Meeting the VAT return deadline is one of the most important responsibilities for VAT-registered businesses in the UK. Every late submission triggers automatic HMRC penalties, interest, and compliance checks making it essential for businesses to understand how VAT return cycles work, what the upcoming deadlines are, and how to plan for timely submissions.

In this comprehensive guide, we explain when VAT returns are due, how to check your VAT return dates on HMRC, the rules under MTD for VAT, penalties for late VAT returns, and practical steps to stay compliant. Whether you run a limited company, small business, or operate as a sole trader, this guide makes VAT return deadlines simple to understand and follow.

What Is the VAT Return Deadline?

The VAT return deadline is the latest date by which businesses must:

1. Submit their VAT return to HMRC, and

2. Pay any VAT owed for the accounting period.

Under normal circumstances, the VAT return deadline is:
1 calendar month + 7 days after the end of the VAT period.

For example:
If your VAT period ends on 31 March, the VAT return and payment deadline will be 7 May.

This deadline applies to the majority of businesses, although exceptions exist under the Annual Accounting Scheme and VAT Payment on Account Scheme.

Understanding VAT Periods

VAT return deadlines depend on your accounting period. The most common cycles are:

1. Quarterly VAT Returns (Most Businesses)

Businesses submit a return every 3 months.
Common quarters include:

• Jan–Feb–Mar

• Apr–May–Jun

• Jul–Aug–Sep

• Oct–Nov–Dec

Each has the same deadline: 1 month + 7 days later.

2. Monthly VAT Returns

Some businesses choose monthly filing if:

• They regularly reclaim VAT

• They want better cash-flow control

• They fall under HMRC compliance monitoring

Monthly returns follow the same deadline rule: 1 month + 7 days.

3. Annual Accounting VAT Returns

Businesses submit one VAT return per year but make:

• Advance VAT payments

• Or pay VAT based on estimated turnover

The deadline varies depending on the scheme setup.

VAT Return Deadline Under MTD (Making Tax Digital)

All VAT-registered businesses (regardless of turnover) must now follow MTD for VAT.

This means:

• VAT returns must be submitted digitally

• You must use MTD-compatible accounting software

• Digital records must be maintained

You cannot submit VAT returns manually through HMRC unless you have an exemption.

Common MTD-compliant software includes:

• QuickBooks

• Xero

• Sage

• FreeAgent

Missing the digital submission requirement can result in VAT return rejections and penalties.

How to Check Your VAT Return Deadlines

You can confirm your next VAT deadlines via:

HMRC Business Tax Account

Log in and navigate to:
VAT → View return deadlines

You will see:

• Your next VAT return due date

• Payment deadline

• Submission status

MTD Software Dashboard

Most software shows:

• Upcoming deadlines

• Payment reminders

• Automatic deadline notifications

Right Choice Consulting

Your accountant can monitor:

• VAT return periods

• Submission deadlines

• Compliance documentation

• Late VAT return risks

This ensures no deadlines are missed.

VAT Return Late Filing — What Happens?

Missing the VAT return deadline automatically triggers HMRC’s VAT Late Submission Penalties, which now operate under the Penalty Points System.

Penalty Points System (2023 Onwards)

HMRC assigns penalty points for each late VAT return.

Once you hit the threshold, every additional late submission = £200 fine.

Late VAT Payment Penalties

Late VAT payments incur:

• 2% penalty after 15 days overdue

• Additional 2% after 30 days

• Daily interest until fully paid

The longer the delay, the more penalties accumulate.

How to Avoid VAT Return Deadline Penalties

Here are essential practices to stay compliant:

1. Use Digital VAT Accounting

MTD-compliant software reduces:

• Human error

• Missing deadlines

• Incorrect VAT calculations

2. Set Automated Calendar Reminders

Schedule reminders:

• 7 days before VAT period ends

• VAT return deadline

• Payment deadline

3. Keep Real-Time Records

Storing receipts, invoices, and expenses digitally ensures faster VAT reconciliation.

4. Outsource VAT Management

If you don’t want to manage deadlines, an accountant will:

• Track every VAT period

• Prepare returns

• Submit and manage compliance

• Handle communication with HMRC

Common VAT Return Deadlines for UK Businesses

Here is a quick reference table:

These are standard deadlines unless HMRC assigns special dates.

What If Your VAT Return Deadline Falls on a Weekend?

If the VAT deadline falls on:

• Saturday

• Sunday

• Bank Holiday

Then HMRC requires the return to be submitted on the next working day.

However, payments must still reach HMRC by the deadline, so faster payment methods may be needed.

Do VAT Return Deadlines Change If You Switch Schemes?

Yes. If you move to another scheme:

Annual Accounting → Quarterly Filing

Deadlines move from yearly to every 3 months.

Quarterly → Monthly Filing

Deadlines may be earlier depending on the cycle.

Payment on Account Scheme

Large businesses must make:

• Monthly instalments

• One balancing VAT return

Accountants typically handle this transition to avoid compliance issues.

Preparing Your VAT Return Correctly

A compliant VAT return includes:

• Output VAT

• Input VAT

• Box 1 to Box 9 accuracy

• Digital records

• Supporting documents

Common errors:

• Including exempt items

• Incorrect VAT rate classification

• Missing reverse charge entries

• Incorrect EU or overseas VAT treatment

These errors can trigger HMRC reviews.

VAT Return Deadline & Cash Flow Planning

Meeting deadlines is not only a compliance requirement—it’s also a strategic financial practice.

Strategic benefits include:

• Avoiding penalties

• Improving cash flow visibility

• Keeping accurate business records

• Reducing HMRC audit triggers

How Right Choice Consulting Helps with VAT Returns

Right Choice Consulting provides full VAT services, including:

• VAT registration

• VAT preparation

• Quarterly and annual VAT submissions

• Digital record-keeping

• VAT planning

• HMRC dispute handling

Frequently Asked Questions (FAQs)

1. What is the VAT return deadline for most UK businesses?

The standard VAT return deadline is 1 month + 7 days after the end of the VAT period.

2. What happens if I miss the VAT return deadline?

HMRC applies penalty points, interest, and late payment penalties.

3. How do I check my upcoming VAT deadlines?

You can check through your HMRC Business Tax Account, or your MTD software will show upcoming dates.

4. Can I change my VAT return period?

Yes, but only with HMRC approval—your accountant can submit a request.

5. Is MTD mandatory for VAT returns?

Yes, all VAT-registered businesses must follow Making Tax Digital rules.

Conclusion: File VAT Returns on Time & Stay Compliant

The VAT return deadline is a critical HMRC requirement, and non-compliance leads to penalties, interest, and cash-flow issues. By keeping accurate records, using MTD-compatible software, and relying on a professional accountant, you can stay fully compliant and avoid unnecessary fines.

