What Taxes and Contributions are Limited Companies Obliged to Pay – and how to pay less

As the owner of a limited company, you are legally required to register to pay tax on your company income to the HMRC on time.

Whether you are running a new start-up, or the owner of a long-standing local business, here are a few things that you may or may not know about your obligations and how to reduce your liabilities

Corporation Tax

As a Limited Company, regardless of company size, you are required to pay Corporation Tax on your profits annually – at the end of the financial year. This can be done by submitting a CT600 form and the current Corporation Tax rate is 19% for the 2018/19 tax year.

An accountant focused on reducing your tax liability can help save you money.  One example is the financial benefits of effectively submitting R&D Tax Credit claims.

VAT (Value Added Tax)

If your annual turnover is less than £85,000 then you are not required to pay VAT, but you can choose to if you wish.  One main benefit of registering for VAT, is that it allows you the option of deducting the cost of any VAT charged for daily expenditures.

If, your turnover is higher than £85,000 you are legally obliged to register for VAT and you can choose a standard VAT accounting method or three other schemes.

Choosing the right scheme can make a big difference to your cashflow so it is worthwhile enlisting the support of a professional accountant to analyse your situation and suggest the best VAT scheme to register for.

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NI (National Insurance)

National Insurance contributions (NICs) are paid both by the employee and the employer.  As the employer, NICs are due on the salaries paid to employees, not on dividend income, and collected either monthly or quarterly.

Currently, Employers’ NIC obligation is 13.8% on salaries over £162 per week, and employees’ NICs obligation is 12% between £162-£892 per week.  It is also worth noting that, should your company be eligible, the first £3,000 of your NICs can be written off in-line with the Employment Allowance tax incentive.

Income Tax

Employees and Directors pay income tax.  Anything earnt over £11,850 in the 2018/19 tax year is taxable, but there are varying rates of income tax dependent on the total annual income.

Many business owners choose to pay themselves smaller salaries to avoid higher income and national insurance tax, taking the larger portion of their income in the form of dividends.  A good accountant can help you find the most cost-effective way to manage your own salary.

You can view the current income tax rates here.

Dividend Tax

Any dividends received during the tax year are taxable. Currently, dividends are taxed at three flat rates:  7.5% (basic), 32.5% (higher) and 38.1% (additional).

You can read more about dividend tax here.

Other Taxes

In addition to the above taxes, you may also be liable for other taxes such as Capital Gains Tax (CGT), Entrepreneurs’ Relief and Stamp Duty, depending on your business activities.  To know where you stand, it’s beneficial to enlist the help of a qualified accountant who can offer more in-depth insight and guidance on your financial obligations.

If you are unsure business tax obligations and how they apply to your company, please get in touch and our team of professional accountants can assist you.