Paying tax: Who, When and How?

An overview of limited company tax, focusing on who is affected, when taxes are applicable, and how they are calculated and managed.

If you hold the roles of both director and shareholder in a limited company, the tax responsibilities are divided between what the business must pay and what you are personally liable for. It's important to note that shareholders and directors of a limited company may also have individual tax duties, which will depend on their salary and dividend split. 

Key taxes for Limited Companies

✅ Corporation Tax

Corporation tax is paid by limited companies to HMRC and is calculated on profits made during the companies financial year. Corporation tax is self-assessed, which means that it is the company's responsibility to calculate its own liability and report it to the tax authorities. As part of this process, the company can deduct allowable expenses from its income to determine its taxable profits.

✅ Value Added Tax (VAT)

VAT is paid by any limited companies with a turnover above the VAT threshold. The VAT returns will be required to be submitted either quarterly or annually. Typically, the amount of VAT you pay is determined by the difference between the VAT you have paid to other businesses and the VAT you have charged your clients. 

If your company has an annual turnover over £85k, it is a legal requirement to register for a VAT scheme. However, please note that if your annual income exceeds £150k, you will no longer be eligible to stay on the Flat rate VAT scheme. 

✅ Employment Tax

Employment taxes are applicable to limited companies that have employees in their business. The company's payroll will be processed either monthly or quarterly, depending on the size of the business and the number of employees. The payroll deductions made on the employees' salaries will include income tax and national insurance contributions (NICs).

Even if you are the sole director and shareholder of your business, your limited company is still considered your employer. Companies also pay employer's National Insurance on directors' salaries, via PAYE (Pay As You Earn). 

✅ Dividend Tax

Shareholders who receive dividends from the company will need to pay dividend tax on these earnings. Dividend tax is applicable to dividends that surpass the tax-free allowance, which is currently set at £1,000 for the period between 6th April 2023 - 5th April 2024.

Shareholders are required to report their dividend income on their personal tax returns. The amount of tax to be paid is determined by the individual's total income and tax band for that particular year.

The timing of tax payments varies, but it is crucial for companies to meet deadlines to avoid penalties. Corporation tax is typically due nine months after the end of the accounting period, while VAT and employment taxes are due quarterly or annually. Your accountant at Nasa Consulting will gladly assist you in determining the deadlines for tax payments and providing guidance on how to make these payments. However, it remains the ultimate responsibility of the director and shareholders to ensure that these payments are made on time. 

✅ Keeping on top of your taxes 

• Keep Accurate Records - Keep accurate and organized financial records to ensure precise tax calculations using one of our user friendly online softwares.
• Submit Timely Returns - Make sure to submit all tax returns by the deadlines to avoid any penalties.
• Seek Professional Advice - Get in touch with your accountant at Nasa Consulting for expert guidance in navigating the complexities of tax regulations.

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