There are various business taxes you may need to pay, and it is worth understanding upfront what tax relief may be available for you or your investors.

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Income Tax

 

Whatever trading structure you have, you will need to settle a final payment annual tax payment with HMRC in relation to your business income. 

 

• Sole trader: you need to pay personal income tax on your total income, including from your business: the more your business makes, the higher the tax band. 

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• Limited liability company: the company will need to pay corporation tax (currently 19%) on its profits, and you will need to pay additional personal income tax on any salary or dividend payments you take as shareholder.  (See Trading Structures for more on choosing the right model for your business, including other options such as partnership.)  

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Value Added Tax (VAT)

 

• To be paid quarterly to HMRC on all goods and services you sell (usually 20% unless qualifying for a lower rate or complete exemption - 0% for digital downloads, for example).

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• This is done by signing up online by registering for VAT payment with HMRC. 

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• You only have to register for VAT if your annual income hits £85,000, but you may it helpful to register even if below this threshold: some larger corporate customers may need a VAT registration number to get you on their payment system and it also looks more professional. 

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• There are also 'flat rate' schemes available if you annual income is less than £150,000, where you pay a fixed % of your VAT-inclusive turnover each year instead of quarterly, with no need to refer to specific sales or account for VAT charged to your business when buying goods or services.  The attraction is less paperwork and an ability to pay a lower % (up to around 16.5%) than the typical 20% rate you add on to the goods or services you sell - you keep any difference.

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Business Rates

 

If you run your business from a physical shop or commercial premises, you will need to pay a tax each year to the relevant council for use of  a building for non-domestic purposes.  There are reduced rates for some small businesses, and no business rates are payable if the 'rateable value' of your premises is less than £12,000.

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Digital Services Tax

 

Not one to worry about when you start out but if (when?) you hit the big-time with your digital/online services business and have revenues of £500M, you would have to pay a 2% tax from 2020 onwards.

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Employees PAYE

 

You will need to deduct from employees' monthly wages and amount for their income tax and national insurance contributions and pay this directly to HMRC under the Pay As You Earn system.

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Import/Export Duties

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if you are buying supplies from outside the UK, or perhaps selling to customers outside the UK, you may find certain tariffs apply and taxes need to be paid, depending on the nature of the goods on question.  Seek external tax or legal advice if you are not sure.

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Tax Relief

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Try to appoint an accountant who can also provide appropriate tax advice, and help with all tax relief that may be available.  If you have a technology business, then there are specific types of tax relief you may be able to benefit from:

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• R&D tax credits: a reduced tax liability or cash reimbursement of a percentage of the costs you incur on carrying out qualifying technology research and development.

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• Patent box: when you commercialise your technology, if you have obtained patent protection, a reduced corporation tax rate of 10% on income derived from the patented technology. 

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There are also tax relief schemes that help indirectly by making it more attractive for investors to provide funding of one form or another:

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• SEIS (Seed Enterprise Investment Scheme): investors taking equity in new start-ups (providing 'Seed' funding) can claim large tax rebates of up to 50% on up to £100,000 investment.  You can raise up to £150,000 of SEIS investment this way. 

 

• EIS (Enterprise Investment Scheme): this is a similar scheme on a larger scale for later stage Small & Medium Sized Enterprises. Investors can claim tax rebates of up to 30% on up to £1Million investment (maybe more).  You can raise up to £5Million of EIS investment per year, up to a maximum of £12Million over the lifetime of your company.

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• VCT (Venture Capital Trust): if you invest money in a large investment fund (listed on the stock exchange) that in turn invests in start-ups, you can claim tax credits of up to 30% on income up to £200,000 per year.

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It may be worth seeking advance assurance from HMRC that these schemes apply before issuing shares to investors.

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See Funding for more information on potential financing routes and investors.