UK Tax Explained: A Comprehensive Guide for Beginners

Taxes—love them or hate them, they’re a crucial part of running a business in the UK. Whether you’re a sole trader, a small business owner, or just starting out, understanding the UK tax system is essential to staying compliant and maximising your profits.

At Black & White Accounting, we know tax can be overwhelming, but don’t worry—we make it simple. Our expert team handles the hard stuff so you can focus on what you do best—growing your business. Here’s your beginner-friendly guide to UK tax and why it matters.

1. Types of UK Business Taxes

The UK tax system includes several types of tax that business owners need to be aware of:

Income Tax (For Sole Traders & Self-Employed)

If you’re self-employed, you pay tax on your profits through Self-Assessment. The key thresholds (2024/25) are:

• £12,570 – Personal Allowance (tax-free income)
• 20% – Basic rate (on profits from £12,571 – £50,270)
• 40% – Higher rate (on profits from £50,271 – £125,140)
• 45% – Additional rate (on profits above £125,140)

📌 Filing Deadline: Online tax returns due by 31 January each year.

Corporation Tax (For Limited Companies)

Companies pay tax on their profits, and the Corporation Tax rate is 25% (2024/25) for profits over £250,000, with a reduced rate of 19% – 25% for businesses below that threshold.

📌 Filing Deadline: Corporation Tax must be paid 9 months and 1 day after your company’s financial year-end.

VAT (Value Added Tax)

If your taxable turnover exceeds £90,000, you must register for VAT and charge it on goods/services. The main VAT rates are: ✅ Standard rate (20%) – Most goods & services. ✅ Reduced rate (5%) – Items like home energy and children’s car seats. ✅ Zero rate (0%) – Books, newspapers, children’s clothes.

📌 Filing Deadline: VAT returns are usually filed quarterly.

PAYE & National Insurance Contributions (NICs)

If you have employees, you must run Pay As You Earn (PAYE) payroll and deduct tax & NICs from their wages.

📌 Key NIC Rates for Employers (2024/25):

• 13.8% on earnings over £9,100 per year.
• Employees also pay NICs at different rates depending on their salary.

Dividend Tax (For Company Directors & Shareholders)

If you take money out of your limited company as dividends, you pay dividend tax based on these rates: ✅ £500 tax-free allowance ✅ 8.75% (Basic Rate) – Earnings up to £50,270 ✅ 33.75% (Higher Rate) – Earnings up to £125,140 ✅ 39.35% (Additional Rate) – Earnings above £125,140

📌 Pro Tip: Paying yourself a mix of salary & dividends can be tax-efficient—we can help you optimise your pay structure.

Construction Industry Scheme (CIS)

If your business operates in the construction industry, you may need to register for the Construction Industry Scheme (CIS). Under CIS: ✅ Contractors must deduct tax at source from subcontractors and pass it to HMRC. ✅ Subcontractors can register for CIS to have deductions at a lower rate of 20% instead of 30%. ✅ Monthly CIS returns must be submitted by contractors to report payments and deductions. ✅ Failure to comply can result in penalties and loss of gross payment status.

📌 Filing Deadline: CIS returns must be submitted by the 19th of each month following payments.

Benefits-in-Kind (BIK)

Some employers offer non-cash perks (benefits-in-kind) that employees must pay tax on. Common BIKs include: ✅ Company cars & fuel allowances ✅ Private healthcare ✅ Interest-free loans over £10,000 ✅ Gym memberships

Employers must report these benefits on a P11D form or through payrolling benefits, and Class 1A National Insurance Contributions apply.

📌 Filing Deadline: P11D forms must be submitted to HMRC by 6 July each year.

2. Key Tax Deadlines to Remember

Missing deadlines means penalties from HMRC—mark these in your calendar! 📅 31 January – Self-Assessment tax return deadline. 📅 31 March/5 April – End of the UK tax year. 📅 6 July – P11D deadline for reporting benefits-in-kind. 📅 22nd of Each Month – PAYE & NICs payment deadline (if paying electronically). 📅 Quarterly VAT Filing – Varies depending on your VAT registration date. 📅 9 Months After Year-End – Corporation Tax payment deadline. 📅 19th of Each Month – CIS return deadline for contractors.

3. How to Legally Reduce Your Tax Bill

Nobody wants to pay more tax than necessary, and the good news is there are ways to reduce your tax bill legally:

✅ Claim All Allowable Expenses – Office costs, travel, marketing, staff wages, professional fees—these can all reduce your taxable income. ✅ Use Tax-Efficient Pension Contributions – Payments into a pension reduce your Corporation Tax or Self-Employed profits. ✅ Take Advantage of R&D Tax Credits – If your company is innovating, you could claim a tax rebate on research & development. ✅ Maximise VAT Schemes – Consider the Flat Rate Scheme if you’re VAT-registered, or cash accounting to help with cash flow. ✅ Plan Your Pay Structure Efficiently – A mix of salary, dividends, and pension contributions can minimise tax.

4. How Black & White Accounting Makes It Easy

Understanding tax is one thing—managing it correctly is another. That’s where we come in!

🔹 We Handle the Hard Stuff – From Self-Assessment & Corporation Tax to VAT, CIS & Payroll, we take care of it all. 🔹 We Keep You HMRC Compliant – No nasty surprises—just smooth, penalty-free tax filing. 🔹 We Make Tax Planning Simple – Our expert accountants find every tax-saving opportunity for you. 🔹 We Free Up Your Time – You focus on your business, we handle the numbers. 🔹 We Provide Real-Time Insights – Using Xero, QuickBooks, and FreeAgent, we help you stay in control of your finances.

5. Get Tax Right from the Start

At Black & White Accounting, we make tax simple and stress-free. Whether you need help filing, tax planning, or ongoing accounting support, we’ve got you covered.

📞 Get in touch today and let’s make tax easy—so you can focus on what you do best, running your business!