Types of business taxes in the UK: a guide for small businesses and the self-employed

If you fail to understand your taxes, you may find yourself owing HMRC extra payments for penalties and interest. For instance, more than 1 million self-employed professionals missed the 2026 filing deadline, incurring an initial penalty of £100 and further charges depending on how late they file.

From corporation tax to National Insurance and value-added tax (VAT), your tax obligations will depend on how your business is structured, what you sell, and the amount of money you earn.

This guide, created in collaboration with Markel Tax, sets out the types of business taxes in the UK you may need to pay, to help you stay compliant and plan your finances more effectively.

What is business tax?

Business tax refers to the taxes that self-employed individuals, as well as companies in the UK, need to pay on their income, profits, and other commercial activity.

The legal structures of your business directly affects the types of tax and amount you need to pay every year, as each structure has different administrative requirements and tax implications.

Sole traders typically pay income tax and National Insurance, while limited companies pay corporation tax on profits. Taxes, such as VAT and business rates, apply depending on a business’ revenues and operations – these types of tax are outlined below.

How to check your business tax records

Whether you operate your business as a sole trader, partnership, or limited company, you can keep track of your tax obligations and payments by registering for an HMRC business tax account.

To do this, go to the registration page on the HMRC website, enter your personal and business details, and verify your identity. Once you submit your application, you will receive a code to active your account. When you log in, the account dashboard will allow you to make and track payments, and check records of your past payments.

The main types of business taxes in the UK

Corporation Tax

• Paid on company profits
• Separate from personal income tax
• Filed through company tax return

Limited companies pay corporation tax on their profits, including from revenues and investments. Company directors may also pay tax on the salaries and dividends they take from the business.

The corporation tax rate is between 19% and 25%, depending on the amount of company profits.

The deadline for paying corporation tax is based on your company’s accounting period and is due nine months and one day after the end of the period. Companies that make taxable profits of more than £1.5 million must pay in instalments. Companies that make a loss and do not owe corporation tax still need to file a company tax return to avoid the non-filing penalties.

Limited companies must register for corporation tax within three months of starting to do business.

Making Tax Digital for Income Tax

HMRC’s new digital tax filing process came into effect in April 2026, requiring sole traders and landlords to file quarterly updates along with a final declaration on 31 January if their income is over £50,000. This will be introduced for incomes over £30,000 from April 2027.

PAYE income tax for limited companies

• Income tax employers collect from employees
• Managed through payroll
• Requires regular reporting to HMRC

If you are a director of a limited company and take a salary from the business, you may need to pay income tax. In addition, if you operate a limited company with employees or other directors, you are also responsible for deducting their income tax from their salary and sending the payments to HMRC.

You are required to register for Pay as You Earn (PAYE) to make deductions through payroll for employees that are paid more than £96 per week or receive expenses and company benefits, or a pension. You are also obligated to report your employees’ payments and deductions to HMRC on or before each pay day, and send the deductions to HMRC every month. Small employers that expect to pay less than £1,500 each month can arrange with HMRC to pay quarterly.

Payroll compliance requires accurate, timely reporting and payments to avoid penalties. You also need to complete an annual return at the end of the PAYE tax year, which runs until 5 April.

Taxable benefits

Self-employed individuals do not receive taxable benefits in kind. However, company directors or employees who receive non-cash benefits – such as company cars, private medical insurance or interest free loans – must have these reported to HMRC on form P11D and paid over the tax. Where a director or employee completes a Self-Assessment tax return, the value of those benefits must also be included on their tax return.

National Insurance

• Contributions apply based on earnings
• Different contributions apply based on Class and categories
• Additional contributions apply for employees

Like income tax, you may need to submit payments for National Insurance to HMRC for yourself, as well as any employees.

While income tax is used for general government funding, National Insurance Contributions (NICs) are a tax on individual income that determine eligibility for benefits such as Jobseeker’s Allowance and the state pension.

National Insurance is split into different Classes, categories and rates depending on employment status and income.

Most self-employed individuals pay NICs through their Self-Assessment tax return.

Class 2 National Insurance no longer usually involves a payment. If your self-employed profits are £7,105 or more in a tax year, Class 2 is treated as paid automatically to protect your entitlement to the State Pension.

If your profits are below £7,105, you are not required to pay Class 2, but you can choose to pay voluntary Class 2 contributions to avoid gaps in your National Insurance record that could affect State Pension entitlement.

Class 4 National Insurance contributions apply if your self-employed profits are more than £12,570 in a tax year.

Limited companies need to pay secondary Class 1 NICs on their employee and director salaries if they are under state pension age and earn more than £242 per week from one job. Class 1A and Class 1B apply to employees’ expenses or benefits.

Both employers and employees are required to make contributions, therefore you will need to deduct NICs from your employees’ pay and send the employee deductions, as well as your employer payments, to HMRC. Employers share of National Insurance is a business expense that can be deducted from corporation tax liabilities.

Dividend tax

• Paid by company directors and shareholders
• Lower rates than income tax
• Reported through Self-Assessment

Dividend tax is a form of income tax on payments received from ownership of company shares. If you are a director of a limited company and take income from the business as dividends as well as or instead of a salary, you may need to pay tax on that income.

