Starting a limited company is a significant step for any entrepreneur, and understanding the tax obligations that come with it is essential. In this blog, we will explore when you need to start paying tax as a limited company and the different types of taxes you will be responsible for.
Limited companies in the UK are considered separate legal entities from their owners and are responsible for paying their own taxes. The most common type of tax that limited companies are responsible for paying is Corporation Tax on their profits.
When do you need to start paying Corporation Tax?
Limited companies in the UK need to start paying Corporation Tax once they become active and start trading. This typically happens when the company begins to generate profits, although it is possible to start paying Corporation Tax even if your company is not yet making a profit.
Once your company starts trading, you will need to register with HM Revenue and Customs (HMRC) for Corporation Tax within three months. You will then need to file a Corporation Tax return every year and pay the tax owed on your profits within nine months and one day of the end of your company’s financial year.
What is the current rate of Corporation Tax in the UK?
As of the 2021/2022 tax year, the standard rate of Corporation Tax in the UK is 19%. However, if your company’s profits are below £50,000, you may be eligible for a lower rate of Corporation Tax.
What are the other types of taxes that limited companies need to pay?
In addition to Corporation Tax, limited companies in the UK are also responsible for paying a number of other taxes, including:
- National Insurance Contributions (NICs): limited companies need to pay Class 1 NICs on the salaries of their directors and employees.
- Value Added Tax (VAT): if your company’s taxable turnover exceeds £85,000, you will need to register for VAT and start charging VAT on your sales.
- Pay As You Earn (PAYE): if you have employees, you will need to operate a PAYE scheme and deduct Income Tax and NICs from their salaries.
- Business Rates: if your company operates from premises, you may be responsible for paying Business Rates.
It is important to note that the tax obligations for limited companies can be complex, and it is always advisable to seek professional advice from an accountant or tax specialist.
When should you register for VAT?
If your limited company’s taxable turnover exceeds £85,000, you will need to register for VAT and start charging VAT on your sales. You will also need to submit regular VAT returns to HMRC and pay any VAT owed to the government.
When should you set up a PAYE scheme?
If your limited company has employees, you will need to set up a PAYE scheme and deduct Income Tax and NICs from their salaries. You will then need to submit regular returns to HMRC and pay over the deductions to the government.
When should you start paying Business Rates?
If your limited company operates from premises, you may be responsible for paying Business Rates. The amount of Business Rates you will need to pay will depend on the rateable value of your premises and the local authority’s rate.
Conclusion
Starting a limited company is a significant step for any entrepreneur, and it is essential to understand the tax obligations that come with it. Limited companies in the UK are responsible for paying Corporation Tax on their profits, as well as a number of other taxes, including National Insurance Contributions, Value Added Tax, Pay As You Earn, and Business Rates.
It is important to seek professional advice from an accountant or tax specialist to ensure that you are fully aware of your tax obligations and to help you navigate the complexities of the tax system. Keeping accurate records of your company’s finances and ensuring that you are fully compliant with tax laws and regulations is essential to avoid any penalties or legal issues.
It is also important to keep up to date with any changes to tax laws and regulations, as these can have a significant impact on your company’s finances. For example, the standard rate of Corporation Tax has changed several times in recent years, and it is important to be aware of these changes and to adjust your tax planning accordingly.
In conclusion, paying tax as a limited company is a key aspect of running a successful business, and it is essential to understand your tax obligations and to seek professional advice if needed. By keeping accurate records, staying up to date with tax laws, and working with a professional, you can ensure that your limited company remains compliant and successful for many years to come.
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.
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