Here’s all you need to know about the tax implication on a limited company

corporation tax

Limited companies pay different taxes, and the most prominent one is the corporation tax or knows as ‘company tax.’ They have to pay this tax each year based on the profit figures states in their annual tax returns. 

Corporation tax rates in the UK

Currently, the corporation tax rate in the UK is 19%. The companies can go for different reliefs and claim tax credits on corporation tax.  

National Insurance Contributions (NICs)

Every limited company has to pay National Insurance Contributions (NICs) on workers’ salaries. The company pays this tax on a monthly or quarterly basis. This tax has to be paid at a rate of 13.8% on the earnings over £162 per week.

If you are an employee of a limited company, your company will deduct NIC from your salary. The NIC will benefit you later in retirement age and makes you eligible for the state pension. You can also claim NIC in case of unemployment.

VAT (Value Added Tax)

You must account for VAT with HMRC on the sale and purchase of the goods. You have to pay 20% VAT on your invoices if your company is registered for the standard rate. Usually, VAT returns have to be paid every quarter. 

Tax-deductible expenses for limited companies

Limited companies have a right to deduct their expenses from the taxable income. As a company owner, you have to bear these expenses, usually the form of running costs. 

Your company must have considerable expenses to run its affairs, and some of them may include: 

  • Salary of your employees
  • Travel and parking costs for business trips
  • Accommodation for business-related trips
  • Daily use items such as stationary, pages, and printing
  • Replacement cost in case you are away
  • Mileage cost for your own vehicle
  • Workers pensions (through an approved scheme only)
  • Internet and communication charges
  • Different types of business-related insurance costs 
  • Accounting and other different services, subscriptions fee

Limited Company annual accounts

At the end of the financial year, your company must file annual accounts with HMRC. You will have to work out your company position in terms of profits and losses to calculate the corporation tax amount. Your company needs to file these annual accounts with both stakeholders, HMRC, and Companies House. 

Tax advantages of a private limited company?

Having a limited company may have a few advantages, but it depends on handling your affairs. For example, you can pay less tax as a limited company owner if you keep your pay less and dividends higher. This way, you can save money in terms of taxes. 

But this strategy has some cons attached to it. You have to carefully evaluate your affairs with the help of an accountant before making any decision. You can always go to the Accounting Firms’ search engine to search for your desired accountant in less than 30 seconds.

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