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 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/labourer supply services to an organisation through an intermediary for example, a limited company, but where this relationship would have been one of regular employment if not for 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.

Runnung a legitimate business means you should be operating well outside IR35.

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 tax benefits of becoming a limited company are what makes this such an attractive form of self-employment.

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.

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.

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.

It is important to understand you’ll only be taxed on your personal salary, not the overall income of your limited company.

The tax benefits of becoming a limited company is clear to see. However,you must stay in line with tax laws