Running a limited company? Let's make the tax side make sense.
Corporation Tax, dividends, VAT, payroll, annual accounts, confirmation statements.
There's quite a lot going on behind the scenes when you run a limited company.
And while you don't need to become an accountant, you should understand the basics of how your business finances work.
Here's what every limited company director should know.
Your company is separate from you
One of the most important things to understand is that your company is its own legal entity.
The money sitting in the company bank account isn't automatically yours to spend personally.
When you take money out, it needs to be recorded correctly.
This might be through salary, dividends, an expense reimbursement or a director's loan.
The treatment depends on what the payment actually represents.
Corporation Tax
Limited companies normally pay Corporation Tax on their taxable profits.
For companies within the main UK Corporation Tax framework, the small profits rate is 19% and the main rate is 25%, with marginal relief potentially applying between the relevant limits.
The limits can be affected by associated companies and accounting periods shorter than 12 months.
So it's not always a case of multiplying your profit by one fixed percentage.
Also, accounting profit and taxable profit aren't necessarily identical.
Some expenses aren't deductible for Corporation Tax, and capital allowances or other adjustments may apply.
Understanding your filing deadlines
For a typical established private limited company, annual accounts are due at Companies House nine months after the financial year-end.
Corporation Tax is generally payable nine months and one day after the accounting period ends.
The Corporation Tax Return is usually due within 12 months of the end of the accounting period.
These deadlines are separate.
And yes, the tax payment can be due before the tax return itself.
Salaries and dividends
Many directors receive some combination of salary and dividends, but the best approach varies.
Salary is processed through payroll where required and can give rise to PAYE and National Insurance obligations.
Dividends are paid to shareholders from available distributable profits and are not deductible for Corporation Tax.
They may also create personal dividend tax liabilities.
Don't assume the same director salary and dividend split works for everyone.
Director's loans
If you take money from the company that isn't salary, a valid dividend or an expense reimbursement, it may be recorded through your director's loan account.
Depending on the balance and circumstances, there can be further company and personal tax consequences.
This is one of the reasons we encourage directors to check how they're taking money rather than transferring funds without any explanation.
VAT
A limited company may need to register for VAT if its taxable turnover exceeds the registration threshold.
The current threshold is £90,000, subject to the relevant rolling 12-month and forward-looking tests.
Once registered, you'll need to understand VAT rates, invoices, recordkeeping and Making Tax Digital for VAT.
Selling internationally can make matters more complicated.
Keeping accurate accounts
Bookkeeping isn't just about recording receipts.
It helps you understand:
How much your business is earning
What it's spending
Whether your business is profitable
What customers owe
What tax you may need to put aside
Whether your business can afford upcoming commitments
If you're selling online, marketplace and payment processing reconciliations can also be important.
What about Companies House?
Your company has obligations separate from HMRC.
These include filing annual accounts, submitting confirmation statements, maintaining appropriate records and keeping required company information up to date.
Directors and people with significant control must also comply with the applicable identity verification requirements.
Why planning ahead matters
One of the biggest mistakes company directors make is treating the full bank balance as available profit.
The company might still owe Corporation Tax, VAT, PAYE, suppliers or other liabilities.
Regular financial information makes it easier to plan rather than react.
How Accounting On You helps
We support limited companies with bookkeeping, annual accounts, Corporation Tax, payroll, VAT and ongoing accounting advice.
Our financial trackers also help clients understand what they may owe and plan for upcoming tax liabilities.
You didn't start a company to spend your evenings figuring out Corporation Tax.
Explore our limited company packages at www.accountingonyou.com.
This guide provides general information for UK limited companies and does not replace tailored tax or legal advice.