How does tax work for Online Business?

Do online business pay Tax? Many entrepreneurs get so worried by this question they don't even start. It's surprisingly simple. In this article you'll learn expenses you can claim, to be a Ltd company or sole trader, managing international payments and if you pay tax when you travel. As well as money you might make back now.

As a nation, we are poorly educated on tax and accounting adding to the uncertainty about having your own business.

Here are 5 common financial questions about our online business and the best practices we’ve learnt along the way.

1. Do I need to set up a LTD company?

For most online business owners, operating as a sole trader (self-employed) makes sense until you’re consistently making around £90,000 in profit. This approach keeps things simple while allowing you to manage your tax obligations effectively. Once you hit that threshold, an Ltd company may become more tax-efficient.

2. How Does Tax Work When You’re Self-Employed/a Sole Trader?

  • As a sole trader, your tax is based on your profit—total income minus deductible expenses. For example, if you made £50,000 in sales but had £10,000 in expenses, your taxable profit would be £40,000.
  • You do this by doing a self-assessment for HMRC (check out the support-guides here)
  • UK Income Tax Rates:
    • 0% on profits up to £12,570 (Personal Allowance)
    • 20% on profits between £12,571 and £50,270
    • 40% on profits between £50,271 and £125,140
    • 45% on profits over £125,140
  • National Insurance Contributions (NICs) are optional. If you are not otherwise employed you need to make a certain number of years of contributions if you want a state pension. you don’t need to pay them twice.

3. What’s an Expense? Why should you track them Now?

Any cost incurred running your business, for example:

  • Home office costs (rent, utilities, office supplies)
  • Travel expenses (accommodation, flights, meals for business purposes, even coffee)
  • Software & tools (subscriptions to accounting software, design tools)
  • Marketing & advertising (website hosting, social media ads)
  • Professional fees (legal, tax advice)
  • Equipment related to your business/content (Laptops, clothing, cameras, sports equipment)

If you’re paying Tax in another job business and you’re spending money on any of the above for your online business you are likely eligible for tax rebates (tax refunds). Those losses also get taken into account if you make a profit in another year so you’ll pay less tax.

XERO will help you track and categorise your income and expenses and correctly fill out your self-assessment. Alternatively, you can just give an accountant access to your XERO account and they can do it for you. Accountants can be as little as £25 a month and will most likely pay for themselves in savings and rebates: Get accountancy quote here

It’s also worth having a separate bank account to keep things simple our favourite is Revolut

4. Do you need to pay taxes if you are travelling/living abroad?

Technically, no, but it’s often worth doing. If you own property in the UK, then yes, you’ll likely need to pay tax. Otherwise, factors like your income sources, work abroad, days spent in the UK, and family ties are assessed under the Statutory Residence Test (SRT).

While much of my own income is international, I choose to pay UK tax and national insurance to benefit from the NHS and the state pension—it’s worth it. Plus, if you’re looking to get a mortgage in the UK or apply for a permanent visa abroad, having tax records is essential.

5. Managing International Payments

  • A multi-currency account like Revolut is essential for digital nomads, frequent travellers and online business owners because you can:
    • Receive commissions in various currencies without hefty conversion fees.
    • Spend abroad without transfer fees using the interbank exchange rate.
    • Track worldwide income and expenses.

As a UK tax resident, you should include foreign earnings and foreign expenses. If you’re a non-resident, you generally pay tax only on UK income.

Services like Revolut paired with XERO make this simple. Consult a tax advisor for clarity on your obligations.

Next Steps:

To your continued success and adventure!

Not started your business yet? Click the links below to invest in training. Don’t forget to record it as an expense.

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How does tax work for Online Business?

Do online business pay Tax? Many entrepreneurs get so worried by this question they don’t even start. It’s surprisingly simple. In this article you’ll learn expenses you can claim, to be a Ltd company or sole trader, managing international payments and if you pay tax when you travel. As well as money you might make back now.

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