Business Tax Accountants & Advice

Business taxes: VAT, corporation tax, UTR's and P11D's

Limited Company Taxes vs Self Employed Taxes

When you’re an employee, paying your taxes is fairly straightforward. You pay via PAYE, and your income tax and Class 1 NICs are deducted at source. Your employer then pays Class 1 NICs of 13.8% on salary you earn above the secondary threshold.

This changes when you become self-employed. You’re now in charge of managing your taxes, which are paid through Self Assessment. You’ll need to pay income tax on your profits, as well as Class 2 and Class 4 NICs.

You may also need to pay VAT, depending on whether your turnover exceeds the VAT threshold, or if you decide to register for VAT voluntarily. And if you’re a Construction Industry Scheme (CIS) contractor, you’ll have to pay monthly CIS deductions to HMRC.

You’re taxed differently when you operate your own limited company. You pay income tax and Class 1 NICs on wages, and dividend tax on dividends you receive. Your company pays corporation tax, as well as Class 1 employer’s NICs on your wages. And if you’re registered for VAT or the CIS scheme, you’ll have to pay these taxes accordingly.

What is VAT? VAT thresholds, VAT registration and VAT filing

VAT is a type of consumption tax added to the cost of most goods and services for both B2C and B2B markets. There are three rates of VAT: standard rate (20%), reduced rate (5%) and zero rate (0%). VAT is not charged on exempt or out-of-scope items.

VAT registration becomes mandatory when you meet the conditions listed below:

• Your VAT taxable turnover exceeds the current threshold of £90,000 (for the 2024/25 tax year). The VAT taxable turnover refers to the total value of everything that you sell that isn't exempt from VAT.
• You expect your VAT taxable turnover to exceed £90,000 in the next 30-day period
• Your business had a taxable turnover exceeding £90,000 over the last 12 months

A personal UTR number is assigned to an individual when he or she registers for Self Assessment, while a company UTR number is issued when a company is incorporated or a partnership is registered.

But there are instances where you could benefit from VAT registration, even when it isn’t required.

It could lend credibility to your company, as being VAT-registered creates the impression that your business is larger and more established. Additionally, you may be able to reclaim VAT on goods and services you’ve purchased from other businesses.

However, these advantages must be weighed against the downsides.

Charging VAT on your goods or services could make them seem more expensive, and less appealing in a competitive business landscape. You’ll also need to handle the additional administrative burden that comes with being VAT-registered, and manage the risks of being faced with an unexpected VAT bill.

What are Unique Taxpayer Reference (UTR) Numbers?

A unique taxpayer reference (UTR) number is a 10-digit code that’s issued by HMRC to you as an individual (personal UTR number), or to your business, partnership or organisation (company UTR number). Just like your National Insurance number, each UTR number is unique and will stay the same throughout your life

As a sole trader, you’ll only have your personal UTR number, while you’ll be using both UTR numbers if you’re in a partnership or running a limited company. Do note that your personal UTR number and company UTR number can’t be used interchangeably.

You’ll easily locate your UTR number, due to its length.

You’ll find it on various documents you receive from HMRC, such as tax returns, payment reminders, notices to file tax returns, statement of account, your "welcome to Self Assessment" letter (SA250), as well as online on your Government Gateway account (it’s located at the top right corner of your account summary).

What is Corporation Tax?

Corporation tax is a tax levied on limited companies in the UK. Just as income tax is levied on an individual’s earnings, corporation tax is calculated based on a company’s trading profits.

At present, the corporation tax rate is 25% (2024/25 tax year). Starting 1 April 2023, the corporation tax rate will be increased to 25% for businesses with profits ranging between £50,000 and £250,000. Businesses with profits amounting to £50,000 or less will continue to pay at the current rate of 25% after April 2023.

Payment is due 9 months and 1 day after the end of your accounting period. For instance, if your accounting period ends on 31 December 2024, your corporation tax bill must be paid up by 1 October 2025.

You need to pay extra attention to your deadlines if you’re in your first trading year. That’s because you’ll have two corporation tax accounting periods—and therefore two payment deadlines.

Your first accounts will typically extend beyond 12 months, as the accounting reference date (this is decided on by Companies House) will fall on the last date of the month that your company was incorporated. For instance, if your company was incorporated on 10 June 2024, the accounting reference date will fall on 30 June 2025.

As such, your first accounts will cover 12 months and 3 weeks. Your accounting periods and corporation tax deadlines are as follows:

• 10 June 2021 — 9 June 2022. Payment will be due 9 months and 1 day after 9 June 2022.
• 10 June 2022 — 30 June 2022. Payment will be due 9 months and 1 day after 30 June 2022.

‍Reducing your corporation tax bill isn’t complicated, but it does require you to be religious about keeping track of your expenses and tax deadlines. You’ll need to claim your business expenses wherever possible, take advantage of early tax payment incentives, as well as tax allowances and reliefs.

