Limited Company Tax Explained

If you choose to form a Limited Company for your business then you could benefit from greater tax-savings and legal protectection than becoming self-employed.

What Tax Does a Limited Company Pay?

An LTD doesn’t pay income tax and national insurance, instead it will be liable to pay corporation tax at 19% on the first £300,000 of business profits.  

Corporation Tax Explained

How to Pay Yourself From Your Limited Company

Then, depending on how you pay yourself, there will be additional taxes to pay on your income. Typically Limited Company directors pay themselves through a tax efficient combination of PAYE salary and dividends.

  • PAYE salary will attract income tax and national insurance;
  • Dividends which attracts dividend tax.

How to Pay Yourself from Your Limited Company

Registering for VAT

VAT is a tax charged on most goods and services supplied in the UK. It stands for Value Added Tax and the current standard rate is 20%. There are three different types of VAT rates, which are applied depending on the goods or service being sold.

RateGoods & Services Rate Applies to:
Standard Rate 20%Most goods and services
Reduced Rate 5%Electricity, gas, carrycots, children’s car seats, maternity pads, sanitary protection products, nicotine patches
Zero Rate (0%)Books, newspapers, children’s clothing, certain food & drink, household water
VAT Rates

If your Limited Company taxable turnover exceeds £85,000 then you are legally required by HMRC to register for VAT. If that applies to you then once registered you must:

  • Charge VAT at the correct rate on everything you sell;
  • Deduct VAT you paid to your suppliers from the VAT you charged your customers;
  • Pay the difference on VAT paid and received to HMRC, normally quarterly;
  • Submit VAT returns using an HMRC approved bookkeeping software;
  • Keep VAT receipts.

Being registered for VAT carries more administration and reporting to HMRC. That being said, some businesses choose to voluntarily register for VAT because it brings tax and cash flow benefits.

An Overview of VAT

Filing Deadlines for a Limited Company

If you have a Limited Company you’ll need to file accounts at Companies House as well as Tax Returns with HMRC, here are each of the deadlines:

  • Filing company accounts 9 months after year-end
  • Filing a corporation tax return 12 months after year-end
  • Paying corporation tax 9 months after year-end.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.