Taxes made simple – What taxes do I need to pay as a limited company?

You’ve formed your company, done all the paperwork, received your congratulatory letter from companies house informing you of your responsibilities as a director. You’re up and running!

But one thing springs to mind… how much tax do I actually need to pay from my company?

It’s something you certainly need to budget for so you’re not in for a nasty surprise.

Corporation Tax
Corporation tax is the ‘biggest’ tax if you like, it seems to change fairly regularly at the moment but currently, it’s set at 19% (one of the lowest in Europe)
This rate is set by the chancellor of the exchequer during the budget and often changes depending on the current policy of the government and the economic situation.

How is tax calculated?
Simply put your corporation tax liability is any sales minus any costs and overheads.

Let’s look at a simple example:

You are a small factory making lamps
In the tax year you sell £200,000 worth of lamps:
Sales = £200,000

However, you needed to spend some money to make the lamps and pay for all your costs.

Materials = £50,000
Staff wages = £60,000
Factory lease = £8,000
Marketing = £2,000

Total = £120,000

NET PROFIT = £200,000 – £120,000 = £80,000
Corporation tax 19% of £80,000
= £15,200 payable

Any other taxes?
If you take on staff you’ll also have to pay 13.8% National Insurance on all wages.
In addition to this, whilst not a direct cost to the company you’ll also need to deduct tax from your staff on PAYE, collect it and pay it to HMRC.
You’re basically an unpaid tax collector!
(but this is of course paid from staff wages, not company profits as it’s dependant on the personal tax code of the employee)

Even if you’ve never run a company before you’ve almost certainly heard of VAT.

“We’ve got a quote to repair your car sir, it’s £865”
“Seems a bit steep…”
“Oh and that’s PLUS VAT”

Whilst we don’t see VAT displayed on prices being sold to the consumer we’re all aware of it.

So what does it mean for you as a company working on the other side of the deal?

The rules state that if you are turning over more than £85,000 in a year you need to register for VAT. If you even think you are going to turn over more than £85,000 you must register and HMRC are fairly strict on this.
That means you need to charge VAT on your invoices, collect that VAT and then pay it to HMRC via your VAT return.
It also means you are able to claim back VAT on certain purchases.
This is all worked out on your VAT return that’s submitted to HMRC quarterly.

(this is something we’d handle for you if you were a client of RJF)

Auto-enrollment is a pension scheme for your employees
As a company with employees you need to have a pension in place that staff can pay into. Your company pays 3% and the employee pays 5%.
You can pay more than 3% but that is the minimum.
Staff can opt-out if they choose to.

Tax can be complicated at times, but with a dedicated accounting firm like RJF dealing with everything for you, we can not only make sure you are paying the correct amount of tax, but also act as an advisor to help you structure your affairs in a way to reduce your tax liability wherever possible.
Call us today.