Personal tax: Self assessment tax returns

What are Self Assessment Tax Returns?

How you pay your taxes changes when you become self-employed.

Instead of having your income tax and Class 1 NICs deducted at source through PAYE, you’re now required to file a Self Assessment tax return. You pay income tax on your profits (not total income), as well as Class 2 and Class 4 NICs.

Registering for Self Assessment as a sole trader is fairly simple, and can be completed online. HMRC will then send out a letter with your 10-digit Unique Taxpayer Reference (UTR), as well as set up your account for the Self Assessment online service. The registration process differs slightly if you're setting up as a limited company or limited liability partnership. You'll need to access a different registration page.

You will need to register by 5th October after the end of the relevant tax year. Here's an example: for the tax year starting 6th April 2021 to 5th April 2022, the registration deadline will fall on 5th October 2022.

You’ll need to stay on top of your Self Assessment filing and payment deadlines. You must complete your online filing by 31st January, while payments for your tax bill are due on 31st January after the end of the relevant tax year. For example, your tax bill for the 2024/25 financial year must be paid up by 31st January 2026.

P11D - Benefits in Kind

The P11D is a statutory form that records benefits in kind. These are employment benefits that employees and directors of a company have received across the year, such as company cars, private health insurance or loans.

All employers are required to file the P11D. If you’re working for yourself, such as through freelancing or contracting, you’ll also need to file the P11D. But if you’re contracting through an umbrella company, you’re not in-charge of filing the form; instead, you’ll receive the P11D from your provider.

P11D filings are due on 6th July following the relevant tax year. That means that your P11D for the tax year ending April 2021 must be filed by 6th July 2021, and any tax due must be paid by 22nd July.

When you’re filling up the P11D form, you need to report the following: company vehicles, health insurance, non-business travel and entertainment expenses, loans and company assets provided or transferred to employees or directors that have significant personal use.

You don’t need to include expenses such as: business travel and entertainment expenses, professional fees and subscriptions, uniform and tools for work and phone bills.

If you’ve submitted the P11D forms, paid your employees’ expenses or benefits through payroll or received a notification from HMRC, you’ll also need to submit the P11D(b) form. The form is a summary of the benefits you’ve provided for your employees, and also indicates the Class 1A National Insurance due on these benefits.

What are Dividends? Dividend tax rates, allowances and paying yourself dividends

A dividend is a payment of profit that a limited company distributes to its shareholders. This is the money remaining after all business expenses and liabilities, as well as outstanding taxes (including VAT and Corporation Tax) have been paid off.

Limited company directors typically draw a low salary, with most of their income being paid through dividends. By taking most of your income in the form of dividends, you can significantly reduce your income tax bill. That’s because dividends attract lower rates of income tax than salary, and no NICs are payable on dividends.

Dividends attract a much lower rate of income tax than salary does. There is also a slightly greater tax-free allowance when you are paid in dividends.

The current dividend tax rate is calculated via a combination of your income tax band and a dividend allowance.

The dividend allowance is a tax break that individuals receive on the first £500 in dividends i.e. the first £500 in dividends is tax free.

To calculate how much to pay in dividends, you have to understand income tax bands. You will have to include dividends into your income to determine your tax band.

Let's take a quick look at how £175 000 in dividend payments would be taxed in 2020.

This example assumes that your dividends are your only source of income.

• You will pay nothing for the first £500 due to the tax allowance.
• You will pay 7.5% (basic rate) for £2,000 - £37,500.
• You will pay 32.5% (high rate) for £37,500 - £150,000.
• You will pay 38.1% (additional rate) for +£150,000.

To read more about dividend tax rates and allowances, check out our guide below:

Here’s a table for comparison:

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Expenses: claiming expenses as a limited company, director or sole trader

Claiming Limited Company & Director Expenses

Depending on whether you have a Limited Company or your operate as a sole trader, read more on claiming expense for your company below:

Claiming Expenses when Self Employed

You can claim a range of expenses when Self Employed and you'll need to report this in your annual Self Assessment Tax Return.

Examples expenses you can claim include:

• Office rental or coworking costs
• Business and water rates
• Utility bills
• Property insurance
• Use of home office
• Claim a portion of your bills if you've set up a home office
• Office equipment
• Marketing costs
• Professional subscriptions
• Business travel
• Business mileage
• Professional fees

Check out our complete guide below which will walk you through all the expenses you should be claiming!

Limited Company Expenses

You should definitely check out all the allowable expenses for your Limited Company as this not only reduces your corporation tax but also reduces your personal tax if you are purchasing any of these items personally.

The key categories include:

• Employee expenses
• Business travel
• Office + office equipment
• Professional service fees
• General expenses (donations, eye tests)

Limited Company Director Expenses:

As a Limited Company director you should make sure that you know what directors expenses you can claim.

The key categories include:

• Business travel
• Office + office equipment
• Professional service fees + training

Business tax articles and guides: