Confident that your tax filing is free of omissions? For many owners, small business tax obligations can be overwhelming, especially with the rapid update to the rules and allowances every year.
From the types of taxes applicable, to the policy updates and deadlines. We will talk about small business tax obligations according to the 2025/26 tax year.
This article will provide you in-depth details about how to navigate small business tax flings in 2025, ensuring compliance and accuracy.
Types Of Taxes Applicable to Small Businesses
Running a small business? It is necessary to have full knowledge of the taxes you are paying. Let’s break down the main small business tax you have to deal with:
VAT
VAT is defined as the tax applied on goods and services. You are entitled to register for VAT if your business’s taxable turnover exceeds £90,000 within a year. If your turnover is lower, then you can also register voluntarily. The standard VAT remains 20%.
Corporation Tax
- A 19% profit rate is applied for the companies having profits under £50,000.
- For the companies, with profits over £250,000, the main rate is 25%.
- A marginal rate is applied to the profits between £50,000 and £250,000.
Income Tax
- It is the basic tax for smaller businesses. The Personal Allowance is £12,570 for the 2025/26 tax year.
- Tax rates are 20% for income between £12,571 and £50,270.
- 40% for the income up to £125,140.
- 45% for incomes over £125,140.
National Insurance Contributions (NICs)
There are two main types of National Insurance Contributions (NICs). The amount you must pay will depend on your employment status. For the small business owners, you are required to pay:
Class 2 NICs – Class 2 NICs for 2025/26 are £3.50 per week. Since April 2024, self-employed people with profits over the Small Profits Threshold no longer need to pay Class 2 National Insurance. For the 2025/26 tax year, that threshold is £6,845. This change means their National Insurance record is protected automatically, without having to make the payment.
Class 4 NICs – For the 2025/26 tax year, you are required to pay 6% Class 4 NICs on profits between £12,570 and £50,270, and 2% on profits over £50,270.
Tax Deductions And Allowances For Small Businesses
Small businesses in the UK can significantly reduce their tax liability by claiming various tax deductions (also known as write-offs or allowable expenses) and tax credits. These deductions reduce the amount of income on which the business pays tax.
Here are some common tax deductions and allowances:
Deductible Expenses
Office Costs:
Stationery, Postage, and Printing: Includes items like paper, ink, and courier services.
Phone and Internet: Business-related phone and broadband bills. If used for personal and business, only the business portion can be claimed.
Software: Software used for less than two years, or subscriptions, are deductible.
Business Premises Costs:
- Rent, Rates, and Utilities: Rent for business premises, business rates, utilities (electricity, gas, water), property insurance, and security costs.
- Repairs and Maintenance: Costs for necessary repairs to business premises and equipment.
Working from Home:
- Flat Rate: You can claim £6 per week as a flat-rate expense without receipts if you work from home.
- Proportionate Costs: If working from home regularly, you can claim a proportion of household bills like utilities and rent based on the percentage of home used for business. Note that mortgage interest and council tax can be claimed by sole traders but typically not through a limited company unless there is a formal rental agreement.
Travel and Vehicle Expenses:
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- Mileage: Use HMRC-approved mileage rates for business travel in personal vehicles (45p per mile for the first 10,000 miles, 25p after; 24p for motorcycles).
- Public Transport: Air, rail, taxi fares, bus, and tube fares for business trips.
- Other Travel Costs: Parking fees, tolls, congestion charges, hotel accommodation, and meals on overnight business trips.
- Car/Van Expenses (if company-owned): Insurance, servicing, repairs, road tax, fuel, hire/leasing charges (only for business use).
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Clothing:
Protective safety clothing or uniforms. Ordinary clothes are not deductible, even if worn for work.
Staff Costs:
Salaries, bonuses, pensions, benefits, agency fees, subcontractor costs, and employer’s National Insurance Contributions (NICs).
Purchases for Resale:
It include Stock or raw materials.
Financial and Legal Costs:
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- Professional Fees: Accountancy, bookkeeping, legal advice, consultants.
- Bank Charges: Business bank account fees, credit card charges, loan interest (not capital repayments).
- Bad Debts: Unpaid invoices that have been written off.
Marketing and Advertising:
Website costs, advertising campaigns, professional PR.
Training and Education:
Courses and training that maintain or update existing skills related to the business. Training for entirely new skills or qualifications is usually a capital cost and not deductible.
Subscriptions and Memberships:
Trade journals, professional body fees directly relevant to the business.
Startup Costs:
Some initial costs like registration fees and legal fees can be deducted.
Capital Allowances
Instead of claiming expenses, businesses can claim capital allowances on assets like machinery, equipment (including computers and software lasting over two years), and business vehicles. If you’re a business owner, you should know about the Annual Investment Allowance (AIA). This tax relief lets you write off 100% of the cost for things like equipment and machinery. The best part is you can claim this against your profits in the same year you make the purchase.
Notable Policy Updates And Deadlines for 2025/26 Tax Year
Prepping for the 2025/26 tax year, requires smaller businesses to focus on meticulous record-keeping, adapting to new rules, and leveraging all available tax reliefs and allowances.
Key Changes
Following important key changes have to be kept in mind, when filing for taxes in the 2025/26 tax year:
- From April 6, 2025, the rate of employers pay increases from 13.8% to 15%. The threshold reduces from £9100 to £5000 annually, at which the contributions become payable.
