Level 2 Business and Economics: External Influences

Changes to Tax Rates

Businesses are subject to a number of different taxes. Not only do they have to ensure that they administer and pay these taxes, but when they change, they can affect businesses in different ways. The main business taxes are as follows:

• Corporation Tax - a tax on the profits a company makes. Not every company will have to pay corporation tax - the amount depends on the size of the business and its turnover. For small companies making profits of between £50,000 and £300,000, the rate is 19%. For larger companies, the main rate is 30%
• Value Added Tax (VAT) - Most companies will have to pay 17.5% on the value they add during the production process. Some goods are exempt from VAT and companies who turnover less than £60,000 do not have to register to pay VAT
• National Insurance - This is a tax that is paid by both the employer and the employee. The revenue collected goes in part to fund the state pension. Businesses must pay between 11 and 12.8% of an employee's salary in NICs (National Insurance Contributions) to the government.
• Business Rates - Most businesses pay business rates. This is a tax levied by the local authority to help pay for services provided by local councils. The rate depends on the value of the businesses premises.
• Duties - Businesses in some industries have to pay other taxes to the government - duties on spirits, alcohol, tobacco and so on. Businesses that trade abroad might have to pay various import or export duties.
• Environmental Taxes - these are taxes imposed on businesses on the waste they produce (Landfill Tax) the Climate Change Levy (a tax on pollution) and an Aggregates Levy for businesses involved in quarrying.

It is not just the paying of the taxes that can affect a business; all the paperwork involved takes up valuable time and resources too. Copyright: Linda Long, from stock.xchng.

In addition to these taxes, businesses have to administer the payment of income tax for any employees. This all increases the costs of production for a business.

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