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Limited Company Tax Calculator (Guide)
- What is a limited company?
- What are the benefits of a Limited Company?
- What is the time required to set up a limited company?
- How to register a limited company?
- How does the Limited Company tax calculator work?
- Can I register a limited company on my own?
- What is the cost of establishing a limited company?
- What taxes do limited companies pay?
- How is corporation tax calculated for a limited company?
- What Accounting records should a limited company keep?
- How long should a limited company's tax records be kept?
What is a limited company?
It is a type of legal framework for your business. Limited company:
- unlike sole traders, it is legally separate from the people who run it
- has separate finances and bank accounts
- has shares and shareholders
- can keep any profits it makes after paying tax or carry forward losses
Here, we'll look at how to form a limited company and its advantages and disadvantages.
What are the benefits of a Limited Company?
Enhance your business's credibility and potential consumer base with a limited company status. Unlike a sole proprietor, limited company registration exudes a sense of legitimacy and organisation.
- Better tax implications
Directors and shareholders of a private limited business can pay themselves through a PAYE salary, which can be added to stockholder dividends after paying corporation tax. Therefore, private limited companies may benefit from tax savings unavailable to sole traders.
- Protect your company name
When you register as a limited company, other businesses are prohibited from using your brand name or anything too similar to it.
- Raise additional capital
If your business is limited, you can raise money by selling shares. Because their risks are restricted to their shares' value, investors are protected from any business failure by owning shares.
- Pension benefits
Unlike those who operate a self-employed business, a limited corporation is permitted to deduct executive pension contributions from its operating costs.
What is the time required to set up a limited company?
Registering your business with Companies House online doesn't take much time. If you have everything prepared, you can complete the process in minutes, and registration is typically completed within 24 hours. Postal applications can take 8-10 days.
However, you might need additional time to complete the documentation beforehand. Having a business plan should assist you in organising your to-do list and let you know how much time you require to get going.
How to register a limited company?
You must first register your firm with Companies House and provide the required details to start a new Limited Company.
- Company's full legal name and address
- Directors' and secretaries' names and address
- Information about the capital and shareholders
Before registering or incorporating your business, Companies House will review the documents and confirm their validity. It will then issue a Certificate of Incorporation that contains details like:
- The company name and its registration number
- Its date of incorporation
- Business type, i.e. Private Limited by Shares
The company's registered office is in England, Northern Ireland, Wales, and Scotland.
How does the Limited Company tax calculator work?
UK limited company tax calculator determines corporation tax on profits, excluding any reliefs granted.
The effective corporate tax rate ranges between 19% to 25% beginning April 2023 (previously 19%). Businesses have no personal allowance, and hence, all profits are taxable. A firm's net taxable trading profit defines the rate of corporation tax you pay by corporation tax calculator .
From £0 to £50,000
£50,001 to £249,999
£250,000 or more
Because of the profit tax, you must determine the net trading profit for the financial year. It may differ from the gain on your profit and loss statement since some things aren't included for corporation tax purposes—for instance, annual investment allowance and various depreciation rates.
Suppose your limited company made £10,000 in sales and a £7,000 profit after paying £3,000 in expenses. At 19%, your corporate tax liability is £1,330.
Now let's say an ltd company's profit is £75,000 for a given tax year beginning on or after o1 April 2023.
1st slice of profits
2nd slice of profits
So we see an effective rate of 21.50% and a marginal rate of 26.5%—the £16,125 (£1,875 more than the 19% rate).
The effective rate of corporation tax at various profit levels from 01 April 2023 is:
Effective corporation tax rate
£250,000 or more
This Effective Rate applies to the total profits; no slicing is needed.
Can I register a limited company on my own?
Yes, you can set it up yourself, but there is a lot to do before, and if you are unfamiliar with the method, it might be overwhelming. If you require more assistance, you can work with our accountants.
Our limited company accountants can help you with the following:
- Selecting a structure
- Naming your business
- Opening a bank account for a business
- Completing paperwork and liaising with HMRC and Companies House on your behalf
- advise you on your new tax obligations and register you for corporation tax, VAT and payroll if you're an employer.
What is the cost of establishing a limited company?
Limited companies have both tangible and intangible costs involved with their structure than sole traders.
- Money – It costs £12 to register your limited company through Companies House online (and more by post). Still, if you're unfamiliar with the procedure, you may wish to engage an accountant or adviser to help with the paperwork.
- The day-to-day running of your business – For instance, costs include ongoing professional assistance and software for maintaining accurate records.
- Time – There are higher legal obligations and administrative duties than sole traders. It's critical to determine whether operating your firm as a limited company is required.
- Transparency – Details about your limited company, including its earnings and directors, are publicly accessible online through Companies House.
What taxes do limited companies pay?
Limited companies pay different tax rates compared to self-employed sole proprietors. This is because funds enter and leave the business in various ways. So what taxes is your limited company liable for?
- Corporation tax
The current corporation tax rate is 19% to 25% on all taxable profits. Profits up to £50,000 are taxed at 19%, between £50,000 to £250,000 at 26.5% and above £250,000 at 25%.
From £0 to £50,000
£50,001 to £249,999
£250,000 or more
The corporation tax rate for periods up to 31 March 2023 was 19%.
- Employee National Insurance
When paying wages to employees of your limited company, including yourself as the Director, you'll have to pay towards National Insurance (NI) contributions.
You must pay VAT on almost all profits and earnings if your company generates more than £85,000 annually. The standard rate of VAT is 20%.
Remember that the business is responsible for paying these taxes, not you as a director. If you receive dividends, you will be responsible for paying your taxes, including income tax, NI, and dividend tax.
How is corporation tax calculated for a limited company?
The company must submit a tax return even if it incur losses or don't owe any Corporation Tax.
It includes calculating profit and loss for corporation tax. Your accountant will arrange and file this on your behalf, in addition to filing your annual accounts with Companies House.
Your limited company's tax return has a 12-month due following the end of the financial period it covers.
The payment due for your corporation tax bill generally is nine months and one day after the accounting period ends. HMRC imposes penalties if you fail to meet these deadlines.
What Accounting records should a limited company keep?
You must maintain accounting records that include:
- information of assets owned by the company
- debts that the business has or owes
- stock the business owns at the end of the financial year
- the stocktakings you used to work out the stock estimate
- all products sold and purchased
Also, you must maintain any additional financial documents, calculations, and data needed to complete and submit your yearly accounts and Company Tax Return. This includes:
- all financial records for the business, such as invoices, petty cash books, orders, and delivery notes
- all finances received by the company, for instance, contracts, invoices, sales books and till rolls
- any additional relevant records, such as correspondence and bank statements
How long should a limited company's tax records be kept?
You have to keep records for six years from the end of the last financial year they relate to, or longer if:
- They display a transaction that covers more than one of the firm's accounting periods
- The business has bought something it expects to last more than six years, like tools and machinery.
- You sent your Company Tax Return late.
- HMRC has initiated a compliance check into your Company Tax Return
It consists of records of the company's money spent and received, including receipts, invoices, contracts, and bank statements.
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