Income tax, National Insurance, Corporation Tax, VAT, business rates, dividend tax… the UK tax system throws a blizzard of names at small business owners, and it’s genuinely hard to see the whole picture. Here’s what taxes a small business pays in the UK: every tax that might apply to you, who pays what, and how they fit together — for sole traders and limited companies alike.

Think of this as your map. The detailed guides linked throughout cover each tax in depth; this article shows you which ones apply to your situation and roughly what they’ll cost.

What Taxes Does a Small Business Pay in the UK?

If you’re a SOLE TRADER, you personally pay:

1. Income Tax on your profits (via Self Assessment).
2. National Insurance — Class 2 (flat weekly rate) and Class 4 (profit-based).
3. VAT — only if registered (mandatory over £90,000 turnover).
4. Business rates — only if you have business premises (not for typical home working).

If you run a LIMITED COMPANY, the company pays:

1. Corporation Tax on its profits.
2. Employer National Insurance on staff salaries (including yours as director).
3. VAT — only if registered.
4. Business rates — only on business premises.

And you personally pay:

1. Income Tax on your salary and dividends.
2. Employee National Insurance on your salary.
3. Dividend tax on dividends above the allowance.

The Taxes in Detail

1. Income Tax (sole traders)

Paid on profits (income minus allowable expenses — see our expenses guide), not turnover. Current bands (2026/27, England/Wales/NI — Scotland differs slightly):

• Personal allowance: first £12,570 tax-free.
• Basic rate 20%: £12,571–£50,270.
• Higher rate 40%: £50,271–£125,140.
• Additional rate 45%: over £125,140.

Paid via Self Assessment: register, file online by 31 January, pay by 31 January (plus payments on account — HMRC’s system of paying next year’s tax in advance, which surprises every new sole trader; see our Self Assessment guide).

2. National Insurance — self-employed

• Class 2: flat rate (~£3.45/week) if profits exceed £12,570 — buys your State Pension and benefit entitlement.
• Class 4: 6% on profits £12,570–£50,270, then 2% above.
• Combined with Income Tax, the effective marginal rate for a basic-rate sole trader is roughly 26–29%.

Our National Insurance for the self-employed guide covers this fully, including voluntary contributions and the state pension implications.

3. Corporation Tax (limited companies)

• 25% main rate on profits over £250,000.
• 19% small profits rate on profits under £50,000 (most small companies).
• Marginal relief tapers between £50,000 and £250,000.
• Paid 9 months and 1 day after the accounting year-end; the Company Tax Return is due within 12 months.

4. Dividend tax (company directors/shareholders)

When you take profits as dividends:

• £500 dividend allowance tax-free (2026/27).
• 8.75% basic rate, 33.75% higher rate, 39.35% additional rate.
• The classic director’s structure — small salary up to the personal allowance/NI threshold, rest as dividends — minimises combined tax. This is the core of the sole trader vs limited company tax comparison.

5. VAT

• 20% standard rate on most goods and services; 5% reduced rate (energy, renovations); 0% zero-rated (food, children’s clothes, books).
• Mandatory registration at £90,000 rolling 12-month taxable turnover.
• It’s a pass-through tax — you collect it from customers and pass it to HMRC, reclaiming VAT on your costs. The admin burden is the real cost for small businesses. See our VAT registration guide and VAT threshold guide.

6. PAYE / Employer National Insurance (if you employ staff)

• Employer NI: 15% on salaries above the secondary threshold — a major cost of hiring (see our hiring guide for the true cost maths).
• Employment Allowance: up to £10,500/year off your employer NI bill for eligible small businesses — claim it; many don’t realise it exists.
• You operate PAYE to deduct employee tax/NI — reported via RTI on or before each payday.

7. Business rates

• Charged on commercial premises — shops, offices, workshops. Based on rateable value × multiplier.
• Small Business Rate Relief: 100% relief for properties with rateable value under £12,000 (tapered to £15,000) — meaning most small premises pay £0. But you must apply to your council — it’s not always automatic.
• Home-based: generally no business rates for normal home working (see our running a business from home guide).

8. Other taxes that may apply

• Capital Gains Tax: when you sell business assets (or the business itself) — 10% with Business Asset Disposal Relief (up to £1m lifetime) vs 20–24% without.
• Stamp Duty Land Tax: on commercial property purchases.
• Apprenticeship Levy: 0.5% on pay bills over £3m — irrelevant for genuinely small businesses.
• Plastic Packaging Tax, etc.: sector-specific — check if applicable to your industry.

Worked Examples: Total Tax Burden

Sole trader, £40,000 profit

• Income Tax: ~£5,500 | Class 4 NI: ~£1,650 | Class 2 NI: ~£180
• Total: ~£7,330 (~18% effective rate)

Limited company, £40,000 profit (director taking salary + dividends optimally)

• Corporation Tax (19%): ~£5,200 (after salary deduction) | Dividend tax: ~£1,900 | Minimal employee NI
• Total: ~£7,100–£7,500 — similar at this level, but the company structure pulls ahead as profits rise, and offers more planning flexibility.

(Approximations — personal circumstances vary. These illustrate the shape, not your exact bill.)

Key Dates for the Tax Year

• 5 April: tax year ends.
• 6 April: new tax year begins.
• 31 July: second payment on account (Self Assessment).
• 5 October: deadline to register for Self Assessment (new businesses).
• 31 January: Self Assessment filing + payment deadline (and first payment on account for the new year).
• VAT quarters: returns due 1 month + 7 days after each quarter-end.
• Corporation Tax: pay 9 months + 1 day after year-end; file within 12 months.
• PAYE: RTI on or before each payday; pay HMRC monthly (or quarterly if small).

Reducing Your Tax Bill (Legitimately)

• Claim every allowable expense — the most common source of overpaid tax. See our expenses guide.
• Use capital allowances — the Annual Investment Allowance gives 100% first-year relief on equipment up to £1m.
• Pension contributions — tax-efficient profit extraction (especially via limited company employer contributions).
• Timing: bringing forward expenses or deferring income across year-ends can manage which band your profits fall into.
• Structure: the right business structure for your profit level.
• Employment Allowance, Small Business Rate Relief, R&D tax credits — check every relief you might qualify for. Gov.uk’s support finder lists current schemes.
• Making Tax Digital compliance — not a saving, but non-compliance penalties are an avoidable cost. See our MTD guide.

And the unglamorous foundation under all of it: good bookkeeping (see our bookkeeping guide). You can’t plan tax you can’t measure, and you can’t claim expenses you didn’t record. Know which taxes apply to you, know the dates, keep clean records — and the UK tax system becomes manageable rather than menacing.