What taxes does a small limited company owner need to know about?
Posted on 30th September 2021
Running your own business can be very rewarding; choosing your own hours, doing work that you enjoy and being your own boss. Working for yourself can also be challenging, especially when it comes to the admin and filing your taxes correctly.
As a company director, this guide will help you to understand what is needed for you to stay compliant.
Which taxes do I need to pay?
This guide will cover the following:
Corporation Tax
Income Tax
National Insurance
VAT
Business Rates
Corporation Tax
What is it?
Corporation Tax is applied to any profit made by a limited company after paying salaries and expenses, but before any dividends* are paid out.
*Dividends are payments made to any shareholders out of the profits from your limited company after your Corporation Tax is paid. This can be a more tax-efficient way for company directors to pay themselves.
How is it calculated, what do I need to report, and what deadlines are involved?
Corporation Tax is currently calculated on profits at a fixed rate of 19%. There is no threshold, or tiers.
If you have a UK-based limited company, then you are required to pay this Corporation Tax annually to HMRC with the payment being due 9 months and 1 day after the end of your company financial year.
You will need to submit a Corporation Tax Return (CT600) form with your company accounts, which must detail your company income, minus any business expenses or tax allowances. This CT600 must be submitted within 12 months of the end of your company financial year.
When claiming expenses, you must ensure that they’re “wholly, exclusively and necessary” for business purposes. HMRC rules on what you can and cannot claim are complex, and as expenses can have an impact on how much Corporation Tax you pay, getting this right is an important part of running a successful business. If you’re unsure on what you can claim, please contact us for further advice. This is where working with an accountant reaps rewards! – we know what you can and can’t claim and can guide you.
Income Tax
What is it?
Income Tax is paid on the income you receive from the company; this includes salary and dividends. You will also need to report any additional income you have outside the limited company i.e. rental income and bank interest. To find out more about Income Tax Rates and Personal Allowances visit GOV.UK.
Also worth noting that if you sell any assets, such as property that is not your main residence or company shares, then you will need to pay Capital Gains Tax.
How is it calculated?
As a Limited Company Director who draws a salary above the Personal Allowance**, your Income Tax will need to be paid via your company’s Pay As You Earn (PAYE) scheme. In order to be tax compliant, you will need to set up a PAYE scheme in order to pay yourself and any employees a salary. We offer a Payroll Service which covers all PAYE requirements, click here to find out more.
** Personal Allowance is the amount you’re allowed to earn in any given tax year (a tax year runs from 6th April to 5th April) before you start paying Income Tax.
The deadline for the submission of your Self-Assessment form and the payment of your tax to the HMRC is the 31st January each year. There may also an extra Payment on Account due by the 31st July each year.
We aim to prepare Self-Assessment Tax Returns promptly after the end of the tax year (5 April) with over 65% of our clients having received their Tax Return for 2020/21 by 31 July 2021!
National Insurance
NIC’s are National Insurance Contributions and by paying this tax you can build up your state pension entitlement, help pay for public services and also help you qualify for other state benefits.
You are required to pay National Insurance if you are over 16 and you’re a Limited Company Director or employee earning over the NI Primary Threshold.
As a Limited Company Director, you’re classed as an employee rather than self-employed. If you pay yourself a salary above the NI Secondary Threshold, you will need to also need to pay Employer’s National Insurance.
We provide a tax efficient salary recommendation each tax year to our clients. This usually hits inboxes in March ahead of the new tax year.
For more information on National Insurance rates, please refer to the GOV.UK website.
How to pay your National Insurance
As a Limited Company Director, any NI contributions must be paid to the HMRC via your PAYE payroll.
For a simple one-page guide to how limited company taxes impact your take home pay, and money in your pocket, see our infographic here. This shows 2021/22 Tax Rates. If you are reading this blog late, see our Resources page for the latest information.
VAT
Value Added Tax is added to the price of most services and goods. As a Limited Company you can register for VAT. Once you’re registered, you must then charge VAT to your customers. Being VAT registered will also allow you to reclaim any VAT paid on any business purchases or expenses.
You do not need to register for VAT unless your annual turnover exceeds the VAT Threshold (for 2020/2021 this is £85,000) or if you decide to voluntarily register for VAT.
If you want to know more about the types of VAT schemes available and why you might consider registering for VAT, even when you’re below the threshold, please contact us to discuss.
How to pay your VAT
VAT is paid every quarter starting from your company registration date. All returns must be submitted to the HMRC and paid using the GOV.UK website.
If your business’ annual turnover is below £150,000, you may benefit from registering with the HMRC for the VAT Flat Rate scheme. This scheme simplifies VAT reporting for smaller businesses. We can assist you with this, click here to find out more.
Business Rates
If your limited business is based in a non-domestic building, for example an office or a warehouse, the you will most likely have to pay business rates.
How to pay your Business Rates
You will receive a bill for these rates from your local authority, usually around February or March each year. This bill will account for the financial year starting on the following 1st of April. You can choose to pay these rates in monthly instalments and details of how to pay should be included with the bill.
How we can help
If you own a Limited Company or are thinking about setting one up, you can contact us and we’ll help you through all the required compliancy involved in paying your limited company taxes.
Written by
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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