Personal Taxes vs. Business Taxes
Personal Taxes vs. Business Taxes
Comparing personal taxes to business taxes is like comparing apples to oranges. Although the basic concept of both charges is similar, there are some crucial differences between the two. Let’s find more about personal taxes vs. business taxes in the United Kingdom.
What is Corporate Tax?
Corporate tax or business tax is the expense of a business’ cash flow charged by the government. It is also a country’s primary source of income. This type of tax is known as direct tax paid by businesses to the government on their earnings. The funds collected via taxes are used to finance various projects running across the country for the benefit of citizens.
The rules for corporate taxes vary from country to country. In the United Kingdom, the corporation tax rate for business profits is 19%, which is a standardised rate for all businesses. While in general, all companies in all industries are subject to the same corporation tax rates and rules, certain reliefs do vary according to the size of a business, including R&D credits, transfer pricing and specific anti-avoidance directions.
You’re liable to pay corporate tax on profits if you’re doing business as:
A Limited company
A foreign company with a UK branch/office (A non-resident company operating in the UK is subject to UK corporation tax on the trading profits of UK)
A Co-operative or unincorporated association
Profits you pay corporate tax on include:
Trading profits
Investments
Selling assets
What is Personal Tax?
The government imposes a personal tax on an individual’s income. This tax is payable on an employee’s wages and salaries. How much income tax you pay in the United Kingdom depends on the following scenarios:
How much of your income exceeds your Allowance
How much of the income falls into increasing tax band.
Remember, some income is tax-free. Let’s get to know how you can figure out your income tax rate.
How to Determine Your Income Tax Rate
Depending on the amount of income you receive, you can determine which tax bracket you fall in. Your tax rate depends on your overall annual income. For the fiscal year of 2020/21, income tax rates are as per below:
20% on anything you earn between £12,501 and £50,000.
40% income on anything you earn between £50,001 to £150,000.
If your annual income is £150,001 and above you pay 45% tax.
The current tax year is from 6 April 2020 to 5 April 2021. The regular Personal Allowance is £12,500, the sum you don’t have to pay tax on. If you claim marriage allowance or blind person allowance, your Personal Allowance might be more prominent.
Note: Tax legislation might change with each budget.
If you fall under any of these tax categories and are looking for the right accounting partner who can manage your taxes and give you advice on personal vs business tax planning and returns, you can rely on Ace Accounts & Tax. We can proactively review your taxes and help you leverage all government tax relief. To know more about their services, you can visit their website.
