The UK tax map: Corporation Tax, VAT, Income Tax & NI

UK tax confuses most first-time founders — not because each tax is complicated on its own, but because several operate simultaneously, applying to different entities, triggering on different events, and flowing to HMRC on different timetables. The company pays one set; you pay another; your customers effectively fund a third. Getting the map clear early is the foundation for every credible financial projection you will build.

The UK tax landscape at a glance

Capital Gains Tax, Stamp Duty Land Tax, and Inheritance Tax also exist but arise less frequently. The five rows above are the taxes you will encounter from the day you incorporate.

Corporation Tax: what the company pays on its profits

Corporation Tax is charged on a limited company's taxable profits — broadly, revenue minus allowable business expenses and capital allowances. The company itself pays this tax; you do not pay it personally.

The UK operates a tiered rate structure: smaller profits are taxed at a lower rate than larger profits. The rates and the thresholds that separate them change from year to year, so always verify the current figures at gov.uk/corporation-tax rather than relying on a number you read elsewhere. What matters structurally is that your taxable profit is calculated after deducting legitimate expenses — which is why knowing what HMRC considers allowable matters significantly. See the companion article on UK allowable business expenses for the detail.

Corporation Tax is due 9 months and 1 day after your accounting year-end. The Company Tax Return (CT600), which formally confirms the profit and tax calculation, is not due until 12 months after year-end. Pay first, file later — this catches many first-time directors off guard and is one of the points the director responsibilities guide covers specifically.

VAT: the tax on sales you collect on HMRC's behalf

Value Added Tax is charged at each stage of a supply chain but ultimately borne by the end consumer. For a startup, the mechanics work like this: you add VAT to your sales invoices (output VAT), you reclaim the VAT paid on your business purchases (input VAT), and you remit the difference to HMRC — usually every quarter.

The standard rate applies to most goods and services; reduced and zero rates apply to specific categories such as food, children's clothing, and domestic energy. Whether your product or service is standard-rated affects your pricing and margins — check your category on GOV.UK.

When must you register? Mandatory registration is triggered when your taxable turnover exceeds the registration threshold in any rolling 12-month period — check the current threshold at gov.uk/register-for-vat.

Voluntary registration is also possible and often worth considering. If your customers are VAT-registered businesses, they will reclaim the VAT you charge them, so adding VAT to your invoices costs them nothing net. Meanwhile you can reclaim the VAT on your own purchases from day one. This can provide a meaningful cash benefit during a capital-intensive early phase.

Cash flow caution: on the standard invoice-based scheme, you owe HMRC output VAT the moment you raise an invoice — even if the customer has not yet paid you. Planning for this timing mismatch belongs in every realistic financial model. The 24-month runway rule gives a framework for thinking about VAT-driven cash gaps.

Income Tax and National Insurance: what you pay personally

Your company pays Corporation Tax on its profits. When money flows from the company to you — as salary, bonus, or dividend — a second layer of tax applies to you personally.

Salary via PAYE: when you pay yourself a salary, the company operates PAYE. Income Tax and employee National Insurance are deducted from the gross pay before it reaches your account. The company also pays employer National Insurance on top of the gross salary — this is a real cost to the company, not deducted from your pay, and must appear in your financial model as a payroll overhead.

Dividends: as a shareholder you can receive dividends from the company's post-tax profits. Dividends are taxed at different rates than employment income. They are not subject to National Insurance, which is why many founder-directors structure their personal income as a mix of a modest salary — up to the National Insurance threshold — topped up with dividends. Check current Income Tax bands and dividend rates at gov.uk/income-tax, as these are adjusted at each Budget.

Self Assessment: most directors file a Self Assessment tax return annually to declare all personal income — salary, dividends, any rental or investment income — and reconcile against tax already paid via PAYE.

National Insurance: employer obligations matter to your model

National Insurance shows up in two streams on a payroll:

Employer NI is paid by the company on top of gross wages above the secondary threshold. It is a cost that does not appear on the employee's payslip but is a real payroll overhead — and must be included in any financial projection that shows the cost of hiring people. The Employment Allowance reduces a company's employer NI liability by a set amount each year (check the current figure at gov.uk/national-insurance). Most small companies qualify, but there are restrictions — notably, a company where the sole employee is also the sole director does not currently qualify.

Employee NI is deducted from earnings above the primary threshold alongside Income Tax, via PAYE.

Understanding both streams matters when you build the financial model that accompanies your Innovator Founder Visa business plan. Endorsers expect to see headcount costs that include employer NI and pension contributions — a model that shows only gross salary is immediately identifiable as incomplete.

Tax reliefs that reduce the burden

The UK tax code includes several reliefs designed to incentivise innovation and investment in early-stage businesses:

• SEIS and EIS: investor-facing reliefs that give UK investors Income Tax and Capital Gains Tax relief on investments in qualifying early-stage companies. Choosing the right company structure — a private limited company — is the prerequisite. See SEIS, EIS and VCTs explained.
• R&D Tax Credits: if your company is spending on qualifying research and development, you may claim a tax credit that reduces Corporation Tax or generates a cash repayment. The qualifying criteria and value of the credit have evolved significantly — check the current rules on GOV.UK.
• Capital Allowances: deductions for qualifying capital expenditure — equipment, software, machinery — that reduce taxable profits in the year of purchase or over time, depending on the asset.
• Loss Relief: trading losses can typically be carried forward against future profits, or in some cases carried back against prior-year profits.

The companion article Becoming a UK company director: your legal responsibilities covers the full annual compliance calendar. And Sole Trader, Ltd, LLP or PLC: choosing your UK business structure explains why your structural choice shapes your entire tax position from day one.

The free TorlyAI assessment gives you five AI-powered evaluations with no card required — a fast way to see how your business plan's viability and financials hold up against the criteria endorsers actually examine.

Key takeaways

• Corporation Tax is paid by the company on its taxable profits; the rate depends on the level of profit — verify the current rate on GOV.UK rather than relying on figures from elsewhere.
• VAT is collected from customers and remitted to HMRC net of input VAT; mandatory registration is triggered by exceeding the turnover threshold, but voluntary registration is often worth considering earlier.
• Directors pay Income Tax and National Insurance on salary via PAYE, and dividend tax on distributions from post-tax profits; structuring the mix is a legitimate planning decision.
• Employer National Insurance is a company payroll cost that must appear in any financial model showing headcount costs — not just gross salary.
• Relief schemes — SEIS, EIS, R&D tax credits, capital allowances, and loss relief — can materially reduce the effective tax burden for qualifying UK startups, but most require a correctly structured private limited company.

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• corporation-tax
• vat
• national-insurance