- To offset the increased employer NICs, the Employment Allowance for eligible small businesses will increase from £5000 to £10,500. The previous £100,00 eligibility cap was also removed.
- If you sell a business asset, the Capital Gains Tax (CGT) rate you pay under Business Asset Disposal Relief (BADR) has increased. As of April 6, 2025, the rate is 14%. Another rate hike is scheduled for April 2026, when it will rise to 18%.
- The rollout of Making Tax Digital for Income Tax is right around the corner for self-employed individuals and landlords. The requirement to use compatible software and submit quarterly updates will be phased in, based on income level. It starts in April 2026 for anyone with an annual income over £50,000. The threshold then drops to £30,000 in April 2027, and will eventually apply to those earning over £20,000 from April 2028. It’s worth noting that this is based on your gross income from self-employment and property, not your net profit.
- Increase in National Minimum Wage and National Living Wage, came into effect on April 1, 2025, raising payroll costs for many businesses. Also statutory parental and sick pay also increased on April 6, 2025.
Important Deadlines
Following are key deadlines that have to be followed for the 2025/26 tax year:
- The deadline to register for Self Assessment if you have become newly self-employed or received a new source of taxable income is October 5, 2025.
- The last date for submitting a paper tax return is on October 31, 2025.
- For submitting your online tax return and any tax owed is January 31, 2026.
Some other corporation and tax deadlines that you have to follow are:
- If you run a company, you’ll need to submit its tax return a year after your accounting period finishes.
- However, the actual Corporation Tax payment is usually expected a bit sooner – nine months and one day after that accounting period ends.
- For most businesses that are VAT-registered, you have just over a month (one month and seven days, to be precise) after your VAT quarter closes to both file your return and make your payment.
Important Note: If your payment deadline lands on a Saturday, Sunday, or bank holiday, make sure HMRC receives your payment on the last working day before that date. Don’t leave it until the actual deadline! The only exception is if you use the Faster Payments service, which can clear payments almost instantly.
Explain Following Steps For Accurate Filing
Following steps have to be ensured when filing tax accurately, as a small business owner:
Keeping Meticulous Records
- Ensure keeping track of all your business expenses and revenues from the start of the tax year. It is crucial for calculating your taxable profit accurately.
- For the businesses that had been mandated by MTD, this must be done using MTD-compatible software.
- Ensure keeping digital or paper copies of all financial documents, like invoices, and receipts.
Claiming The Trading Allowance
- The £1000 tax-free trading allowance can be used against your self-employed income
- If your business expenses are more than £1000, it is usually more beneficial to claim your actual costs instead of the allowance
Considering Professional Advice
A professional accountant or a tax consultant can help provide proper guidance on complex tax rules, these help identify all allowable expenses, and ensure your filing is accurate and on time.
For The Limited Companies
If your business is a limited company, your tax and filing dates are based on your accounting period, not the tax year.
Tax Planning Strategies For Small Businesses
Following strategies and tactics have to be ensured for a small business tax planning:
- Claim All Allowable Expenses, including office supplies, utilities, travel, marketing, software subscriptions, and professional fees.
- You can claim tax relief through capital allowances for larger purchases like equipment or vehicles. The Annual Investment Allowance (AIA) lets you deduct the whole value of qualifying plant and machinery in the year you buy it.
- Contributing towards personal or company pension is one of the most tax-efficient strategies.
- As your business is growing, always reassess and review your business structure. It can offer more tax planning opportunities and liability protection.
- Tax rules are always complex and are subject to change. Consulting with a qualified tax professional is the best way to ensure that you are maximising savings and remaining compliant with all regulations.
Tax Considerations For Different Business Types
Ensuring the difference between each business type can also help identify their different tax considerations.
Sole Traders
As a sole trader, you and your business are considered a single entity for tax purposes. You have to pay Income Tax and National Insurance Contributions (NICs) on the net profits of your business. These are the business’s earnings after the deduction of the allowable expenses.
- You are paying Income Tax on your taxable profits through an annual Self Assessment tax return. Once your profit exceeds your Personal Allowance of £12,570, you will start paying Income Tax.
- You are typically allowed to pay Class 2 and Class 4 NICs on your profits.
Partnerships
- They operate similarly to sole traders, but the responsibility and profits are shared among partners.
- Every partner is responsible for declaring their share of partnership’s profits on their personal Self Assessment tax return and paying Income Tax and National Insurance.
- The partnership should also submit a partnership tax return detailing its income and expenses.
Limited Companies
A limited company is a separate legal entity from its owners (shareholders), offering limited liability protection.
- The company pays Corporation Tax on its profits. For the 2025/26 tax year, companies with profits of £50,000 or less pay Corporation Tax at the small profits rate (19%).
- A 25% main rate applies to profits over £250,000, with a marginal relief available for companies with profits between those thresholds.
- This structure has more complex reporting requirements, like filing annual accounts with Companies House and a company tax return with HMRC.
Bottom Line
By concluding this topic, we can say that filing taxes as a business owner does not have to be a burden. We can plan ahead by keeping records and using allowances, you can manage small business tax effectively and avoid costly mistakes.
Disclaimer: All the information provided in this article on “Small Business Tax Guide: Key Tips for Accurate Filing in 2025“, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.