Individuals receive an annual dividend tax allowance, which is currently £500. Dividends you receive above the allowances are taxable, with the rate depending on the total amount and your income tax band.

For the 2026-2027 tax year, basic rate income taxpayers are charged 10.75%, while higher rate taxpayers are charged 35.75% - additional rate taxpayers are charged 39.35%.

If you receive dividends totalling less than £10,000 in a tax year, you can ask HMRC to update your tax code to deduct the dividend tax from your salary. If you receive more than £10,000, you will need to report the dividend tax on your Self-Assessment tax return.

VAT

• Tax charged on the sale of most goods and services
• Mandatory registration applies above VAT threshold
• Businesses can reclaim VAT on eligible expenses

Value-added tax, commonly known as VAT, applies to the sale of most goods and services. Registered businesses typically add VAT to their prices and need to pay the VAT they receive from customers to HMRC, typically every quarter.

Businesses that bring in UK taxable revenues of more than £90,000 over a rolling 12-month period must register for VAT within 30 days of crossing the threshold. If you expect to have UK taxable revenue over £90,000 in the next 30 days alone, you must also register for VAT. Most businesses below the threshold can also become VAT-registered, but are not legally obligated to. Similarly, if your trade falls below the threshold, you may be able to cancel your VAT registration. VAT-registered businesses can, generally, claim back VAT on eligible products or services purchased for the business.

The standard rate of VAT is 20%, although there is a reduced rate of 5% for certain goods and services like home energy supply, and a 0% rate for items like exported goods, retail food and children’s clothing. Some sales are exempt, including certain financial, health and education services; exempt sales are not taxable, so do not contribute to the VAT registration threshold, but also do not convey a right to voluntarily register for VAT or claim VAT back on costs.

Refer to our VAT guide for small businesses for details on how to become VAT registered and submit VAT returns.

Business rates

• Paid by businesses using commercial premises
• Rates set by local authorities
• Tax relief available for small businesses

Business rates are a tax on properties used to run a business such as shops, office buildings, pubs, warehouses, or factories. Home-based businesses may also be liable for business rates if you make sales from the property, have employees at the property, or make changes to the home to run the business.

The amount your business must pay will depend on the property’s rateable value and a multiplier set by the local authority. The council will send you a bill in February or March each year for the following year, which you can pay in monthly instalments or as a lump sum.

Business rates are treated differently if the property is in Scotland or Northern Ireland.

You can check the rateable value for your property with the Valuation Office (VO) and receive help if you think the valuation is wrong. Many small businesses qualify for Small Business Rate Relief from the local authority, which can help reduce the cost – this can be automatic, but in some cases you may need to apply.

Capital Gains Tax (CGT)

• Paid on profits from selling assets such as property, equipment, or shares
• Sales may be eligible for tax relief

CGT may apply if you are a self-employed individual running a business as a sole trader or in a partnership, and make a profit when you sell all or part of a business asset. Assets include land and buildings, fixtures, fittings, and machinery, as well as company shares and registered trademarks. The tax is calculated on the “gain” rather than the total value of the asset sale. Relief allowances include Business Asset Disposal Relief, Business Asset Rollover Relief, Gift Hold-Over Relief, and Incorporation Relief – CGT rates for the amount not eligible for relief depend on your income tax band. CGT does not apply to limited companies as they pay corporation tax on profits arising from asset sales.

How to reduce business taxes

You can reduce the amount of business tax you have to pay through tax relief schemes and deductible expenses.

Small business tax-relief schemes can sometimes reduce the business rates, VAT and National Insurance which you are required to pay.

Employment allowance allows eligible employers to pay less Class 1 National Insurance when they run payroll until they reach a liability of £10,500 or the tax year ends.

In addition to business rate relief, eligible businesses can claim an annual investment allowance and deduct the costs of plant and machinery from their profits. Limited companies can claim research and development tax relief for work on science and technology projects. Creative industries tax relief reduces corporation tax for businesses operating in the creative industries.

Sole traders can deduct eligible business expenses from their profits when calculating their income tax for Self-Assessment – limited companies can also deduct expenses to reduce their corporation tax bills.

Managing business taxes effectively

Managing your business tax liabilities effectively goes beyond meeting deadlines – it involves planning, record-keeping and understanding the various reporting and payment obligations through the tax year.

To help manage your taxes:

• Monitor important tax filing and payment dates
• Maintain accurate digital records of revenue and expenses
• Set aside funds for tax payments
• Consider using accounting software to automate reporting
• Seek professional advice where needed

Self-employed professionals and small businesses may also want to consider protection against unexpected tax enquiries or disputes. Explore our tax investigation insurance to help cover the cost of HMRC investigations and safeguard your business.

Please note: This article provides guidance for information purposes only and is accurate at the time of production. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional. The views expressed by websites referred to are limited to those of the websites, and do not necessarily reflect the views of Markel Direct. Markel Direct is not affiliated with any of the brands, companies or websites mentioned in this article.