Some general guidance
A limited company is a completely separate legal entity to that of the directors, employees and shareholders. It can sue and be sued in its own right. Its debts are not personal debts of the owners.
Limited companies pay ‘corporation tax’ on their profits. This is based on the accounting profits of the period which we adjust as required by HMRC.
What documents have to be submitted?
Each year you need to send HMRC:
- A full copy of your accounts
- A corporation tax computation
- A corporation tax return.
These must be sent to HMRC within 12 months from the period end or penalties will be charged. Note: any tax payable must be paid within 9 months or interest will be charged.
Also, an ‘abbreviated’ set of accounts must be supplied to Companies House within 9 months of the period end or penalties will be charged. These are made publicly available. The abbreviated accounts contain a copy of the balance sheet but not the trading details for the period. They do not contain details the company profits or your personal earnings from the business.
And finally, the company must send an Annual Return to Companies House within 28 days of the ‘made up date’. This date is usually on the anniversary of incorporation. It is usually a different date from when the accounts are prepared and submitted.
Why be a limited company?
If the company is sued then this is not the personal responsibility of the directors, employees or shareholders – and your personal assets are not at risk. However, in certain circumstances a Court can overrule this and clients should always seek specific guidance before relying on this.
Also, dividend income does not attract National Insurance. As such it can be a much more tax-effective way of being paid as compared to PAYE income or being self-employed. People tend to roll their eyes at the mention of National Insurance – but on a taxable profit of £15,000 it can be a saving of £1,200!
How is corporation tax calculated?
The ‘trading profits’ of the company are adjusted to give the ‘taxable profits’ which are then charged at the prevailing rate of corporation tax. The main tax adjustment for small companies is usually for capital allowances (see below).
How can I make sense of the figures and tax computations?
The place to start is with the trading profit shown in the accounts. This is the starting point on the Trading profit computation which details the tax adjustments leading to the taxable profit. The taxable profit is then the starting point on the Corporation tax computation which details how the tax is calculated.
How do I pay the corporation tax?
Shortly after the end company’s year-end HMRC will write to you reminding you of your obligation to pay Corporation Tax. The bottom part of the letter will include a payslip. You can also pay online or at a post office.