Limited Company Taxes
Setting up as a limited company is not necessary an easy process. From finding your business name for your compnay to registering all your details at Companies House and HMRC . But how much tax does a Limited Company pay?
Limited Liability status can give your business a certain sense of credibility, protection all kinds of tax benefits. But exactly how much tax should a limited company expect to pay in 2022?
IR35 FOR LIMITED COMPANIES
IR35 was introduced as part of the Finance Act, 2000 and brought in to prevent contractors from gaining tax relief as “disguised employees”.
Disguised employment is where a worker or laborer supplies services to an organization through an intermediary, such as a limited company, but where this relationship would resemble regular employment without that intermediary. If your company is found to be in breach of IR35 regulations by HMRC, then you will have to pay the same Income Tax and National Insurance Contributions (NICs) as any other regular employee, impacting Limited Company Taxes.
Runnung a legitimate business means you should be operating well outside IR35.
HOW MUCH TAX DOES A LIMITED COMPANY PAY?
The owner of a limited company will pay tax on both their personal income and business profits. So long as you remain outside IR35 legislation, the Limited Company Taxes benefits are what make this such an attractive form of self-employment.
CORPORATION TAX
In the 2020/21 financial year, Corporation Tax is charged at 19% of your taxable profits, this tax is typically paid directly to HMRC every 12 months, and you must register for Corporation Tax when setting up as a limited company.
You should be able to reduce your taxable profits by claiming Capital Allowances and other business expenses.
VALUE ADDED TAX (VAT)
Any limited companies which earn an annual turnover of more than £85,000 will have to register for VAT. Once you’ve registered, this means that you’ll be charging customers and clients VAT on HMRC’s behalf, which you’ll then pay directly to them on a quarterly basis. Before paying HMRC, you can also deduct any VAT you might have spent on business expenses during that timeframe.
LIMITED COMPANY OWNERS: PERSONAL TAX
SELF-ASSESSMENT
Every limited company owner needs to submit a Self-Assessment form to HMRC on an annual basis. This form will provide details regarding your personal income, allowing HMRC to charge the proper level of income tax.
PAYING YOURSELF THROUGH DIVIDENDS
It is important to understand you’ll only be taxed on your personal salary, not the overall income of your limited company.
HOW A LOCAL BRISTOL ACCOUNTANT COULD HELP
The tax benefits of becoming a limited company is clear to see. However, you must stay in line with tax laws
TAKS LIMITED can help you with Limited Company set up and administration of your tax affairs
Give us a call on 0117 256 5052