Tax Allocation/Difference/Exemption for Small Companies

Tax Allocation/Difference/Exemption for Small Companies

The current tax system in the UK can be difficult to understand especially if you own a small company or business. Even so, there are certain taxes that you should know about. The following is an examination of the tax allocation, difference, and exemption for small companies in the UK:


Tax Exemption for Small Companies

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Income Tax

This tax is paid on the profit of your company. If the business is your sole source of income and you do not earn any income from any other quarter, then the income tax is paid on your businesses profit after you draw a personal allowance.

For limited companies, income tax is paid on any salary or dividend that is drawn. If you do not draw any salary then income tax doesn’t apply. The amount of income tax paid also depends on the salary drawn; the higher the salary, the higher the income tax to be paid.

If you are an employee, the employer, in this case, deducts income tax from your salary through the provisions of Pay As You Earn (PAYE).

Corporation Tax

This tax is paid as soon as the company starts making profits. It is 20% of the company’s profit and is paid nine months after the end of the company’s trading period. Corporation tax, however, is paid by limited companies. Small business and sole traders are exempt.


VAT stands for Value Added Tax and was used to be known as sales tax. It is a requirement for all businesses and companies to pay Value Added Tax for as long as they make VATable sales of 82,000 Euros per annum. VATable sales imply the sale of goods and services of which VAT is charged.

Business Rates

This is tax paid by businesses and companies for the use of offices or retail outlets as premises. Some premises like farm buildings are exempt. Other premises are entitled to a business rate relief.

National Insurance

This is a deduction from the earnings of a company. It is normally directed towards state pensions and schemes that promote welfare.

National Insurance Contributions are paid by the directors of limited companies on their earnings, while the limited company is also required to pay Class 1 National Insurance Contributions.

There are exemptions which small companies can take advantage of emanating from the Employment Allowance provision. For as long as you are employing staff, you qualify for it. You can reclaim amounts of up to 2,000 Pounds as Employers’ National Insurance Contribution.

Capital Gains Tax

All businesses and companies are required to pay a standard rate of 20% of capital gains tax. Even so, there are exemptions whereby business owners pay at a reduced of 10% due to the entrepreneur’s relief.

Small Business Rate Relief

If you use only one property which is less than 12, 000 Pounds, you stand a chance to get this tax relief.

Enterprise Zones

When you relocate your company to an enterprise zone, you qualify for business rates relief. The total amount you could get is 55,000 Euros per annum for 5 years.

Small companies should carefully analyze the various taxes that accrue to them. In addition, they should also maximize on the available tax exemptions and reliefs.

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