In the United Kingdom, limited companies are taxed differently compared to other business structures like sole traders and partnerships. The taxes that a limited company must pay include Corporation Tax, Value Added Tax (VAT), and other possible taxes like payroll taxes and business rates. In this blog, we’ll be discussing the different taxes that a limited company must pay in the UK.
Corporation Tax
Corporation Tax is a tax that is levied on the profits of limited companies in the UK. The current Corporation Tax rate in the UK is 19%, which came into effect in April 2017. Companies must pay Corporation Tax on their taxable profits, which is calculated by subtracting allowable expenses and capital allowances from their total revenue. Some expenses are not deductible for Corporation Tax purposes, such as fines and penalties, and directors’ loans.
VAT
Value Added Tax (VAT) is a tax on goods and services that are supplied by a business to its customers. Limited companies must register for VAT if their taxable turnover is over the VAT registration threshold, which is currently £85,000. Companies must charge VAT on the supplies that they make, but they can also reclaim the VAT they incur on their business expenses. The standard VAT rate in the UK is 20%, although some goods and services are subject to a reduced rate of 5% or 0%.
Payroll Taxes
Limited companies must also pay payroll taxes if they have employees. This includes Employer’s National Insurance Contributions (NICs) and employees’ Income Tax, which are deducted from their salary before it is paid. Employer’s NICs are calculated as a percentage of the employee’s gross salary, and the current rate for employers is 13.8%. Employees must pay Income Tax on their taxable income, which is calculated based on their gross salary and any other taxable income they receive.
Business Rates
Business Rates is a tax that is levied on the occupation of non-domestic properties in the UK, such as offices, shops, and warehouses. Limited companies that occupy commercial properties must pay Business Rates, which are calculated based on the rateable value of the property. The rateable value is determined by the Valuation Office Agency, which is part of HM Revenue & Customs. Business Rates are used to fund local services like rubbish collection, street lighting, and fire services.
Dividend Tax
Limited companies may pay Dividend Tax if they distribute profits to their shareholders in the form of dividends. Dividend Tax is a tax on the dividends received by shareholders, which is calculated as a percentage of the dividend received. Dividend Tax rates depend on the shareholder’s total taxable income, and the current rates range from 7.5% to 38.1%. Dividend Tax is separate from Corporation Tax, and companies must pay Corporation Tax on their profits before distributing dividends to their shareholders.
Conclusion
In conclusion, limited companies in the UK must pay several different taxes, including Corporation Tax, Value Added Tax (VAT), payroll taxes, business rates, and possible dividend tax. It’s important for limited companies to understand their tax obligations and to ensure that they are paying the correct amount of tax. If you’re unsure about your company’s tax obligations, it’s advisable to seek professional advice from an accountant or tax advisor. By understanding and complying with their tax obligations, limited companies can help to minimize their tax bill and ensure that they remain compliant with UK tax laws.
Tax Benefits of a Limited Company
A limited company, also known as a limited liability company (LLC), is a type of business structure that combines the liability protection of a corporation with the flexibility and tax benefits of a partnership. In this type of business, the owners are referred to as shareholders, and they are only responsible for the company’s debts up to the amount they have invested. In this blog, we will be exploring the tax benefits of a limited company.
Limited company owners pay a lower rate of tax on their profits compared to self-employed individuals. In the UK, the standard corporation tax rate is 19%, while the self-employed rate is currently set at 55%. This is a significant advantage for limited company owners as they can keep more of their profits and reinvest in their business.
Another tax benefit of a limited company is the ability to claim expenses as tax-deductible. Limited companies are entitled to claim expenses for business travel, staff salaries, training courses, and equipment purchases, among others, which can significantly reduce the amount of tax they need to pay. However, it is important to note that these expenses must be solely for business purposes and not for personal use.
Limited companies can also make use of the Entrepreneur’s Relief, a tax relief that allows them to pay a lower rate of tax on their profits when they sell their business or shares in their company. The Entrepreneur’s Relief reduces the rate of Capital Gains Tax from 20% to 10% on the first £10 million of gains made by an individual. This tax relief is only available to individuals and not to other forms of business structure, such as partnerships or sole traders.
Limited companies can also take advantage of the tax benefits of dividend payments. Dividends are payments made to shareholders from the company’s profits and are subject to tax. However, the current dividend tax rate is lower than the rate of tax on other forms of income. In the UK, the dividend tax rate is 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers. This makes dividends an attractive form of income for limited company owners, who can use them to extract profits from their business in a tax-efficient manner.
Another significant tax advantage of a limited company is the ability to carry forward losses. If a limited company makes a loss, it can carry forward that loss to offset against future profits. This can significantly reduce the amount of tax the company needs to pay in future years, providing a valuable source of tax savings for the business.
In conclusion, limited companies offer several tax benefits compared to other forms of business structure. The lower rate of corporation tax, the ability to claim expenses as tax-deductible, the availability of Entrepreneur’s Relief, the tax-efficient nature of dividend payments, and the ability to carry forward losses all make limited companies an attractive choice for those looking to start a business.
It is important to note that while limited companies offer several tax benefits, they are also subject to additional regulations and compliance requirements. Limited companies must also file annual returns and financial statements with Companies House, and they must maintain proper records of their finances. Additionally, limited companies are also subject to auditing requirements, which can add to the cost of running a business.
In summary, while limited companies offer several tax benefits, it is important to carefully consider the trade-offs and additional responsibilities that come with operating as a limited company before making a decision. Before making a decision, it is advisable to seek professional advice from an accountant or tax advisor to ensure that you fully understand the tax implications of operating as a limited company.
How can Micahguru Formations help you?
Setting up a company in the United Kingdom as a non-resident can be a complicated and time-consuming process.
There are many legal and administrative tasks that must be completed correctly in order to ensure that your company is registered and compliant with all relevant regulations. Hiring a UK-based attorney to help with this process can be expensive, and many non-residents may not have the necessary resources or expertise to navigate the process on their own.
Micahguru Formations can help to simplify the process and reduce the costs associated with setting up a UK company as a non-resident. They have a team of experienced professionals who are well-versed in the legal requirements and procedures involved in company formation, and they can provide support and guidance every step of the way.
One of the key benefits of working with Micahguru Formations is their expertise in handling the paperwork and filing the necessary documents with Companies House. This includes submitting the articles of association, registering for taxes, and obtaining any necessary licenses or permits. They can also help with the process of opening a UK bank account, which can be a complicated and time-consuming task for non-residents.
In addition to handling the administrative tasks, Micahguru Formations can provide valuable advice and support to help you get the most out of your investment. They can help you understand the local business environment, identify opportunities for growth, and provide guidance on how to manage your finances and operations effectively.
Overall, Micahguru Formations can help you start your UK company as a non-resident quickly, efficiently, and cost-effectively, so that you can focus on growing your business and achieving your goals.
0 Comments