UK tax for small businesses does not have to be complicated. The confusion usually comes from jargon, from reading guidance written for accountants, and from trying to understand everything at once. This guide cuts through all of that. It covers the taxes you will actually encounter as a small business owner in the UK, what the rates are, what the deadlines are, and what you genuinely need to pay attention to in 2026.
Corporation Tax
If you operate as a limited company, your company pays corporation tax on its profits. As of 2026, there are two rates:
- 19% (small profits rate): Applies to companies with profits up to £50,000.
- 25% (main rate): Applies to companies with profits above £250,000.
- Marginal relief: Companies with profits between £50,000 and £250,000 pay a rate that tapers between 19% and 25%.
For most startups and small companies, you will be paying 19%. That is competitive by international standards and one of the reasons the UK remains attractive for business formation. You must register with HMRC for corporation tax within three months of starting to trade, and you pay corporation tax nine months and one day after your accounting year ends.
Self Assessment (For Sole Traders and Directors)
If you are a sole trader, you file a Self Assessment tax return every year reporting your income and expenses. The deadline for online submission is 31 January following the end of the tax year (which runs 6 April to 5 April). For example, for the 2025/26 tax year, your return is due by 31 January 2027.
Limited company directors also typically need to file a personal Self Assessment return if they receive dividends, have income from multiple sources, or earn above certain thresholds. Do not assume your company’s corporation tax return covers you personally; it does not.
Payment on Account
HMRC operates a system called “payment on account” that catches many new sole traders off guard. If your Self Assessment tax bill exceeds £1,000, HMRC requires you to make advance payments toward the following year’s bill: half on 31 January and half on 31 July. This means in your first big earning year, you can face a tax bill of up to 150% of what you expected at the January deadline. Plan for this from day one.
VAT: The £90,000 Threshold
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period. This is the threshold as of 2026. Once registered, you charge VAT (usually at 20% for most goods and services) to your customers, collect it, and pay it to HMRC, minus any VAT you have paid on business purchases (input tax).
You can also register voluntarily below the threshold, which can make sense if your customers are VAT-registered businesses (they can reclaim the VAT you charge), or if you buy a lot of VAT-able goods and want to reclaim input tax. For B2C businesses serving consumers directly, voluntary registration adds complexity without a clear benefit.
VAT returns are filed quarterly (or monthly if you prefer) via HMRC’s Making Tax Digital system.
Making Tax Digital (MTD)
Making Tax Digital is HMRC’s shift to digital record-keeping and reporting. MTD for VAT has been mandatory since 2022, meaning all VAT-registered businesses must use compatible software to file their VAT returns. MTD for Income Tax Self Assessment (MTD for ITSA) will eventually require sole traders and landlords with income above certain thresholds to file quarterly updates digitally, replacing the annual Self Assessment return. The rollout timeline has been extended multiple times; as of 2026, it applies to those with income over £50,000 from April 2026 and over £30,000 from April 2027. Get into the habit of using cloud accounting software now; Xero, QuickBooks, and FreeAgent are all MTD-compatible.
PAYE: Paying Employees (and Yourself)
If your limited company pays you a salary, you need to set up PAYE (Pay As You Earn) with HMRC. Through PAYE, income tax and National Insurance contributions are deducted from salaries before payment and passed to HMRC each month. Even if you are the only director, paying yourself a salary above the NI threshold requires PAYE registration. Most small company owners use payroll software or their accountant for this; it is not complicated, but it does require staying on top of monthly Real Time Information (RTI) submissions to HMRC.
Key Dates to Bookmark
- 31 January: Self Assessment filing deadline and payment of tax owed plus first payment on account.
- 31 July: Second payment on account for Self Assessment.
- 9 months + 1 day after year end: Corporation tax payment deadline.
- 12 months after year end: Corporation tax return filing deadline.
- Quarterly: VAT return filing and payment.
- Monthly: PAYE and RTI submission if you have employees or a director salary.
Once you understand your tax obligations, the next step is making sure your business is structured to minimise unnecessary tax exposure. Our comparison of sole trader vs limited company covers the tax differences in detail. And if you are still getting started, our guide to registering a UK limited company walks you through Companies House step by step.
Do You Need an Accountant?
For a sole trader with simple income, you can manage your own Self Assessment return. For a limited company, an accountant is almost always worth the cost. A good accountant will save you more in tax planning than their fee, keep you compliant, and free up your time for things that actually grow your business. Expect to pay £500 to £1,500 per year for a small company; more if your affairs are complex. That investment pays back many times over.
More plain-English business guides are waiting for you. Join Hustler’s Library free at hustlerslibrary.com/join-free/ and get the knowledge you need to run your business with confidence.
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