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Information and advice for business:

What type of business structure is right for you.
UK tax rates and thresholds
Accounts and other filing deadlines and late penalties

Guide to Tax rates, thresholds
and fees

Introduction

Income tax rates and allowances

National insurance contributions (NICs)

Capital gains tax

Corporation tax

VAT

Business legal structures:
the basics

 

 
 
 

Useful information section

Guide to tax rates, thresholds and fees

Introduction

Rates, thresholds and fees, as well as rules and regulations, can alter annually with changes being announced in the Budget and usually implemented from the beginning of a tax year.

Over a year, a business owner has to make certain reports (returns) and payments to various government bodies. Some of these reports are made at the end of the tax year, some are made at the end of what is called an 'accounting period' while others are made quarterly or monthly.

Regardless of when a return or payment is made, you will need to ensure that you use the correct rate or allowance for the relevant tax year, or you may face a penalty.

Income tax rates and allowances

Income tax is payable if you employ others or you are the director of your own limited company.

How much you deduct from wages or salary depends on the appropriate tax rate and tax band. Income tax is payable to HM Revenue & Customs (HMRC) through the PAYE (Pay As You Earn) system.
 
Tax rates and bands
   
Tax rate Tax bands in 2009-10
Basic rate: 20% £0-£37,400
Higer rate: 40% Over £37,400

The Chancellor announced in his April 2009 budget that there will be an additional higher rate of income tax of 50 per cent for taxable incomes over £150,000 per year from 2010-11.

A tax allowance is the amount of tax-free income an employee can earn in a year. All employees are currently entitled to a basic tax allowance. Some employees will be entitled to more than one allowance.

 
Income tax allowances
 
Type of allowance Earnings for 2009-10
Personal allowance £6,475
Personal allowance (aged 65-74) £9,490
Personal allowance (aged 75 and over) £9,640
Income limited for age related allowances £22,900
Married couple's allowances for people born before 6 April 1935 £6,865
Married couple's allowance- aged 75 or over £6,965
Minimum amount of married couple's allowance £2,670
Blind person's allowance £1,890
   
From 2010-11 the basic personal allowance for those earning over £100,000 will be gradually reduced to nil. The personal allowance will be reduced by £1 for each £2 over £100,000 until it has been completely withdrawn.
 
National Insurance contributions

The majority of the working population is required to pay National Insurance contributions (NICs). These contributions go towards certain social security benefits, such as the state pension and jobseekers allowance.

The different types of NICs:

Primary Class 1 NICs - paid by employed people
An employee only starts paying NICs once they are earning above the earnings threshold (ET). If an employee earns less than the earnings threshold, they are treated as paying NICs on the earnings between the lower earnings limit (LEL) and the earnings threshold. Employees pay NICs at a lower percentage rate on earnings above the upper earnings limit (UEL).

Secondary Class 1 NICs - paid by employers
An employer pays secondary NICs on the same level of earnings as employees but there is no upper earnings limit.

 
NICs thresholds for employees and employers
 
NICs threshold Earnings per week 2009-10
Primary Class 1: ET £110
Secondary Class 1: ET £110
Primary Class 1: LEL £95
Primary Class 1: UEL £844
 
NICs rates for employees and employers
 
Type Rate for 2009-10
Primary Class 1: employees earning over the ET 11% of £110.01 to £844 per week and 1% on earnings above £844
Secondary Class 1: employees earning over the ET 12.8% of earnings above £110 per week
Married women paying reduced rate NICs 4.85% of £110.01 to £844per week and 1% on all earnings above £844
Emplyee's contracted - out rebate 1.6%
Employer's contracted - out rebate (salary related schemes) 3.7%
Employer's contracted - out rebate (money-purchase schemes) 1.4%
   
NICs rates for the self-employed
 
You will need to complete a self-assessment tax return on an annual basis. This will show the level of profits that you are declaring.

Class 2 NICs
If you are self-employed, you are probably liable for Class 2 NICs, which are payable at a flat weekly rate of £2.40 per week in 2009-10.

You do not have to pay Class 2 NICs if you earn less than £5,075 in 2009-10 and have a Small Earnings Exception certificate.

Class 4 NICs
Class 4 NICs you pay on annual profits above a certain level, at a rate of 8% between the lower and upper profits limit and 1% on profits above the upper profits limits.

Class 4 lower profits limit: £5,715 in 2009-10
Class 4 upper profits limit: £43,875 in 2009-10

 
Capital Gains Tax

Capital Gains Tax (CGT) is payable on capital gains made on selling or disposing of assets, such as property and shares. For example, you may be liable to pay CGT on the gains on your share of partnership assets when you sell or transfer a business.

CGT charges are based on the total of your taxable gains for the tax year, excluding the first £10,100 of your gains in the tax year 2009-10, which is free from tax. This is called your annual personal exemption.

 
Corporation Tax

Corporation Tax is payable by limited companies on profits. However, certain organisations that are not limited companies are also required to pay Corporation Tax. This should be checked with HM Revenue & Customs (HMRC). The self-employed are not required to pay Corporation Tax.

Corporation Tax rates for 2008-09 and 2009-10
Since 1 April 2008, the small companies' rate, for all profits apart from ring fence profits (North Sea oil and gas), is 21 per cent and the fraction used in smoothing the difference between the main rate of Corporation Tax and the small companies' rate (marginal small companies' relief) is 7/400ths.

The small companies' rate for ring-fence profits is 19 per cent, and the marginal small companies' relief fraction is 11/400ths.

 
Corporation Tax rates
   
Profits Rates Applied Rate payable on profits earned from
1 April 2009
Up to £300,000 Small companies rate 21%
£300,001 - £1,500,000 Marginal relief from main rate Between 21% and 28%
Over £1,500,000 Main rate 28%
 

Note: Budget 2007 announced a staged increase in the small companies rate of Corporation Tax from 19 per cent to 20 per cent from April 2007, 21 per cent from April 2008 and 22 per cent from April 2009. However, the increase from 21 per cent to 22 per cent from April 2009 has been deferred until April 2010. This deferral was announced by the Chancellor in his November 2008 Pre-Budget Report and will have effect on and after 1 April 2009.

VAT

VAT is a tax payable on the majority of business transactions that involve the transfer of goods or services.

Registration for VAT is required once your business' annual turnover reaches a certain level and VAT will then be payable to HM Revenue & Customs (HMRC). However, even if your turnover has not reached the level required, you can choose to register on a voluntary basis, as this may have benefits for the business.

Turnover threshold for 2009-10
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