Below is a very brief summary of taxes in the UK but gives an idea to a businessman who is planning to start a business.
Ongoing Taxes
| Name | Detail | Rate |
| Corporation tax | Tax on profit the company makes | Current rate 19% going up to 25% from April 2023 for profits over £250k |
| Dividend tax | Tax on dividends received by individual shareholders | First £2k tax free then between 7.5% to 38.1% |
| Payroll (PAYE) tax | Taxes on becoming an employer | |
| Income tax | Employee pays | First £12,570 is tax free then between 20% to 45%. |
| Employee national insurance | Employee pays | First £8,840 tax free then 12% |
| Employer national insurance | Employer pays | First 9,568 tax free then 13.8%. Employment allowance £4k |
| Value added tax | Sales tax when turnover crosses £85,000 | Usually 20% |
| Business rates | Municipal tax | Usually, half of rent |
One off taxes
| Name | Detail | Rate |
| Capital Gains Tax | Tax on the profit when you sell something that is increased in value. | First £12,300 tax free then 10% or 20% depending on your income. Tax on sale of residential property is higher. |
| Inheritance Tax | Tax on the estate of someone who died. | 40% over £325,000 |
Other matters
| Name | Detail | Rate |
| Insurance | Minimum legal requirement | Employer’s Liability Insurance. |
| Minimum Wage | Legal minimum wage | Over 23 years: £8.91 per hour. Lower for younger people |
Matters specific to restaurant industry.
| Name | Detail | Rate |
| Premises License | Permit to sell alcohol | New license can be a long process. Transfer is usually free and annual fee less than £1k p.a. |
| Music License | Permit to play background music | Annual fee under £1k p.a. |
Example:
Suppose you start a restaurant and after few years it starts making some profits, you will find that you have a new partner to share in your good fortune – Her Majesty’s Revenue and Customs (HMRC)
I have given below what an owner will make and what his new partner HMRC will capture.
Owner’s share:
Sales £2,000,000
Net Profits £400,000 say 20%
Corporation Tax £100,000 25% rate from April 2023
Distributable Profits £300,000
Personal/Dividend tax £100,000
Net in hand £200,000
I have taken net profits at 20% this is achievable in a well-run high end central London restaurant. This profit percentage is after paying payroll taxes, VAT and Business Rates.
HMRC’s share:
Business Rate £100,000 Fixed not dependent on sales
VAT £400,000
Payroll Taxes £60,000
Corporation Tax £100,000
Personal/Dividend tax £100,000
Total £760,000
Above figures have been estimated and rounded off to make them easier to understand but on the whole close to reality.
In case you decide sell or just drop dead, you will meet new characters from the `Book of the Taxes` called Capital Gains tax and Inheritance tax but don’t worry, not today.
Set up a business – GOV.UK (www.gov.uk)
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