For millions of taxpayers in the UK, filing a Self Assessment tax return is an annual responsibility. But when your tax return or tax bill is late, HMRC can charge penalties — and these fines build up quickly. Understanding how the Self Assessment late payment penalties works can save you money, stress, and unexpected HMRC letters.

In this complete guide, we break down the deadlines, penalty types, interest charges, how penalties are calculated, and what you can do to reduce or avoid them. Whether you are self-employed, a landlord, a company director, or someone with additional income, staying compliant with HMRC rules is essential.

What Is a Self-Assessment Late Payment Penalty?

A self-assessment late payment penalty is a fine issued by HMRC when you fail to pay your tax bill by the deadline. In the UK, the payment deadline is the same every year:

• 31 January – for balancing payment for the previous tax year

• 31 January – for the first payment on account

• 31 July – for the second payment on account

If you miss these deadlines, HMRC will start applying late payment penalties and daily interest.

Semantic variations included:

• self-assessment penalties

• HMRC late payment fines

• tax return payment penalties

• penalty for not paying tax on time

Why HMRC Issues Late Payment Penalties

HMRC applies penalties to encourage timely payment and maintain compliance. These fines are not optional; they automatically apply once a deadline is missed unless you have a valid “reasonable excuse.”

Common reasons people receive a penalty:

• Forgetting the deadline

• Not having enough funds to pay

• Not understanding the Self Assessment system

• Assuming accountants will handle it automatically

• Changes in income not being reported

Penalties apply whether you filed the tax return on time or not. Even if your Self Assessment return is submitted, late payment still triggers penalties.

How Much Is the Self Assessment Late Payment Penalty?

HMRC applies a structured penalty system for late payment:

1. Interest from Day 1

From the moment the payment is late, HMRC charges interest. The interest rate is constantly updated by HMRC and usually remains above the Bank of England base rate. This interest continues daily until payment is made.

2. 5% Penalty After 30 Days

If your tax bill is still unpaid after 30 days, HMRC charges:

• 5% of the unpaid tax

This applies automatically.

3. 5% Penalty After 6 Months

If tax is still overdue after 6 months:

• Another 5% of the unpaid tax is charged.

4. 5% Penalty After 12 Months

If tax is still unpaid after 12 months:

• An additional 5% penalty applies again.

Total Penalties Add Up to 15% (excluding interest)

If someone leaves their payment overdue for a year, penalties may look like this:

• 30 days late: +5%

• 6 months late: +5%

• 12 months late: +5%
  Total = 15% of the unpaid tax + daily interest

Semantic phrases integrated:

• 30 day late payment penalty

• 6 month HMRC penalty

• 12-month self-assessment fine

• interest on unpaid tax

Late Filing Penalties vs Late Payment Penalties

It is important to separate:

• Late filing penalties → penalties for missing the deadline to submit your return

• Late payment penalties → penalties for failing to pay the tax due

You can receive both simultaneously.

For example:

• If you miss the filing deadline, → £100 penalty immediately

• If you also miss the payment deadline → late payment penalties apply as well

What Counts as a “Reasonable Excuse”?

HMRC may remove penalties if your situation qualifies as a “reasonable excuse.”
Examples include:

• Serious illness or medical emergency

• Bereavement (close family member)

• Fire, flood, or natural disaster

• System errors (HMRC or banking issues)

• Unexpected technical problems

• Disability or mental health challenges are preventing compliance

What HMRC does not accept:

• “I didn’t have the money”

• “My accountant didn’t file it”

• “I forgot”

• “I didn’t know I had to file”

Semantic variations used:

• reasonable excuse HMRC

• appeal self-assessment penalty

• remove tax penalties

• Challenge the late payment fine

How to Appeal a Self-Assessment Late Payment Penalty

If you believe the penalty is unfair, you can appeal.
Your appeal should include:

1. Your UTR number

2. The tax year in question

3. The amount of tax outstanding

4. A clear explanation of your reasonable excuse

5. Evidence supporting your claim (documents, medical notes, etc.)

HMRC gives you 30 days from the date of the penalty notice to appeal.

If HMRC rejects your appeal, you may escalate the case to the Tax Tribunal.

How to Avoid Self-Assessment Late Payment Penalties

Here are the most effective ways to prevent penalties:

1. Set Up a Payment Plan

If you cannot pay the full amount, HMRC allows a Time to Pay Arrangement. This stops additional penalties from building up.

2. File Early

Filing before the deadline gives you months—not days—to prepare your payment.

3. Keep Digital Records

Using accounting software or bookkeeping services prevents missing income and unexpected tax bills.

4. Work With a Professional Accountant

Accountants ensure accurate returns, help you estimate your tax bill in advance, and avoid unnecessary penalties.

5. Make Payments on Account

For self-employed individuals, payments on account prevent large unexpected tax bills.

Semantic keywords included:

• avoid HMRC penalties

• prevent late payment fines

• pay tax on time

• HMRC time to pay plan

Self-Employed vs Employed: Who Faces Late Payment Penalties?

Anyone who files a Self Assessment return can face penalties, including:

• Self-employed workers

• Sole traders

• Limited company directors

• Landlords

• Investors with dividend income

• High-income employees earning over £100k

• Individuals claiming child benefit with higher income

Self-employed individuals are more likely to receive penalties because income varies and tax is not deducted automatically.

Semantic variations used:

• self employed tax penalties

• director late payment fine

• landlord self assessment penalty

How Late Payment Penalties Affect Your Credit or HMRC History

HMRC penalties do not affect your credit score, but ignoring them can result in:

• Debt collection involvement

• Legal action

• HMRC freezing bank accounts

• Additional penalties accumulating

• Difficulty negotiating future payment plans

HMRC has very strong collection powers, so addressing late payments early is essential.

Case Study: Example of a Late Payment Penalty

Example Scenario

Tax owed: £5,000
Missed deadline by: 1 year

Penalties:

• 5% after 30 days → £250

• 5% after 6 months → £250

• 5% after 12 months → £250
  Total penalty = £750
  Interest (approx.): £100–£200 depending on HMRC rate

Total owed = £5,000 + £750 + interest

How Right Choice Consulting Can Help You Avoid Penalties

Managing Self Assessment can be confusing, especially if your income comes from multiple sources. At Right Choice Consulting, we help individuals and businesses stay compliant with HMRC requirements.

Our accountants in Harrow can help you with:

• Filing your Self Assessment accurately and on time

• Calculating your tax owed

• Setting up HMRC payment plans

• Managing payments on account

• Keeping digital records

• Reducing your tax liability legally

• Preventing late filing and late payment penalties

If you want expert support to stay penalty-free, speak to our team today and get personalised tax guidance.

Final Thoughts: Don’t Let Late Payment Penalties Build Up

HMRC takes late payment seriously and the longer you wait, the higher the penalties climb. Understanding how the self assessment late payment penalty works can help you avoid unnecessary charges and stay compliant.

