As a limited company director, there are certain business and personal taxes that you are required to pay. Continue reading as we discuss your tax liabilities as a limited company director.
Income Tax
As a limited company director, you are required to pay income tax on the salary you take out of the business. The tax-free personal allowance for the 2022/23 tax year is £12,570, and any income above this amount will be taxed at the following rates:
- Basic rate taxpayer: 20%
- Higher rate taxpayer: 40%
- Additional rate taxpayer: 45%
National Insurance
As of April 2022, National Insurance Contributions (NICs) and dividend tax has increased by 1.25% for one year only for employers, employees and the self-employed. The increase applies to Class 1 (employee and employer), Class 1A and 1B and Class 4 NICs. From April 2023, a new Health and Social Care Levy will be introduced and apply to those who pay Class 1 (employer and employee), Class 1A and 1B and Class 4 NICs. The Levy will also be extended to those over the state pension age. When the Levy comes into effect, NI rates will revert to 2021-22 levels.
Employee’s National Insurance
As an employee of your limited company, you pay employees Class 1 NICs at 13.25% for all earnings above the primary threshold and 3.25% on earnings above the upper limits threshold.
Employer’s National Insurance
Your company must also pay employers’ Class 1 NICs at 15.05%.
Dividend Tax
Dividends are paid from profits after the deduction of 19% corporation tax. Each taxpayer has a tax-free dividend allowance of £2,000 in addition to the personal allowance. Any dividend income above the threshold will be taxed at the following rates:
- Basic rate taxpayer: 75%
- Higher rate taxpayer: 75%
- Additional rate taxpayer: 35%
Corporation Tax
Corporation tax is due on your company’s taxable profits and currently stands at 19%. Taxable profits include the money your company makes from:
- Doing business (‘trading profits’)
- Investments
- Selling assets for more than they cost (‘chargeable gains’)
If your company is based in the UK, it will pay corporation tax on all its profits from the UK and abroad.
VAT
VAT is one of the most significant taxes some limited companies must pay. VAT stands for Value Added Tax, and it is a charge added to the price of most goods and services in the UK. A company must charge VAT to their customers if it is VAT registered. The company will reclaim the VAT they have paid on legitimate business expenses and purchases.
You must register your company for VAT if the taxable turnover for the last 12 months was over £85,000 (the VAT threshold) or if you expect your turnover to go over £85,000 in the next 30 days. How companies are required to store and submit their VAT tax returns has also changed. Making Tax Digital for VAT was rolled out on the 1st April 2022, and it is now mandatory for all VAT registered businesses to submit their VAT returns digitally and store their VAT records using compatible software.
Business Rates
Business rates are charged on most non-domestic properties, such as:
- Shops
- Offices
- Pubs
- Factories
- Warehouses
- Holiday rental homes or guest houses
You are most likely required to pay business rates if you use a building or part of a building for non-domestic purposes. Business rates are calculated using a property’s ‘rateable value’. The rateable value is a property’s estimated value on the open market, which is set by the Valuation Office Agency (VOA). To calculate your business rates, please visit the government’s website.
Please speak to us about our limited company accountancy service
Here at Bluebird Accountancy, we provide the tools you need to manage your accountancy and bookkeeping. All with the help of a dedicated account manager with years of experience working alongside contractors and freelancers like yourself.
For more information about our limited company accountancy service or to sign up to Bluebird Accountancy, please call our friendly team on 0808 301 2389. Alternatively, you can complete the short form on our website, and a team member will be in touch.
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