Things you should know about Limited Company Tax Returns but might not
If you are a director of a limited company, you’ll be aware that you’re required by law to pay tax on your company’s profits by a specified deadline.
Here are a few things that you might not know about the process of filing corporation tax returns and your responsibilities, whether you’re a start-up, owner of an established local business of director of an international firm.
What taxes are limited companies required to pay?
Corporation tax: You’re required to pay corporation tax within 9 months and 1 day of your company’s year-end by submitting a CT600 form. Before April 2016, corporation tax rates varied depending on how much profit businesses made. Corporation tax rates have now been standardised so the rate is 19% for all businesses.
There are slight differences in the process when considering a business which makes in excess of £1.5million profit, as they pay corporation tax in instalments. Also, if a business is making a loss rather than profit (therefore having no corporation tax to pay) this still has to be declared to the HMRC.
VAT (Value Added Tax): For smaller businesses, you may not know that if your annual turnover is less than £85,000, even though you’re not required to pay VAT, you can still register for VAT. This gives you the option to deduct the cost of any VAT incurred on daily expenses.
VAT laws are complex and there are different schemes available which could save you money. Clear Vision, a local accounting firm based in Romsey, is able to assist with analysing your company’s financial situation and suggesting a suitable VAT scheme for you to register with.
National Insurance: National Insurance Contributions are paid by both the employee and the employer. Employers’ national insurance obligations are currently 13.8% on salaries over £162 a week, with employee’s obligation being 12% on salaries between £162 and £892 a week. If your company is eligible for the Employment Allowance tax incentive, the first £3,000 of your NICs could be written-off.
Income Tax: Anything an employee earns over £11,850 during the 2018/19 financial year is taxable. You may not realise that many business owners choose to pay themselves small basic salaries to avoid higher income and national insurance tax? They can then take the larger portion of their income in the form of dividends (assuming the company is profitable).
Clear Vision can help you to find the most cost-effective way to manage your own salary as a business owner and extract as much money from it at the lowest cost.
Dividend Tax: If you do receive any dividends during the financial year, you’re required to pay tax on these. Dividends are currently taxed at three flat rates: 7.5% (basic), 32.5% (higher) and 38.1% additional.
Your company may also be eligible to claim back a percentage of your tax return with the help of corporation tax reliefs.
What are corporation tax reliefs?
You can potentially use Corporation Tax reliefs to minimise your company’s tax bill. Only certain types of expenses meet the requirements to qualify for a tax relief. There are 5 different types, including:
- Research & Development (R&D tax credits) Relief: you may be able to claim this if your company works on innovative projects in science and technology
- The Patent Box: a lower rate of Corporation Tax is available on profits earned from patented inventions and certain other innovations
- Creative Industry Tax Reliefs: this allows companies in the creative industries such as film, television, video gaming, etc. to claim a larger deduction when calculating taxable profits
- Disincorporation Relief: a relief that allows a company to transfer assets to its shareholders (for instance when it changes from a limited company to a sole trader or partnership) without the company incurring a Corporation Tax charge on the disposal of those assets
- Marginal Relief: may also be available if your company had profits between £300,000 and £1.5 million that were from before 1 April 2015
Looking for help with your Limited company tax return?
For those looking to avoid the stresses and panic of tax returns, Clear Vision, a financial management company in Romsey, Hampshire, can provide expert financial advice for small businesses. We can also build a strong business case to help get the best financing options.
Contact Clear Vision today to speak to one of our friendly team.