Whether you’re self-employed, a landlord, or a company director, planning ahead is the best way to stay stress-free. If you’re unsure how much tax you owe or need help avoiding penalties, Right Choice Consulting is here to guide you.

Managing your savings should feel rewarding, not confusing. Yet many people in the UK struggle to understand whether interest earned on savings is taxable, what allowances apply, and how HMRC expects individuals to report their savings income. If you’ve found yourself wondering “Do I have to pay tax on savings?” you’re far from alone.

This in-depth guide explains when savings interest is taxable, how much you can earn tax-free, what the Personal Savings Allowance is, and how tax works on different types of savings accounts. We’ll also break down the rules for high earners, basic rate taxpayers, non-taxpayers, and people with multiple income streams.

By the end, you’ll know exactly whether you owe tax, how much you might pay, and how to stay compliant with HMRC rules.

What Counts as “Savings Income”?

HMRC classifies certain types of interest as savings income. You may need to pay tax on these depending on your total income and tax band.

Savings income includes:

• Interest from bank and building society savings accounts

• Interest earned from fixed-rate bonds

• Interest on current accounts (including rewards treated as interest)

• Interest from credit union accounts

• Interest from peer-to-peer lending platforms

• Interest on National Savings & Investments (NS&I) taxable accounts

• Interest from corporate bonds and government bonds (gilts)

• Interest from offshore savings accounts

• Interest paid to you by HMRC

Savings income does NOT include:

• ISA interest

• Premium Bond winnings

• Lottery or prize winnings

• Dividends (these fall under dividend tax rules)

So, if your savings interest comes from regular savings accounts, bonds, or any other taxable products, you may need to pay tax on it.

When You Don’t Pay Tax on Savings

Many people in the UK do not pay tax on savings interest because HMRC provides multiple allowances that reduce or eliminate liability. These include:

1. Personal Savings Allowance (PSA)

This is the main allowance that lets you earn a certain amount of savings interest tax-free:

• Basic rate taxpayers (20%) → £1,000 tax-free savings interest

• Higher rate taxpayers (40%) → £500 tax-free savings interest

• Additional rate taxpayers (45%) → £0 allowance

Your tax band depends on your total income from all sources (salary, rental income, dividends, pension income, self-employment, etc.).

2. Starting Rate for Savings (Up to £5,000)

This is an additional tax-free band that applies only if your non-savings income is less than £17,570 (for example, if you work part-time or receive a small pension).

You can earn up to £5,000 of interest tax-free, depending on how low your income is.

3. ISA Interest is Always Tax-Free

Any interest earned inside:

• Cash ISAs

• Stocks & Shares ISAs (interest component)

• Innovative Finance ISAs

is fully exempt from tax, regardless of how much you earn.

4. Premium Bonds Winnings Are Also Tax-Free

Any prize from NS&I Premium Bonds is not taxable, no matter how large the winning.

Do I Have to Pay Tax on Savings If I’m a Basic Rate Taxpayer?

If you’re a basic rate (20%) taxpayer, you can earn:

• £1,000 interest tax-free (PSA)

• Up to £5,000 tax-free (starting rate), if income is low enough

• Unlimited tax-free interest in ISAs

For most people, this means no tax is due unless they have large balances or high-interest savings products.

Do Higher Rate Taxpayers Pay Tax on Savings?

If you’re a higher rate taxpayer (40%), you only have a:

• £500 Personal Savings Allowance

Any interest above £500 becomes taxable at your marginal rate.

Example:

• You earn £900 interest

• £500 is tax-free

• £400 is subject to 40% → £160 tax due

Do Additional Rate Taxpayers Pay Tax on Savings?

Yes. Additional rate taxpayers (45%) get no PSA, which means all savings interest is taxable unless held in an ISA.

Example:

• £2,000 savings interest

• No PSA

• Tax due: £900 (45%)

How HMRC Collects Tax on Savings

If you are employed or receive pension income, HMRC may collect tax automatically through:

• Your PAYE tax code

• A coding adjustment in the following tax year

Often, you won’t need to do anything because banks report interest to HMRC.

However, if you earn:

• More than £10,000 in savings + dividends

• Large amounts of interest

• Offshore account interest

• Interest not reported to HMRC

…then you must file a Self Assessment tax return.

How to Calculate Tax on Savings

To know whether you owe tax, use this simple method:

Step 1: Find your total savings interest

Add up all interest from taxable accounts (not ISAs).

Step 2: Identify your tax band

Based on total income before savings interest.

Step 3: Apply the Personal Savings Allowance

£1,000 for basic rate
£500 for higher rate
£0 for additional rate

Step 4: Apply the Starting Rate for Savings (if eligible)

Only if non-savings income is below £17,570.

Step 5: Calculate tax at your marginal rate

• 20% basic
• 40% higher
• 45% additional

Tax on Specific Types of Savings

1. Cashback and Reward Current Accounts

If rewards are treated as interest, they’re taxable.
If rewards are treated as other income, they may still be taxable but fall outside the PSA.

2. Fixed-Term Bonds

Interest may:

• Be paid annually

• Be paid at maturity

• Be taxed in the year interest becomes accessible

3. Peer-to-Peer Lending

Interest earned is taxable.
Loss relief may apply if loans default.

4. NS&I Products

Different products have different tax rules:

• Direct Saver → taxable

• Income Bonds → taxable

• Premium Bonds → not taxable

• Cash ISA → not taxable

5. Corporate Bonds & Gilts

Interest is taxable unless held in an ISA.

Do Joint Accounts Affect Tax on Savings?

Interest is normally split 50/50 between account holders unless you notify HMRC otherwise (if you are married/civil partners and want different beneficial ownership ratios).

You are taxed individually based on your share.

What If You’re a Non-Taxpayer?

If your income is below the Personal Allowance (£12,570), you might still be able to claim:

• Personal Savings Allowance (£1,000)

• Starting Rate for Savings (up to £5,000)

Meaning you could earn up to £18,570 tax-free depending on your income sources.

If tax was deducted incorrectly in the past, you can request a refund.

Tax on Children’s Savings

Children normally don’t pay tax because their earnings are low.
But there’s a rule for parental gifts:

If a parent gives money that produces more than £100 interest per year, the interest is taxed as the parent’s income.

This rule does not apply to gifts from grandparents or relatives.

What Happens If You Don’t Pay Tax on Savings When You Should?

If HMRC discovers gaps in reporting, they may:

• Adjust your tax code

• Add tax to your Self Assessment

• Charge interest on late payments

• Apply penalties for deliberate under-reporting

It’s always better to report savings accurately.

How to Reduce Tax on Savings Legally

Here are effective, HMRC-compliant strategies:

1. Maximise Your ISA Allowance (£20,000)

All interest inside an ISA is tax-free.

2. Use Joint Accounts

Share interest across two PSAs.

3. Choose Tax-Efficient Savings Products

Such as gilts (often lower tax impact) or ISA investments.

