The Taxation System for Businesses in the UK

Corporation Tax

Corporation tax in the UK has several rates, depending on a company's taxable profits. This system is designed to ensure that the tax burden is distributed more fairly among small, medium, and large businesses.

·        Profits up to £50,000: Small businesses with profits up to £50,000 per year are taxed at a rate of 19%. This standard rate reduces the tax burden on start-ups and smaller companies.

·        Profits between £50,000 and £250,000: In this profit range, the corporation tax rate gradually increases from 19% to 25%. The rate increase follows a formula that accounts for the relationship between rising profits and diminishing marginal relief. As profits increase, the relief decreases, resulting in a higher effective tax rate.

·        Profits over £250,000: Large businesses with profits exceeding £250,000 are taxed at a rate of 25%. This is the highest corporation tax rate, reflecting the greater ability of large companies to bear the tax burden.

Special Rates

·        Trusts and investment companies: These entities are taxed at a rate of 20%, accounting for the specific nature of their activities and financial structures.

·        Oil and gas companies: These companies face a rate of 30%, reflecting the high profitability of this sector and its significance to the UK economy.

These corporation tax rates demonstrate the UK government’s commitment to a balanced and flexible tax system that supports business growth while promoting a fair distribution of the tax burden. The gradual rate increase for profits between £50,000 and £250,000 is designed to ease the transition of small businesses to medium-sized status, minimising sharp increases in tax liability.

Value Added Tax (VAT)

The standard VAT rate is 20%, but reduced rates apply to certain goods and services, such as 5% for domestic energy supplies and child car seats. Businesses with a taxable turnover exceeding £90,000 are required to register for VAT.

Capital Gains Tax

Capital Gains Tax (CGT) in the UK is charged at different rates depending on the type of asset and the taxpayer’s status:

·        28% on gains from the sale of residential property.

·        20% on gains from the sale of other assets.

·        10% on gains eligible for Business Asset Disposal Relief (for sole traders or partnerships).

These rates apply after deducting the annual CGT allowance. For example, for the tax year 2024–2025, the allowance is £3,000.

Property Taxes

In the UK, business rates depend on the rateable value of the property:

·        Properties with a rateable value up to £150,000: 0%.

·        Properties with a rateable value between £150,000 and £250,000: 2%.

·        Properties with a rateable value over £250,000: 5%.

Research and Development (R&D)

Companies engaged in research and development may qualify for tax reliefs. These incentives are designed to encourage innovation and can significantly reduce a company’s tax liability.

The UK business tax system is multifaceted and requires a thorough understanding of and compliance with relevant tax laws and regulations. Businesses are advised to consult tax professionals to optimise their tax obligations and ensure full compliance.