LS Legal News Bulletin
Taxation for Businesses in the UK: Self-Employed vs. Limited Company
Monday 31st July 2023
💸 When it comes to taxation for businesses in the UK, there are different considerations for self-employed individuals and limited companies. Let's compare the two types and understand the key aspects of their tax obligations.
💡 For self-employed individuals, income tax is calculated based on trading profits, not total income. The standard personal allowance for the 2023-24 tax year is £12,570. This means that the first £12,570 of taxable income is not subject to income tax. The tax rates for self-employed individuals are as follows:
• Personal Allowance: Up to £12,570 - 0% tax rate
• Basic rate: £12,571 to £50,270 - 20% tax rate
• Higher rate: £50,271 to £125,140 - 40% tax rate
• Additional rate: Over £125,140 - 45% tax rate
📝 Additionally, self-employed individuals may have a tax-free allowance of £1,000. They are also required to pay National Insurance contributions.
🧾 Self-employed individuals can claim various business expenses, such as office costs, travel costs, clothing expenses, staff costs, purchase of goods for resale, financial costs, costs related to business premises, advertising or marketing expenses, and training courses directly related to the business.
💷 Limited companies in the UK are subject to Corporation Tax. For the 2023-24 tax year, the rates are as follows:
• 25%: If the company made more than £250,000 profit
• 19%: If the company made a profit of £50,000 or less
📊 If the company's turnover exceeds £85,000 a year, it must be registered for Value Added Tax (VAT). Voluntary registration is possible for companies with a lower turnover. If the limited company employs staff, including the director(s), it must pay Employers' National Insurance contributions to HMRC. Directors of limited companies also have personal tax obligations that need to be settled via a Self-Assessment tax return, if applicable.
🤝 Understanding the tax requirements for each type of business is crucial for compliance and effective financial management.
