what taxes do limited companies pay?

What taxes do limited companies pay?

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Once you set up a limited company you will be responsible for paying tax on your company income.  As the director of the company you have to ensure that your company’s tax affairs are in order. 

Corporation tax

What is corporation tax?

Corporation tax is tax against profits earned by businesses during a given taxable period.  All limited companies have to pay tax on any profit that they make.  Corporation tax is calculated on the sum that is left over once business expenses, including salary, are deducted from the company’s turnover. Corporation tax is normally due and payable nine months and one day from the end of an accounting period.

Rate of corporation tax

The rate of corporation tax depends on the profit the company generates.

See below tax rate table:

 
 
2015/16
2014/15
2013/14
Rate
Profit £
Tax rate %
Tax rate %
Tax rate %
Small
0 – 300,000
20
20
20
Medium
300,001 – 1,500,000
20
21.25
23.75
Large
1,500,001 and above
20
21
23

The Chancellor announced in the Summer Budget 2015 a proposal to reduce the rate of corporation tax to 19% for Financial Year 2017, set the rate at 19% for Financial Years 2018 and 2019, and reduce it to 18% for Financial Year 2020.

PAYE / National Insurance Contributions

If you and your employees receive a salary, then income tax and National Insurance Contributions are deducted at source and which is paid to HMRC on a monthly or quarterly basis.  A simple way to do this is to arrange for your accountant to set up your company payroll.

Employer’s National Insurance Contributions

As your employer, your company is liable to pay Class 1 Contributions on salaries paid to its employees. The employers’ NIC rate for the financial year 2016/17 is 13.8% on income at or above £156 per week.

Employees National Insurance Contributions

As an employee of your limited company, you pay Class 1 National Insurance Contributions. For fiscal year 2016/17 you pay 12% of earnings between £156 and £827 per week, and 2% on any earnings above £827 per week.

Value Added Tax (VAT)

If you are likely to reach the VAT threshold amount of £82,000 or more during any 12 month period (this is effective from 1 April 2015), you must register your company for VAT.   This can be done online or else your accountant can arrange this for you and must be done within 30 days of achieving the threshold.

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