Running your own business means paying your own income tax. It’s not much fun, but it doesn’t have to be confusing. 

To help you navigate the exciting world of income tax rates, just follow this simple guide:

  • What is income tax?
  • What are the income tax rates for 2022/23 in the UK?
  • Can I reduce my income tax rates?
  • How do I pay income tax as a business owner?
  • How can I plan for income tax?

What is income tax?

Whenever you earn income, the Government takes a cut to pay for public services. The amount you pay depends on the amount you earn – the more you earn, the more you pay. 

Income is measured over the course of a financial year – The new financial year starts on April 6th 2022. 

What are the income tax rates for 2022/23 in the UK?

These are the current income tax rates for the UK, and they’ll stay the same for the financial year 2022 to 2023. The rates are as follows:

  • Basic rate – Anything you earn from £12,571 to £50,270 is taxed at 20%
  • Higher rate – Anything you earn from £50,571 to £150,000 is taxed at 40%
  • Additional rate – Anything you earn over £150,000 is taxed at 45%

Remember, you only get taxed on the amount that falls within each rate.

For example, if you earned £60,000:

  • The first £12,570 falls within your personal allowance, so it’s tax-free.
  • The amount between £12,571 and £50,270 (£37,500) is charged at the basic rate (20%), which would be £7,500
  • The amount between £50,571 and £150,000 (£9,730) is charged at the higher rate (40%), which would be £3,892.
  • All in all, you’ll pay £11,392 (£7500 + £3,892)

How do I pay income tax as a business owner?

To pay your income tax bill, you need to complete a self-assessment tax return. There are three ways to go about it:

  1. Use HMRC’s online portal
  2. Submit a paper form by post
  3. Appoint someone to deal with it on your behalf

For more information, read our guide on How to do a self-assessment tax return.

Special note on deadlines for self assessment:

As you can imagine, HMRC won’t be happy with late tax returns – they might even give you a penalty. So, keep these deadlines in mind:

  • Registering for self-assessment – October 5th
  • Submitting paper returns – Midnight, October 31st
  • Submitting online returns – Midnight, January 31st

Can I reduce my income tax rates?

In short, yes!

You can reduce your taxable income as a business owner by claiming business expenses and capital allowances on your self-assessment tax return.

Business expenses

When running your business, you’ll spend money on various essentials like insurance, staff, and travel costs. You can deduct those costs from your total income, reducing your tax bill. 

For example:

  • If your annual turnover is £50,000 but you spend £10,000 on running costs, you’ll only be taxed on the remaining £40,000 – That £40,000 is called your taxable income. 

Here are some common examples of business expenses that you can claim, with examples:

  • Office costs – stationery or phone bills
  • Travel costs – fuel, parking, train fares, or bus fares
  • Clothing expenses – uniforms
  • Staff costs – salaries or subcontractor costs
  • Things you buy to sell on – stock or raw materials
  • Financial costs – insurance or bank charges
  • Costs of your business premises – heating, lighting, or business rates
  • Advertising or marketing – website costs
  • Training courses related to your business –  refresher courses

Capital allowances

On top of business expenses, you can also claim capital allowances. They’re similar to business expenses, but they’re normally for large, on-off purchase, like these:

  • Equipment
  • Machinery
  • Business vehicles

Special note on business expenses and capital allowances:

You can only claim for things that are wholly and exclusively used for your business. 

How can I plan for income tax?

The best way to prepare for your tax bill is by recording your income, recording your expenses, and working out how much you’ll have to pay at the end of the year. 

Luckily, the Countingup business current account can do all that for you, and more!

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. 

Start your three-month free trial today. 
Apply now.