UK Business Tax 2026: Every Tax You Need to Know, Rates, and Deadlines

Tax is the single largest expense most UK businesses face. Yet a surprising number of business owners don't fully understand which taxes apply to them, when they're due, or how much they should be setting aside.

The UK tax system treats businesses differently based on their structure. What you pay as a sole trader looks nothing like what a limited company pays. Getting this wrong doesn't just cost money in overpayment, it risks penalties for underpayment.

Which Taxes Apply to Your Business?

Your tax obligations depend on your business structure:

Sole Traders and Partnerships

You pay income tax on your business profits through Self Assessment. There's no separate "business tax." Your business income is treated as personal income and taxed accordingly.

2025/26 income tax rates:

• Personal allowance: £12,570 (tax-free)
• Basic rate: 20% on income from £12,571 to £50,270
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

You also pay Class 2 and Class 4 National Insurance on profits above certain thresholds (covered in detail below).

Limited Companies

Your company pays Corporation Tax on profits. The rates changed in April 2023 and remain in effect:

• Small profits rate: 19% on profits up to £50,000
• Main rate: 25% on profits above £250,000
• Marginal relief: Gradual increase between £50,000 and £250,000

As a director, you'll also pay income tax on any salary or dividends you take from the company. The combination of corporation tax plus dividend tax is how the government ensures company profits are ultimately taxed at a rate comparable to employment income.

2025/26 dividend tax rates:

• £500 dividend allowance (tax-free)
• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

VAT

If your taxable turnover exceeds £90,000 (the 2025/26 threshold), you must register for VAT and charge 20% on most goods and services. You can register voluntarily below this threshold if you want to reclaim VAT on business purchases.

VAT schemes worth knowing about:

• Flat Rate Scheme: Pay a fixed percentage of turnover (varies by sector, typically 9-14.5%). Simpler administration, sometimes cheaper.
• Cash Accounting Scheme: Only account for VAT when you actually receive or make payments, not when invoices are issued. Helps cash flow.
• Annual Accounting Scheme: Submit one VAT return per year instead of four. Make interim payments based on estimated liability.

PAYE

If you employ staff (including yourself as a limited company director), you need to operate PAYE. This involves deducting income tax and employee National Insurance from wages and paying employer National Insurance on top.

Employer NI rate: 15% on earnings above £5,000 per employee (the secondary threshold, reduced from £9,100 in April 2025). The Employment Allowance lets eligible businesses deduct up to £10,500 from their NI bill.

Key Tax Deadlines for 2026

Missing deadlines triggers automatic penalties. Here are the dates that matter:

Corporation Tax deadlines are different. Payment is due 9 months and 1 day after your accounting period ends. The CT600 return is due 12 months after.

VAT returns are quarterly, due 1 month and 7 days after the end of each VAT quarter.

How Much to Set Aside for Tax

The number-one tax mistake: spending all your revenue and scrambling when the bill arrives.

As a rough guide:

Sole traders should set aside 25-35% of profit for income tax and National Insurance combined.

Limited company directors paying themselves through a salary-dividend split should set aside roughly 20% of company profits for corporation tax, plus whatever personal tax is due on dividends.

Open a separate savings account. Transfer your tax allocation weekly or monthly. Treat it as money that isn't yours because it isn't.

Reducing Your Tax Bill Legally

Claim all allowable expenses. Many business owners miss legitimate deductions. Office costs, travel, professional subscriptions, insurance, accounting fees, even a proportion of household bills if you work from home.

Use your pension. Pension contributions are tax-deductible for both sole traders (through personal contributions) and limited companies (through employer contributions). This is one of the most effective tax reduction strategies available.

Consider your structure. At certain profit levels, operating as a limited company saves significant tax compared to sole trading. The crossover point is typically around £30,000-40,000 annual profit, but this depends on your specific circumstances.

Maximise capital allowances. The Annual Investment Allowance lets you deduct the full cost of qualifying capital expenditure (up to £1 million) from profits in the year of purchase.

Claim R&D tax credits. If your business develops new products, processes, or services, you may qualify for R&D tax relief. SMEs can claim up to 186% of qualifying expenditure as a deduction. This is significantly underused by smaller businesses.

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