4. Reduce Non-Savings Income

Some retirees structure income to access the starting rate band.

5. Use Your Marriage Allowance

If eligible, it helps minimise total tax liability.

Common Questions About Tax on Savings

Do banks take tax off savings interest automatically?

Not anymore. Since April 2016, interest is paid gross.

Do I need to tell HMRC about my savings?

Only if interest exceeds your PSA or you’re required to file a return.

Do ISA transfers affect tax?

No, ISA interest is always tax-free.

Do I pay tax if I have multiple savings accounts?

Yes, if the combined total interest exceeds your allowance.

Need Help Calculating Tax on Savings?

Understanding tax on savings is not always simple, especially when you have multiple income sources or investment accounts. If you’re unsure whether you owe tax or want help staying compliant with HMRC rules, our team can assist.

Right Choice Consulting provides expert support with:

• Savings tax calculations

• HMRC reporting

• Managing allowances

• Tax planning

• Self Assessment for savings income

Value-Added Tax (VAT) on food is one of the most complex and misunderstood areas of the UK VAT system. Whether you’re a food retailer, a café, a caterer, or a food producer, knowing exactly when VAT applies and at what rate is crucial for compliance, pricing strategy, and profitability. At Right Choice Consulting, we specialise in VAT advice, helping businesses navigate these complexities effectively.

In this detailed guide, we’ll cover everything you need to know about VAT on food, including HMRC rules, zero-rating vs standard rating, catering VAT, takeaway food, food processing, and how our VAT services can help you stay compliant.

What Is VAT on Food?

VAT on food refers to the VAT treatment applied to food and drink supplies in the UK. Not all food is treated equally: some items are zero-rated (0% VAT), while others are standard-rated (currently 20%). The classification depends on the type of food, how it is supplied, and the context in which it’s sold. Understanding these distinctions is critical for any food business.

HMRC’s VAT Rules for Food: Key Legislation

VAT treatment of food is governed by HMRC’s internal manuals and VAT Notices, primarily:

• VAT Notice 701/14 – Food products

• VAT Notice 709/1 – Catering / Takeaway food

• VAT Notice 701/40 – Food-processing services

• General VAT guidance: VAT Notice 700

These documents lay out the legal definitions and practical examples of which food supplies are zero-rated and which are standard-rated.

Zero-Rated Food vs Standard-Rated Food

Zero-Rated Food

Many essential food items are zero-rated for VAT. Under HMRC’s VAT Act (Schedule 8), zero-rating generally applies to basic foodstuffs used for human consumption, provided they do not fall into “excepted” categories.
Examples of zero-rated food include:

• Raw meat, poultry, and fish

• Fresh fruits and vegetables

• Bread and most bakery products (unless hot or treated as catering)

• Cereals, nuts, pulses

• Milk (plain, unflavoured)

Zero-rating helps food businesses reduce the VAT burden and allows consumers to purchase many staples at VAT-free cost.

Standard-Rated Food

Some food products are always standard-rated at 20%, even if sold in a retail context. According to HMRC, the following are typically standard-rated:

• Confectionery (e.g., sweets, chocolate-covered biscuits)

• Ice creams and frozen desserts

• Crisps, roasted or salted nuts, and similar savoury snacks

• Soft drinks, flavored milk drinks, and sugar-based beverages (except certain milk drinks)

VAT Treatment for Catering and Take-Away Food

When you are in the business of hospitality, the rules change. Even food that would normally be zero-rated may attract standard-rate VAT when supplied through catering.

Catering

If you run a restaurant, café, canteen, or provide any food “in the course of catering,” VAT is typically charged at 20%. This includes:

• Meals served on premises

• Meals sold as part of an event (buffets, functions)

• Workplace canteens where there is a service element

Hot Takeaway Food

Hot takeaway food is always standard-rated. If food is sold hot or has been heated or kept warm, then the standard 20% VAT applies.

Cold Take-Away Food

Cold takeaway food (food that is not heated or kept warm) can be zero-rated, but only if it does not fall into certain “excepted” categories (like confectionery or ice cream).

Special and Processed Food: When VAT Gets Tricky

Processed and Prepared Foods

Processed foods (for example, ready meals) may be zero-rated in some cases, for instance, chilled or frozen ready meals that are not part of a catering supply can be zero-rated.

However, whether VAT applies may depend on how much “preparation” has been done and whether the food is served as part of a catering supply.

Bakery Goods and Confectionery

Bakery products have special rules: many plain bread and rolls are zero-rated, but products like chocolate-covered biscuits are standard-rated.

• Zero-rated: plain biscuits, cakes, fruit cakes, wedding cakes

• Standard-rated: biscuits partially or wholly covered in chocolate, marshmallow teacakes, or other sweet treats

Food-Processing Services

If your business processes food (e.g., abattoir operations, shelling, or blending), the VAT treatment depends on what is produced:

• Services that produce new zero-rated food (e.g., slaughter and dressing animals to produce meat) may allow the whole supply to be zero-rated.

• Ancillary services (like cold storage or packaging) are generally standard-rated.

Common Pitfalls and VAT Risks in Food Businesses

Navigating VAT on food is often confusing — here are some common pitfalls:

1. Misclassifying take-away food

   • Sellers sometimes treat takeaway food as simple retail, but hot takeaway is always standard-rated.

2. Incorrectly zero-rating excepted items

   • Some foods may appear “basic” but are actually excepted (e.g., certain confectionery or ice cream).

3. Failure to account for catering supplies

   • If your business serves food on premises, treats it as catering, and charges zero VAT, you may be undercharging HMRC.

4. Confusing food processing services

   • Not all food processing qualifies for zero-rating; understanding the distinction is key.

5. Poor invoicing and documentation

   • Without proper VAT invoices or sales records, HMRC may challenge your VAT treatment.

Avoiding these errors requires a clear understanding of the law and robust accounting processes — which is where expert advice can make a big difference.

VAT on Food for Different Business Models

Retailers and Supermarkets

If you run a grocery store, supermarket, or food stall that sells packaged food, billing might be more straightforward: many “food of a kind used for human consumption” items will be zero-rated. But you’ll need to assess each product line carefully to determine the VAT treatment.

Cafés, Restaurants & Catering Businesses

For hospitality businesses, VAT on food often means standard-rate. But it’s not always black and white:

• Items consumed in the café or restaurant are standard-rated.

• Cold takeaway food may be zero-rated, provided it’s not one of the “excepted” items.

• “Eat-in” cold food that would otherwise be zero-rated may become standard-rated if treated as catering.

Food Producers and Processors

If you’re in the business of food production — such as manufacturing, processing, or packaging — you may benefit from zero-rate treatment for qualifying foods. But you must carefully check:

• What you produce (raw, processed, or prepared)

• Whether the processing qualifies under HMRC’s rules for zero-rating

• How the processed food is sold (direct to consumers or to other businesses)

Why Correct VAT Treatment Matters — for You and Your Business

Getting VAT on food right is not just a legal requirement — it impacts your business in very real ways:

• Pricing: If you charge the wrong VAT rate, your prices may be too low (eating into profit) or too high (discouraging customers).

