What Taxes Does a Limited Company Have to Pay in the UK?

Understanding UK Corporate Tax Obligations

Navigating your tax obligations as a limited company in the UK is very, very important. Your responsibilities include not only paying Corporation Tax on profits but also handling VAT, National Insurance, and PAYE for your employees.

At Blue Skies we have over 20 years of experience working with companies across all areas of media (and other industries). This means that we know how to keep your financial wellbeing secure and minimise your risk with HMRC - this includes navigating the world of business taxation. Speak to our team on 01767 699996 or thecrew@blue-skies.tv for a no-obligation chat and find out how we can help you.

What is Corporation Tax?

Every limited company in the UK must pay Corporation Tax on its profits. The current rate of Corporation tax is fixed at 25% for companies with profits in excess of £250,000.  Companies with profits of £50,000 or less would pay corporation tax at 19% which is known as the small profits rate.  Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by the marginal relief, essentially meaning for the first £50,000 profits, the company will pay tax at 19% and anything in excess and up to the £250,000 profit threshold will be taxed at 26.5%.  These thresholds and rates do alter significantly if you have more than one limited company that is considered an associated company, therefore pre-planning and expert advice is recommended, to ensure your business is paying the correct rate of corporation tax.

Another key thing you must know is that HMRC does not issue bills for Corporation Tax, so it's essential you register for Corporation Tax, calculate your own tax liability and make the required payments. The deadline for your payment is nine months and one day after the end of your company's financial year.

Filing Company Tax Returns and Accounts

You’re required to file a Company Tax Return (CT600 form) with HMRC annually. This must be accompanied by your statutory annual accounts, which you also need to file with Companies House. Your accounts should accurately reflect all expenses, incomes, salaries, and taxes for the financial year.

VAT Responsibilities

If your company’s taxable turnover exceeds the VAT threshold, which is currently £90,000 as of April 2024, you are required to register for VAT (value-added tax). VAT charged to your customers must be paid to HMRC, and you can also claim back any VAT that you’ve been charged. VAT returns are typically filed quarterly.
Again, it is your obligation as the business owner to ensure that you’ve correctly recorded, declared and submitted the necessary VAT payments to HMRC to avoid any penalties or fines.

National Insurance and PAYE

As a business or business owner, you also need to manage National Insurance contributions (NICs) for yourself and for your employees. Additionally, running a PAYE (Pay As You Earn) payroll system is mandatory if your business has employees. You must collect income tax and NICs from their salaries and report this to HMRC.

Additional Tax Considerations for Limited Companies

Managing your limited company's tax obligations involves more than just paying the required Corporation Tax amount. As a director or business owner you must understand other tax obligations to ensure that you don’t fall foul of HMRC.

Dividend Taxation for Shareholders

If you’re a shareholder, dividends received from your limited company are subject to Dividend Tax. This comes after the £500 tax-free Dividend Allowance as of April 2024. Beyond this threshold, tax rates vary depending on your Personal Income Tax band: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.

Employment Allowance and Tax Deductible Expenditure

Your company can reduce its National Insurance Contributions (NICs) by up to £5,000 if eligible for the Employment Allowance. This incentive is designed to help you employ more staff affordably. You can also include certain costs as tax-deductible, such as office supplies or business travel expenses, to reduce your taxable business profits.

Capital Gains Tax

When your company disposes of an asset that has gained in value, Capital Gains Tax (CGT) may apply to the profits. The rate depends on your company's marginal rate of tax and you will need to pay tax on the gain you make rather than the full value of the asset. CGT can apply to sales of land, property, fixtures & fittings, machinery and more.

Understanding IR35 and Contractor Status

If you're a contractor, be aware of IR35 rules, aimed at combating tax avoidance. They ensure that workers, who would have been deemed employees if they had been contracted directly, pay broadly the same Income Tax and NICs as if they were employed. Your company's compliance with IR35 is vital to avoid penalties.

For a no-obligation chat to find out how the Blue Skies team can help your business avoid tax pitfalls to maximise your growth, contact us today on 01767 699996 or thecrew@blue-skies.tv.