As a company director, understanding the full scope of your company director tax responsibilities can be incredibly difficult. Nonetheless, staying on top of all taxes is absolutely essential; should you fail to register for VAT or make timely employer-related payments to HM Revenue and Customs, legal action may be taken against both you and your business. This article refers to company tax.
As a director, remaining up to date with present and upcoming legislation is crucial for your company’s prosperity in this ever-evolving landscape. Let us explore five of the most usual types of taxes that you should be familiar with as a business executive.
Table of Contents
Corporation Tax
Limited companies are liable to pay corporation tax – currently at a rate of 19% – on their taxable profits as soon as they become active. Unlike individual taxpayers, there is no personal allowance for economies operating in this way. At the close of each accounting year, corporations must submit a CT600 which serves as an annual return for corporation taxes; failure to do so within nine months and one day will result in penalties.
Taxable profits may consist of earnings from regular trading activities, gains acquired through investments and funds received from asset sales. Fortunately, there are reliefs and capital allowances available to lessen your corporation tax payment.
Income Tax
If you’re the director of a limited company, it may be necessary to pay income tax on any wages or dividends that are paid out by your business. Right now, the personal allowance is £12,570 (2022-2023), and anything over this amount will incur taxation via PAYE which is administrated through your company’s payroll system.
Starting April 1st, 2018, individuals now have an allowance of £2,000 they can withdraw in dividends tax-free atop the personal allowance.
If you receive dividend payments over £2,000 in any given year, your taxes will be calculated based upon your individual taxpayer status.
- Basic rate taxpayer: 7.5%
- Higher rate taxpayer: 32.5%
- Additional rate taxpayer: 38.1%
National Insurance
If you make an annual salary of £8,632 or more from your employer, then both the company and yourself will be accountable for Class 1 National Insurance payments to HMRC. Contributions are calculated based on the amount earned per year; however, payment must be sent in with each usual payroll cycle (regardless if one-time monthly or weekly).
As an employer, you are eligible to receive a reimbursement of up to £3,000 for your Class 1 National Insurance contributions in one tax year when using the Employment Allowance. This offer is open to all directors who employ other personnel as part of their business.
VAT
From April 1st, 2018 onward, businesses must register for VAT if the rolling 12-month turnover surpasses £85,000. It is crucial to inform HMRC as soon as possible in such cases or else monetary penalties may be imposed due to nonpayment of tax or delayed payments.
Once you’ve signed up, your business can charge Value-Added Tax (VAT) on its goods and services, as well as reclaim the tax for eligible items that it bought. VAT is an indirect form of taxation; customers have already paid this amount to HMRC, but businesses merely collect it on behalf of government institutions. The standard rate of VAT stands at 20%, however several beneficial schemes are available to facilitate collecting and reporting obligations for qualified companies. For instance:
- Cash accounting: Cash flow is no longer a concern for eligible companies with VAT, because they are not required to pay it until their invoices have been settled. This stands in stark contrast to traditional methods of paying upfront even if the payments remain unsettled.
- Flat rate scheme: This unique system streamlines your calculations by providing you with a fixed rate of VAT, thus making administration simpler.
Please be aware that the cash accounting and flat rate schemes cannot both be used at once.
Business Rates
Although not classified as a tax, business rates are akin to the council tax you pay on your residential property. If you own and operate commercial premises, then it’s likely that you’ll have to shell out for these specific taxes. The money collected is used by national governments for services such as education and social care programs.
The amount you pay for your premises is calculated by multiplying the open market rental value of your property–known as its rateable value–by a government-set multiplier. This figure is reassessed annually and those with a rateable value less than £51,000 are eligible for reduced multipliers.
Your business rates bill will arrive with the total amount due included, and your payments are usually spread out over 10 equal installments throughout the year. But if you find yourself behind on these payments, be aware that you may need to settle the remainder of what is owed in a single lump sum.
Business Rate Values are regularly reviewed every few years, and several reliefs exist to help eligible businesses. For example, farm buildings used exclusively for agriculture or religious places of worship automatically receive an exemption from business rate charges. Additionally, various other relief programs are available based on the size and type of your business.
Home-based businesses may not always be responsible for business property taxes; this is contingent on a variety of factors such as if you have personnel who work out of your home. In some cases, you might need to pay for business rate taxation in the area of your residence that you use for conducting company operations and council tax on all other parts.
For further information please contact Company Doctor on 0800 169 1536 or here.
Further guidance on Director Taxes
- Company Director Article Hub
- Fiduciary Duties – What Directors Need To Know
- Disqualification Of Director – What You Need To Know
- What Should Company Directors Do If They Paid Too Much In Dividends?
- Company Director Shares: Stick Or Twist?
- How Long Does Liquidation Take? A Directors Guide
- What Happens To A Disqualified Director?
