Free invoice generator and tax tools for the United Kingdom

A UK small business meets income tax and National Insurance if it trades as a sole trader or partnership, and Corporation Tax if it is a company. Corporation Tax is 25% for profits above £250,000 and 19% up to £50,000, with marginal relief in between. Sole traders also pay Class 4 National Insurance at 6% on profits from £12,570 to £50,270 and 2% above in 2026 to 2027. HM Revenue and Customs (HMRC) collects all of these, plus VAT and PAYE.

Employers run PAYE through their payroll software and pay employee income tax and National Insurance to HMRC together with employer National Insurance. Eligible employers can claim the Employment Allowance, which cuts the employer National Insurance bill by up to £10,500 a year.

The most recent reform is Making Tax Digital for Income Tax. Sole traders and landlords with qualifying income over £50,000 had to start on 6 April 2026, those over £30,000 start on 6 April 2027, and those over £20,000 on 6 April 2028. They keep digital records and send quarterly updates through compatible software.

The VAT Flat Rate Scheme is the simplified VAT regime for small firms. A business can join if its VAT turnover is £150,000 or less excluding VAT, by applying to HMRC. Under the scheme the business pays HMRC a fixed percentage of its turnover instead of working out the difference between VAT charged and VAT paid on purchases. It keeps the difference between what it charges customers and what it pays HMRC, and it cannot reclaim VAT on purchases, except on certain capital assets costing over £2,000. Sole traders also benefit from cash basis accounting, which is the default method since the 2024 to 2025 tax year: income and expenses are recorded when money is received or paid.