apply. It’s always prudent to consult with an accountant or financial adviser. They can ensure you’ve identified all relevant charges and may assist in structuring your business to legally minimise your overall tax burden.