Get startedSkip to main content
Woman reviewing paperwork with a calculator
Finances and tax

Understand your tax as a business

5 min read

“I’m really looking forward to completing my tax return,” said pretty much no one ever. Tax may not be fun, but knowing how tax works could make all the difference in helping you plan your business’s short, medium and long-term growth.

In this guide we’ll explain how different types of taxes work to help you figure out how to pay Corporation Tax and other business related taxes.

When does a small business have to pay tax?

The taxes you pay as a small business depend on whether you’re set-up as self-employed – either a sole trader or partnership – or as a limited company. Your tax liabilities also depend on how much money your business makes. We’ll cover each business tax in more detail later, but here is a quick summary of how much you can generally earn before paying these taxes, where applicable (although there are of course some exceptions) :

  • VAT – you have to register your business for VAT if your taxable turnover from exempt goods was greater than £85,000 in past 12 months or is expected to be in the next 30 day period.
  • Corporation Tax – If you’re a limited company, any taxable profits you make will be liable for Corporation Tax (19% 2021/22).
  • Income Tax – As an individual, you’ll have to pay Income Tax on your earnings – including any money withdrawn from the company in dividends – above any available personal allowance (£12,570 2021/22). Your personal allowance is broadly reduced by £1 for every £2 of adjusted income you earn over £100,000.
  • Business rates – You’ll pay business rates, as determined by your local authority, if you run your company from a non-domestic property, such as a shop, warehouse or office. You may be eligible for small business rate relief – find out more.
  • National Insurance Contributions – If you hire staff, you’ll pay employer Class 1 National Insurance Contributions rates of 13.8% on earnings (above £8,840 2021/22).
  • Dividend tax – If you’re a company shareholder, you can withdraw £2,000 in dividends per year tax-free, in addition to utilising any available personal allowance. Read more about how dividends are taxed.
  • Capital Gains Tax (CGT) – if you’re self-employed as a sole trader, or in a business partnership, you may have to pay CGT on certain assets you sell, and some assets are exempt. Find out more here.

How to pay VAT

If you’re VAT-registered, you’re normally obliged to submit a VAT Return every three months online . You’ll need to include information such as your total sales and how much VAT you owe, even if the answer is zero. You can use bookkeeping software to work out the VAT you’ve charged customers and the amount you can reclaim. Read more about charging VAT in our guide to pricing products.

How much Corporation Tax do I owe?

Corporation Tax is paid by limited companies – profits are taxed currently at 19%. The rate is set to rise to 25% by April 2023, but only for companies with a turnover of £250,000 or more. If your business generates £50,000 or less per year, you’ll still pay 19% Corporation Tax on profits. Companies whose profits fall between the thresholds will pay the 25% rate, but can claim ‘marginal relief’.

How to pay Corporation Tax

If you’re liable for Corporation Tax, you’ll generally need to pay within nine months and one day of your last accounting period, and file a Company Tax Return within 12 months, although some companies have to make quarterly payments. You won’t receive a bill to pay Corporation Tax; so you’ll need to remember these deadlines yourself. Many business owners hire an accountant to help with their Corporation Tax. Once you know the amount you owe, you can pay your Corporation Tax bill online.

How business rates are calculated

If you run your business from a non-domestic property, you will receive a business rates bill from your local authority in February or March each year. The council base the amount on a building’s ‘rateable value’, which is calculated by the Valuation Office Agency. If you want to challenge the amount charged, you can ask for a correction online.

Paying National Insurance Contributions as a business

If you hire people to work for your business, you’ll need to make National Insurance deductions from your employees’ pay. Your staff will pay Class 1 National Insurance Contributions (NICs) on earnings above £184 per week (2021/22), and you as a business owner make a secondary contribution of 13.8% of earnings above £170 a week (2021/22). You will need to pay employer’s National Insurance as part of your PAYE bill.

Self employed pay Class 2 and Class 4 National Insurance Contributions. To find out more on national insurance contributions and the different classes, you can visit GOV.UK (Fees Apply)

Capital Gains Tax

Not every business owner will have to pay Capital Gains Tax, but it may be worth familiarising yourself with this form of taxation. Companies pay Corporation Tax on capital gains realised on company capital assets.

Who has to pay it?

Individuals who sell capital assets worth more than £6,000 – with certain exceptions such as cars – may be charged Capital Gains Tax. This could include a property that you use for business purposes.

How much is it?

Individuals benefit from a tax free capital gains annual allowance (currently £12,300), whereas companies don’t. Those in the higher rate Income Tax band are taxed at 28% on gains from residential property, and 20% on gains from other ‘chargeable assets’. If you pay basic rate Income Tax, you would pay 10% on gains that fall within this tax bracket (rising to 18% for residential property). Read more on GOV.UK.

How to pay Capital Gains Tax

Before you pay Capital Gains Tax, you will need to work out your gain, deduct costs and apply any Capital Gains tax relief you’re eligible for. There is no simple answer regarding how much Capital Gains Tax a business might pay, but HMRC can help with general enquiries about Capital Gains Tax.

While we’re on the subject of how tax is calculated, you can also claim capital allowances on various items of expenditure that you use for business purposes. You can then potentially deduct some or all of the value of those items from your tax bill.


This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.

Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.

Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

Still have some questions? We’re ready to help

How much could you save?

If you fancy getting a bit more bang for your buck, get a no-obligation quote from us and see if you could save on your current rates.

Help and support

Our FAQs provide some useful tips and how-to videos to help you with your account and card machines.

Get in touch

Give us a call or chat to us online. We’re open Monday to Saturday 8am to midnight and Sunday 9am to 5pm (bank holidays may vary).

Get started