• Cash Flow: Over-charging VAT or under-reclaiming input VAT can distort cash flow.

• Compliance Risk: Incorrect VAT treatment may lead to assessments or penalties by HMRC.

• Profitability: By optimising VAT treatment, you can minimise costs legally — especially for food businesses with low-margin items.

How Right Choice Consulting Can Help You with VAT on Food

At Right Choice Consulting, we specialise in VAT advisory services tailored for food businesses from retailers to caterers, restaurateurs to food processors. Here’s what we offer:

• VAT Rate Analysis: We help you classify your food items correctly (zero-rated or standard-rated), based on HMRC’s VAT Notice 701/14, Notice 709/1, and Notice 701/40.

• VAT Compliance: We ensure your invoicing, reporting, and VAT returns are correct and minimise the risk of errors.

• Cash-flow Optimisation: We help you manage your VAT liabilities and maximise input VAT recovery where possible.

• Training & Advice: We can train your team or set up systems to handle VAT on food properly, whether you’re expanding, launching a takeaway, or scaling production.

For tailored VAT support for your food business, check out our VAT Services in Harrow.

Advanced Topics & VAT Planning for Food Businesses

VAT Planning for Catering & Events

If your business offers event catering (corporate events, weddings, buffets), the VAT planning opportunities are significant:

• You can segment your supply between zero-rated food and standard-rated catering.

• Structuring your service (e.g., deliveries, self-serve vs full-service) can optimize VAT liability.

• Proper invoicing (breaking out food, service, staffing) helps you support your VAT treatment in case of an HMRC enquiry.

Food Donations & VAT

If you donate food (e.g., to charities), VAT treatment depends on whether it’s “food of a kind used for human consumption.” This can impact allowable VAT recovery on stock. Expert advice ensures you do this correctly and benefit from VAT relief where possible.

Exporting Food

If you export food, VAT treatment changes again: many exports are outside the scope or zero-rated, depending on the destination and customer. Planning for VAT on exported food requires careful documentation and understanding of cross-border VAT rules.

Frequently Asked Questions (FAQ)

Q: Why is some basic food zero-rated for VAT?
A: Because HMRC considers most essential food items as “food of a kind used for human consumption,” which falls under Schedule 8 of the VAT Act 1994.

Q: Does VAT apply to takeaway food?
A: Yes, it depends: hot takeaway food is always standard-rated (20%), whereas cold takeaway food may be zero-rated if it doesn’t fall into excepted categories.

Q: What about food served at a wedding or event?
A: That’s usually treated as catering under VAT rules, meaning standard-rated VAT applies.

Q: Are all processed foods standard-rated?
A: Not necessarily. Some processed foods, like chilled ready meals, can be zero-rated — it depends on the type of processing and how the food is supplied.

Q: Can I reclaim VAT on food I buy for my business?
A: Yes, if your business is VAT-registered, you can reclaim input VAT on food purchases, subject to rules and whether you’re using the food in a way that aligns with HMRC classification.

Q: How can I make sure my food business handles VAT correctly?
A: By working with VAT specialists who understand the complex food VAT rules, like those at Right Choice Consulting. We help you classify, invoice, claim, and report properly.

Conclusion

VAT on food in the UK is a nuanced and technical area of tax law. From zero-rated basics to standard-rated catering supplies, there are many traps and optimisations that food businesses must navigate. Whether you run a café, a takeaway, a restaurant, or a food manufacturing business, correct VAT treatment is essential for compliance, cash flow, and profitability.

At Right Choice Consulting, we bring deep expertise in VAT, accounting, and tax planning for food businesses. Our tailored VAT services ensure you’re charging the right VAT rate, reclaiming input VAT correctly, and minimising risk.

When someone says “I earn £100,000 a year”, that sounds like a lot. But what really matters to most people is their take-home pay, or how much they keep after tax and National Insurance (NI). At Right Choice Consulting we know that understanding your actual net income is key to financial planning, budgeting and knowing whether you’re better off as an employee or self-employed. In this guide we explore what “£100k after tax” means in the UK tax year 2025/26, what the breakdown is for employee vs self-employed, and how you can smartly reduce your tax burden.

Understanding What “£100k after tax” Means

The phrase “£100k after tax” can be misleading. It could mean:

• You want to take home £100,000 net (after all tax/NI) – in which case your gross income must be higher.

• You earn a gross £100,000 and want to know what you’ll actually receive after deductions.

For most readers, this second scenario applies. You have a gross salary of £100,000, and you ask: how much will I keep?
Getting this number right helps with lifestyle decisions (home purchase, investment, savings) and also helps when comparing employment vs self-employment, or planning for pension contributions. At Right Choice Consulting, our accounting and payroll services help clients map gross to net accurately.

UK Tax Rates for 2025/26 (HMRC Verified)

To calculate take-home pay, we must first understand the UK tax system. For the tax year running from 6 April 2025 to 5 April 2026:

• The standard Personal Allowance is £12,570.

• Income Tax bands:

  • 0 % on taxable income up to £12,570.

  • 20 % (“basic rate”) on taxable income from £12,571 to £50,270.

  • 40 % (“higher rate”) on income from £50,271 to £125,140.

  • 45 % (“additional rate”) on income over £125,140.

Important special rule: If your income exceeds £100,000, your Personal Allowance starts to taper (reduce) by £1 for every £2 earned above £100,000, and is fully lost when income reaches £125,140.
For National Insurance (NI), for employees:

• The Primary Threshold for Class 1 employee contributions is £242 per week (≈ £12,570 annually)

• 8 % on earnings between £242 and £967 per week.

• 2 % on earnings above the Upper Earnings Limit (£967 per week).

Armed with these figures, we can estimate net pay for someone earning £100k.

Take-Home Pay for a £100,000 Salary in 2025/26

Employee scenario – gross salary £100,000

Let’s walk through the calculation step by step (approximate).

Gross salary: £100,000
Personal Allowance: Normally £12,570, but since the income is £100,000, the allowance is reduced: the taper begins at £100,000; however, at exactly £100000, the allowance is still full. Hence allowance = £12,570.
Taxable income = £100,000 – £12,570 = £87,430.

Income Tax:

• First £37,700 of taxable (i.e. from £12,571 to £50,270) at 20% = £37,700 × 20% = £7,540

• Remaining taxable (£87,430 – £37,700 = £49,730) at 40% = £19,892

• Total Income Tax ≈ £7,540 + £19,892 = £27,432

National Insurance:

• Earnings above £12,570 up to £100,000 = £100,000 – £12,570 = £87,430

• From £12,570 to upper limit (£50,270) etc we can approximate: NI at 8% on earnings between £12,570 and £50,270 → £37,700 × 8% = £3,016

• Then NI at 2% on earnings above £50,270 (which is £100,000-£50,270 = £49,730) → £49,730 × 2% = £995

• Total NI approx = £3,016 + £995 = £4,011

Net (take-home) pay: £100,000 – £27,432 – £4,011 = £68,557 approx
Monthly take-home ≈ £5,713; Weekly ≈ £1,318.

