How Can a Limited Company Be Tax Efficient?

As private limited companies rise, it’s important for business owners to understand how to be tax efficient and this blog will consider relevant taxes and the annual financial accounts.

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Annual Accounts

It’s important for limited companies to create financial accounts accurately as this information is used by shareholders, HMRC and anyone involved in general board meetings. These important financial accounts include:

  • Balance sheet
  • Profit and Loss
  • Notes to accounts
  • Director’s report
  • Auditors Report

Important Accounting Records That Are Required by a Limited Company for Annual Accounts:

  • Income and expenses
  • Purchase information
  • Assets and Liabilities

Although it’s possible for a firm to deal with accounts themselves, it’s preferable for most limited companies to hire a personal accountant who can create accounts according to the updated legislation, ultimately enabling the business owner to focus on other aspects of running their business. With the use of cloud tools such as Xero and QuickBooks, TaxCare Accountants are able to help the business with its finance department.

How To Set Corporation Tax?

A limited company has a set requirement from HMRC to file for corporation tax within the first three months. The deadline for a company to complete this is nine months and one day after the end of the accounting year with the rate being 19%.

Corporation Tax Reliefs

Capital allowances can be claimed against:

  • Machinery
  • Equipment
  • Company Vehicles
  • Trading losses

Income Tax

Income tax will be charged for limited companies after the personal allowance of £12,500 has been used, and the amount paid will vary on depending on what tax rate the limited company falls into.

For example, 20% is paid on income up to £37,500 and 40% is charged on above £37,500 .

Income Tax on Dividends

The first £2,000 of dividends are also included as part of a tax-free dividend allowance.

How much tax you pay on any dividend income after the allowances depends on your Income Tax band. The tax rate on dividends over the allowance are 7.5% basic rate tax, 32.5% higher rate tax and 38.1% additional rate tax.

Any tax due on dividends will need to be paid from your personal bank account and not your business account.

Vat Returns

At the end of every accounting period, it’s important for all limited companies to calculate relevant VAT relating to sales and business expenses.

The standard VAT is charged at 20%.

Owners Salary

As a limited company, the business owner is able to pay their salary using PAYE, which are tax deductible, meaning that tax is not charged on salary. However, if the salary is above the threshold, then the owner is required to pay national insurance contributions.

Tax Return Date

31 January is the deadline to submit tax returns but whether a company makes a payment on account depends on how much tax they have paid within the tax year. For example, if 80% of tax hasn’t been paid then the payment of accounts are important and are paid through the two months being 31 January and 31 July.

It’s often hard for new businesses to complete a personal tax return. Therefore, TaxCare Accountants is able to assist our clients and explain the importance of paying tax on time, and list the taxes which they may be exempt from paying.

Capital Gains Tax

A limited company has to pay taxes on assets which increase in value over time, such as residential property which is taxed at 18% for standard and 28% for higher with other assets being charged at 10% but 20% with higher tax band.

Overall, the blog has considered some of the taxes applicable to limited companies which are important to understand in order to gain tax advantage and achieve the lowest tax rate possible.

Overall, the blog has considered some of the taxes applicable to limited companies which are important to understand in order to gain tax advantage and achieve the lowest tax rate possible.

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