All You Need To Know About Tax
This article provides some top tax and finance tips that can help you save money as a limited company owner. The information is based on our experience over the past fifteen years running limited companies, and dealing with tax advisors and accountants.
Why Pay More Tax Than You Need To?
Dividends are not subject to National Insurance Contributions, which represent a significant saving on tax as compared to the sole trader option where NICs can be paid on all of your income. As a limited company director, you can consider paying yourself in a small salary and dividends. You do not need to pay income tax or NICs at all if the salary falls below an existing threshold limit.
Whatever you do, it is essential that you meet all of the accounting and statutory deadlines, particularly for the submission of your company accounts and the Annual Return (AR01). Penalties for any late submissions can be extensive.
While this is subject to eligibility, you may equality for an Entrepreneurs' Relief when selling your limited company if you held shares in the company or had acted as an employee or the director for over twelve months. The current rate for the Entrepreneurs' Relief is only 10 percent as compared to the standard CGT rates of approximately 20 percent or 28 percent.
When declaring your company's dividends, it is important to consider the time of these declarations. It is possible to save tax by delaying the drawing down profits until a future tax year if you have already reached the higher or additional rate threshold for the current year.
It may be possible to benefit from your spouse's tax allowance by splitting the company's shareholding with your other half. This is particularly beneficial if they have no additional source of income. Of course, you should contact a professional accountant before taking action on this option as the 'income shifting' is a risky action within accounting circles.
It is important that you only declare the dividends when the company has accumulated a sufficient amount of profits to make the declaration. Penalties apply to dividends that have been illegally declared and the penalties can be severe.
Try to make the most from the expenses you can place through the company - the best way to do this is to keep up with the latest VAT news. As long as the expenses claimed are things you have genuinely incurred as part of company responsibilities, it is possible to make a saving. For example, you may be able to reclaim the costs of working from your home.
It may be beneficial to join a Flat Rate Scheme. The scheme makes VAT accounting more straightforward, but you may not pay as much tax dependent on the amount of VAT you are charged and reclaim. During the initial year, you should receive an additional 1 percent discount on the flat rate paid to HMRC. The VAT accounting scheme provides individuals with a cash flow benefit instead of tax saving by allowing you to claim VAT when the invoice is paid instead of when it is issued.
It is vital that you register for VAT if your income reaches the £85,000 mark in the past year. HMRC have been clamping down on companies who fail to do so and are fining any businesses that do not register.