Important note on Personal Allowance taper

If you earn somewhat above £100,000 your allowance reduces. For example, at £110,000 your allowance would be £12,570 – (£10,000 ÷ 2) = £7,570 (because £10k above £100k means £5k reduction), making taxable income higher and effective tax rate greater. This is often called the “lost allowance” zone.

Summary table

• Gross: £100,000

• Income Tax: ~£27,432

• National Insurance: ~£4,011

• Approx Take-Home: £68,557

At Right Choice Consulting, we help clients run these calculations for their personal circumstances and show how small adjustments (e.g., pension contributions) can raise the net figure.

Self-Employed Income – £100k After Tax

If instead you are self-employed (sole trader) earning £100,000 profit before tax, the calculation is slightly different: you pay Income Tax (same bands) plus Class 2 and Class 4 National Insurance, not Class 1.

For illustrative purposes:

• Assume profit £100,000, no other reliefs.

• Personal Allowance still £12,570, taxable income £87,430 (as above) → Tax ~£27,432.

• Class 4 NI: rate is 9% on profits between £12,570 and £50,270, and 2% above that (2025/26). Rough calculation:

  • £37,700 × 9% ≈ £3,393

  • £49,730 × 2% ≈ £995

  • Total Class 4 NI ≈ £4,388

• Class 2 NI is a flat, small amount (approximately negligible for this scale).

• Estimated net = £100,000 – £27,432 – £4,388 = ≈ £68,180

The difference between employee vs self-employed isn’t huge at exactly £100k for these approximations, but depending on deductions, pension contributions, expenses, the self-employed may have more scope to reduce taxable profit, and hence net income can vary. Our Payroll and Bookkeeping Services assist businesses and sole traders in maximising net income legally.

Reducing Your Tax Legally

If you’re aiming to keep more of your £100k income:

• Pension contributions: By contributing to a pension scheme, you reduce your taxable income.

• Salary sacrifice: For employee,s you may sacrifice salary into a pension or other benefits, reducing tax and NI.

• Allowable expenses: If self-employed, ensure you claim all business expenses before profit.

• Charitable donations / Gift Aid: Can reduce higher-rate tax liability.

• Review structure: Sometimes, working through a limited company may give advantages (depending on circumstances).
  At Right Choice Consulting, our Accounting Services include tailored tax planning to maximise income after tax while fully compliant with HMRC.

How Right Choice Consulting Can Help

Whether you’re an employee earning £100k or a business owner/self-employed individual, our accountants in Harrow aids in:

• Accurate net income projections (give you your true “100k after tax” figure).

• Structuring payroll and company affairs (via our Payroll Services).

• VAT, corporation tax, compliance — we link all your accounting needs.

• Planning for changes: e.g., pension changes, bonus income, self-employment profits.
  For a tailored assessment, visit our Contact Us page or request an Instant Quote.

Frequently Asked Questions

Is £100k a good salary in the UK?
Yes — it is above the UK average and places you in a relatively high income bracket. But taxes and living costs (especially in London) mean net income matters more than gross.

How much tax would I pay if I earn £100k?
As we outlined: ~£27,432 income tax plus ~£4,011 NI (if employee), leaving approx £68,557 take-home for tax year 2025/26.

What’s the difference in take-home between being employed vs self-employed, earning £100k?
Approximately £300-£500 difference in our scenario, but the actual difference depends on expenses, pension contributions, and tax planning.

How can I pay less tax legally?
Use pension contributions, salary sacrifice, and deductible expenses (if self-employed), and make sure your accounting and tax filing is optimised.

Final Thoughts – Plan Smart, Keep More

Earning £100,000 is a strong position — but what matters is how much you take home. With the tax year 2025/26’s fixed thresholds and tapering of allowances after £100k, that net figure is crucial. At Right Choice Consulting we advise that you don’t just focus on gross; you focus on net income, tax planning and efficient payroll/accounting. If you’d like us to calculate your precise net income and suggest ways to improve it, we’re ready to help.

When it comes to vehicle parking, VAT may not be the first thing that comes to mind — yet it plays a crucial role for both businesses and individuals. Whether you operate a car park, rent out parking spaces, or simply claim parking expenses, understanding VAT on car parking is essential for compliance and cost efficiency.

At Right Choice Consulting, our tax experts specialise in clarifying complex VAT rules. This detailed guide explains how VAT applies to parking, who should charge it, and how businesses can reclaim it correctly.

What Is VAT on Car Parking?

VAT (Value Added Tax) is charged on most goods and services supplied in the UK. When it comes to parking, VAT rules depend on:

• Where the parking occurs (on-street or off-street),

• Who provides the parking (local authority or private operator), and

• How the charge is classified (supply of parking or statutory fee).

If you operate a private car park, offer paid parking at your business premises, or manage off-street spaces, you’ll most likely need to charge VAT at the standard rate of 20%.

For professional help managing VAT obligations, explore our VAT Services in London.

On-Street vs Off-Street Parking: Key Differences

On-Street Parking

On-street parking usually refers to bays or meters provided by local authorities. These services are considered part of the authority’s statutory duties, not a business activity. Therefore, such parking is outside the scope of VAT — no VAT is charged, and none can be reclaimed.

Off-Street Parking

Off-street parking includes spaces in car parks, garages, or other private facilities. Since this involves a commercial transaction, VAT is chargeable at 20%.
For example:
If a car park charges £10 for an hour’s stay, this amount includes £1.67 VAT. The operator keeps £8.33 as revenue and pays £1.67 to HMRC.

If your company provides or manages parking for clients, our Accounting Services team can help you correctly record and report VAT on these transactions.

When VAT Does Not Apply to Parking

VAT doesn’t apply in every case. Some parking activities are exempt or outside scope, such as:

• On-street parking managed by local councils.

• Penalty charges or fines for overstaying time limits — these are not considered payment for a supply.

• Free parking — where no fee is charged, there’s no taxable supply.

• Certain public service or charitable facilities, if not operated commercially.

If you’re unsure which category your parking activity falls under, speak to our experts via Contact Us.

VAT Rate and Threshold for Parking Operators

The standard VAT rate in the UK is 20%. Any private operator or business supplying off-street parking must register for VAT if their taxable turnover exceeds £90,000 per year (current HMRC threshold as of 2025).

Once registered, you must:

• Charge VAT at 20% on parking fees.

• Issue VAT invoices showing the net, VAT, and total amounts.

• Submit VAT returns and pay the tax due to HMRC quarterly or annually.

