Operating as a limited company (Ltd) comes with a range of tax obligations. Here, we dive into the different types of taxes you’ll come across as an owner of a limited company and cover the steps you’ll need to take to comply with each.
Before we get down to the details, it’s important to remember that you and the limited company are separate legal entities and both entities will have their own tax obligations and responsibility. Read on to find out what they look like.
Corporation Tax
What is it?
Corporation Tax is paid on a company’s profits.
The Corporation Tax rate is 19% for profits below £50,000 and 25% for profits above £250,000. Our guide to corporation tax contains some handy tips on how to manage your Corporation Tax responsibilities.
For profits between £50,000 and £250,000, a marginal rate of Corporation Tax applies. This means a portion of these profits will be taxed at a higher rate. You can find more information on how the marginal rate works in our blog on the changes to Corporation Tax that happened in 2023.
How is it calculated?
Corporation tax is assessed on the profits in each accounting period, typically every 12 months. Profit is calculated by deducting allowable business expenses (like salaries, accountancy fees, and office costs) from the company’s income.
The basic rule for a cost to be allowable for corporation tax relief is it must be wholly and exclusively for business use.
Our article on common expenses contractors can claim through their Ltd companies covers this in more detail. Or just ask us – we’re here to help.
Filing responsibilities
Corporation tax is reported to HMRC through a company tax return (CT600), which must be submitted to HMRC within 12 months after the end of the accounting period.
Corporation Tax must be paid within 9 months and 1 day after the end of the company’s accounting period.
For example, if your company’s year end is the 31 January, the tax return would have to be filed by the 31 October with the payment due 1 November.
VAT
VAT is a tax on the sales of goods and services. You must register for VAT if your company’s taxable turnover exceeds £90,000 per year. However, you can also voluntarily register below this threshold as it can often make sense to, depending on your situation.
We’ve also put together a beginner’s guide to VAT discussing voluntary registration and the various VAT schemes.
Pay As You Earn (PAYE) & National Insurance Contributions (NICs)
If your company employs people, including you as the director, you must file payroll to HMRC each month to report your salary.
Typically, owners of a Ltd company will pay themselves a small salary from their company which is below the personal allowance and Employee NI thresholds. This means there is no income tax and Employee’s NI to pay. Despite this, your monthly salaries must still be reported to HMRC every month.
There will however be a small amount of Employer NI (a company tax) to pay each year. As a Maslins client, you will receive reminders about this.
If you would like to take a salary from your Ltd company, get in touch and we can help you to set this up.
Income Tax
Income tax is subject to your personal income and is totally separate to the company’s taxes. It is the tax you pay on most types of income, including salaries, profits from self-employment, dividends, pensions, and rental income.
However, some forms of income, like certain state benefits or interest received from ISAs, are tax-free.
Income is taxed in bands, and your tax rate depends on the amount of income you earn over the personal allowance.
- Personal Allowance: £12,570 (tax-free for most individuals)
- Basic rate (20%): On income between £12,571 and £50,270
- Higher rate (40%): On income between £50,271 and £125,140
- Additional rate (45%): On income over £125,140
For income above £100,000, your Personal Allowance is reduced by £1 for every £2 earned. This means that it is fully removed at £125,140. Removing your Personal Allowance leads to a significantly higher marginal tax rate on income between £100k to £125k.
Taxable Income Sources
Employment Income: Taxed via PAYE by employers.
Interest Income: Interest earned in a non-ISA account is taxable above the personal savings allowance:
- Basic rate taxpayers: £1,000 of savings interest is tax-free.
- Higher rate taxpayers: £500 of savings interest is tax-free.
- Additional rate taxpayers: No allowance.
Self-Employment Income: Self-employed individuals are taxed on their business profits.
Rental Income: Income from renting property is taxable, but you can deduct allowable expenses management fees.
Dividends: Dividends are taxed at the following rates:
- 0% on dividends within the £500 Dividend Allowance.
- 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate) on dividends exceeding the allowance.
Self Assessment Tax Return
As a company director, you must file a Self Assessment tax return to HMRC to declare any personal income.
In most cases this would mean declaring salary and dividends earned in the tax year. It must also include details of any rental profits, interest and other income. As part of our service, we prepare and file our clients’ Self Assessments.
The deadline for filing your online Self Assessment is 31 January, following the end of the tax year, and any tax due must be paid by this date.
If you’re looking for help with your accounts, we offer accountancy and tax support for £119+VAT/month. We’ll keep things simple and make sure you’re tax compliant.
Just get in touch to find out more.