If you’re unsure about registration, our team at Right Choice Consulting can assess your turnover and help you stay compliant with VAT registration requirements.

Reclaiming VAT on Parking for Business Use

Businesses often incur parking expenses during travel or client meetings. The ability to reclaim VAT on parking depends on two key factors:

1. VAT must have been charged — off-street parking is VATable, on-street is not.

2. The expense must be for business purposes.

Example:
A VAT-registered consultant pays £15 to park in a private car park while attending a client meeting. Since the operator charged VAT, the consultant can reclaim £2.50 as input tax.

However, if parking is used personally or not directly related to business, the VAT cannot be reclaimed. For more help managing such expenses, visit our Bookkeeping Services page.

Common Scenarios and Their VAT Treatment

If you manage or rent spaces and want clarity, our VAT specialists can help interpret complex scenarios accurately.

Special Considerations for Businesses and Landlords

Parking Provided to Employees

If you offer parking to employees, VAT treatment depends on whether it’s a business expense or a benefit in kind. Typically, VAT on the cost of employee parking can be reclaimed if it’s necessary for business operations.

Leasing or Renting Parking Spaces

Letting or leasing a parking space can sometimes be exempt from VAT if it falls under property letting rules rather than commercial supply. However, most short-term or public parking leases remain standard-rated.

Our Company Formation and VAT teams work together to ensure that newly formed businesses apply the correct VAT treatment from day one.

Avoiding VAT Mistakes on Parking

VAT errors are common in the parking industry — and costly to fix. Here are some frequent mistakes to avoid:

1. Assuming all parking is VAT-free. Only on-street parking is outside VAT.

2. Charging VAT on penalties or fines. These are not taxable supplies.

3. Failing to register for VAT once turnover exceeds £90,000.

4. Incorrectly reclaiming VAT on personal or mixed-use parking.

5. Misclassifying a parking lease as a service rather than property letting.

For ongoing compliance, consider a consultation with our Tax Specialists to review your VAT processes.

How Right Choice Consulting Helps with VAT on Parking

At Right Choice Consulting, we provide a complete range of VAT and accounting solutions for businesses across the UK. Our services include:

• VAT Registration & Compliance — Ensuring your car park or parking facility is VAT-registered correctly.

• Bookkeeping & Record Keeping — Managing VAT invoices and reconciliation for parking income and expenses.

• Tax Planning — Helping businesses structure parking and property income efficiently.

• HMRC Liaison — Managing VAT returns, audits, and any queries from HMRC.

You can explore more about our Accounting Services or request a personalised consultation through our Instant Quote.

Example: VAT Breakdown for Car Park Operators

Let’s illustrate how VAT works in practice:

Scenario:
A VAT-registered parking operator charges £5 per hour.

• Net price: £4.17

• VAT (20%): £0.83

• Total charged: £5.00

For every £5 collected, £0.83 must be paid to HMRC as output VAT.
If the operator incurs business expenses (e.g., maintenance, ticket machines, or cleaning) that include VAT, they can reclaim that input VAT to reduce their liability.

Key Takeaways

• Off-street parking is subject to VAT at 20%.

• On-street parking by councils is outside the scope of VAT.

• Penalty fees and fines are non-taxable.

• Free parking has no VAT implications.

• Businesses can reclaim VAT on valid parking expenses.

• Operators must register if their taxable turnover exceeds £90,000.

If your business provides or uses parking services, proper VAT handling can prevent costly mistakes and improve cash flow.

Final Thoughts

Understanding VAT on car parking can save your business time, money, and stress. At Right Choice Consulting, our goal is to simplify VAT compliance for companies of all sizes. Whether you operate a parking facility, lease spaces, or simply pay for parking as part of daily operations, we can help you:

• Identify VAT-able and non-VAT-able activities.

• Maximise VAT reclaims.

• Ensure compliance with current HMRC rules.

To discuss how VAT rules affect your parking business, contact our experts today or get an instant quote for tailored VAT support.

PAYE

Tax code changes

The emergency tax code for the 2023/24 tax year remains at 1257L, and there are no uplifts in tax codes.

The tables below show the bandwidths for the rest of the UK, Scotland and Wales.

Rest of UK Bandwidths & Rates

National Insurance

Earnings bands

NI Category A Rates

Statutory payments

The Statutory payments rates are changing from 6 April 2023.

Statutory sick pay

Employees on weekly earnings greater than or equal to the Lower Earnings Limit are entitled to a statutory weekly rate of £109.40 from 6 April 2023.

New statutory sick pay rates:

Parental pay and leave

The rates below come into effect from the first Sunday in April.

New Parental pay and leave rates:

Student loans

When you set up a student loan deduction for an employee, you must specify whether they’re on Plan 1, Plan 2 or Plan 4.

Employment allowance

For the 2023/24 tax year, Employment allowance is £5,000.

National minimum / living wage rates

The following rates are effective from 1 April 2023.

Apprenticeship Levy

The Apprenticeship Levy Allowance is set to £15,000.

The Apprenticeship Levy Rate is set to 0.5%.

You’d be surprised by how many people earning over £100,000 are not aware that they need to do a tax return. In fact, it catches loads of people out year on year because having to do a tax return for being a high earner is not widely publicised by HMRC. They’re not deliberately trying to catch you out, but they do assume that it’s common knowledge.

And if we can be sure of anything to do with tax, it’s that very little is common knowledge to anyone but accountants!

What changes when you earn over £100k?

Let’s first talk about the Personal Allowance. The Personal Allowance lets you earn the first portion of your income tax-free. In the 2021/22 tax year, this portion is the first £12,570 that you earn. People that earn less than £12,570 don’t pay Income Tax on their earnings.

When your income is higher than £100,000, your eligibility for the Personal Allowance reduces on a sliding scale. And this affects you if you’re employed, self-employed, employed and self-employed etc. Basically, no matter what tips your overall earnings over the £100,000 threshold, you’ll still be affected by this rule.

For every £2 that you earn over £100,000, you lose £1 of your Personal Allowance. This change in your taxable income is called your adjusted net income. When you reach £125,140, you lose your tax-free entitlement totally.

Why do I need to do a tax return?

HMRC need to check that your adjusted net income is correct. They estimate the tax you should be paying via your tax code. But if your tax code is wrong, you could be hit with a hefty tax bill each January.

What most people also don’t know is that ensuring that you’re on the right tax code is your responsibility, not HMRC’s 🤯

We therefore recommend that you check your tax code at the start of each tax year to make sure that you’re on the right one. Also if HMRC ever issue you with a new code, you should get in touch with them to make sure that it’s the correct one based on your circumstances. That allows you to get it sorted as early as possible, in case you do in fact owe money.

Things to be aware of

• Being taxed via a salary (PAYE) doesn’t guarantee that you’re on the right tax code
• The earlier you do your tax return, the sooner you know what you’ll owe (or be owed) on 31st January
• When you earn between £100,000 and £125,700, you pay 60% tax – here’s what you can do to avoid it
• If you owe less than £3,000 in tax, you can pay this via PAYE if you file by 30th December but be careful doing this if you were on the wrong tax code because it may cause more confusion
• Things that can tip your income over the £100,000 mark without you realising are:
  • Bonuses
  • Company shares vesting

Our advice?

Get your tax return sorted as early as possible after the new tax year begins so that you can get prepared to save, should you need to.

What’s the Most Tax Efficient Director’s Salary in 2022/23?

As a director you’re legally separate from your limited company, even if you’re also the owner. This means that you’re not allowed to simply keep the profits for yourself in the same way that a sole trader can.

Instead, you’ll need to decide how much to pay yourself. The most tax-efficient way to take an income from your own limited company is normally through a combination of a low salary (in the same way an any other employee) and dividend payments.

Why should I pay myself a director’s salary as well as dividends?

As a director, you’re technically an employee of your own limited company. Employers and employees both pay National Insurance Contributions (NICs) on salary payments, but not on dividends, so it makes sense to pay yourself a smaller salary and make up for it with dividend payments.

But the good thing about taking a salary is that is means you have regular income throughout the year which, because directors are ‘office holders’, can be below minimum wage without breaking any rules.

So how much should you pay yourself from your own company? Paying yourself as a company director is actually a bit of a balancing act in order to be as tax efficient as possible.

To get the balance right you’ll need to consider National Insurance contributions as an employee and employer, how many people there are in the business, tax allowances for dividends and for income, tax relief for employee salaries, and even the benefits of making qualifying payments for the State Pension.

Sit tight, and we’ll talk you through director’s salaries, and what the optimum amount to pay yourself is. We know it can be confusing, so get an instant quote online if you need more help!

National Insurance and director’s salaries

The thresholds for employer’s and employee’s NI are different, so this has an impact on the amount of salary that you take. If you take a salary from the business and it’s higher than the National Insurance threshold (the point at which you start paying National Insurance) for both employer and employee NI:

• Your company, as your employer, has to pay employer’s National Insurance Contributions.
• You, as the employee, pay National Insurance on the salary that your company pays you.

It basically means you’re paying National Insurance twice on the same money – which isn’t very tax efficient at all!

The 2022/23 NI thresholds for employers and employees are shown in our table below. The threshold for employers is actually lower, so they start paying NI sooner than employees.

If you need to refer to the figures for 2021/22, you can view them in our tax rates article.

2022/23 Employer and employee National Insurance thresholds

Qualifying for the State Pension

Taking a salary which is higher than the Lower Earnings Limit (£6,396 per year in 2022/23) allows directors to build up qualifying years for their State Pension.

If your salary is above the LEL but below the Primary Threshold (£9,880) then you’ll accrue all the benefits of NI, without actually paying it. This will affect how much State Pension you are entitled to once you pass state retirement age.

Using the tax-free Personal Allowance on your director’s salary

Your Personal Allowance is the amount you are allowed to earn before you have to start paying income tax.

In 2022/23, the Personal Allowance is £12,570.

You only pay tax on the part of your income that is above the Personal Allowance threshold. For instance, if you earn £14,000 in a year, you’ll only pay income tax on £1,430 of it.

£14,000 (salary) – £12,570 (tax free Personal Allowance) = £1,430. The amount subject to income tax is £1,430.

If you take a salary from your limited company which is below the Primary Threshold for National Insurance (£9,880) you won’t pay tax or NI on it.

Paying tax on dividends

It’s worth noting that although they’re not subject to NI, dividends are subject to tax, but at a different rate to normal income tax. The good news is that there is also a separate dividend tax allowance that you can use on top of the Personal Allowance.

In 2022/23, the Dividend Allowance is £2,000.

Salaries are an allowable expense for Corporation Tax

A limited company pays Corporation Tax on the profit that it makes throughout the year. Claiming tax relief on allowable expenses reduces the amount of profit, therefore reducing the amount of Corporation Tax which the company pays.

Salaries are an allowable expense, so if you’re a company director then paying yourself a salary from the business can help you lower your corporation tax bill.

How does the NI Employment Allowance affect director’s pay?

Thanks to the Employment Allowance, the optimum salary for a company director also depends on how many other people there are in the business.

In 2022/23 eligible employers can use the Employment Allowance to claim up to £5,000 in order to cover the costs of employer’s National Insurance.

To be eligible, employers must have at least 1 employee, or 2 directors, on the payroll, and the directors must not have another company that is claiming the Employment Allowance already. This means that sole directors can’t claim the allowance, which is why the optimum salary is a bit different for them.

2022/23 Director’s salaries – How much should I pay myself from my limited company?

Considering all the taxes and allowances together, the most tax-efficient salary for a limited company director depends on whether they’re a sole director, or there are more people in the business.

• The optimum salary for a sole director in 2022/23 is £9,100.
• The best salary if there are two or more directors is £11,908.

What is the best company salary for sole directors in 2022/23?

The most efficient salary for sole directors in 2022/23 is 

£758.33 per month.

If you’re the sole director and pay yourself a salary through your own limited company, the best amount to pay yourself is £9,100 per annum (or £758.33 a month). This is because:

• It’s at the secondary threshold so your company won’t need to pay employer’s NI on it.
• This salary is lower than the primary threshold, so you won’t need to pay employee’s NI.
• It’s above the Lower Earnings Limit, so you will still earn NI credits, which is great news for your state pension.
• This is less than the tax-free Personal Allowance threshold.
• A sole director cannot claim the Employment Allowance.

What is the most tax efficient salary for two or more directors in 2022/23?

Having 2 or more directors on the company payroll means that you’re eligible to claim the Employment Allowance. In 2022/23 the primary threshold will increase mid-year.

This means that the point at which you start paying employee’s NI will be £9,880 until July 2022, when the threshold increases to £12,570. Over the year, the optimum salary in a company with two or more directors is £11,908

The most efficient salary for 2 or more directors in 2022/23 is 

£11,908.

This is because two or more directors can take an annual salary up to the primary threshold without needing to pay employee’s NI, and then claim the £5,000 Employment Allowance to cover the portion of employer’s NI they would otherwise incur.

What if I have another source of income?

The optimum amount for director’s payroll takes advantage of the Personal Allowance (£12,570), but if you are already using it up because you have other income from elsewhere, then director’s payroll becomes PAYE payroll, and subject to tax and NI as normal.

Now that we are approaching the end of the year, we are all starting to think about our taxes, and as the tax deadline is just a few months away, the sooner you get your self-assessment tax return file prepared, the better. This will also save you from a lot of worries. With that being said, are you planning to prepare everything all by yourself, or do you need the help of an accountant to get your job done? Well, it is always a better idea to hire an accountant who would do the job for you in a better and more professional way. So, let us have a look at some of those people for whom it is really important to hire an accountant for their tax return.