Understanding the Tax Obligations of a Limited Company

by
What tax do I pay as a Ltd company?
Unlike sole traders, limited companies don’t pay income tax and National Insurance. Instead, they pay corporation tax on their profits (income less allowable expenses). The current rate is 19 percent.
Read more on mileiq.com

Corporation tax on your profits is due if you operate a limited company. The taxable profits of your business, which are the difference between your total income and authorized expenses, are used to determine this tax. The UK has a 19% corporation tax rate that is due 9 months and 1 day after the end of your accounting period.

In addition to corporation tax, you might also be required to pay other taxes, such as value-added tax (VAT) if your company’s turnover exceeds the VAT level or employer’s national insurance contributions (NICs) if you have employees. To make sure you are paying the appropriate amount of tax, it is crucial to maintain precise and current records of all your financial transactions.

Being able to hire yourself as a director and get a salary that is subject to income tax and NICs like any other employee is one advantage of functioning as a limited business. You may also receive dividends from the earnings of your business, which are taxed as dividends. It’s crucial to remember that dividends are only paid out if your business generates enough income.

Being a limited company has a number of benefits over being a lone trader. One benefit is restricted liability, which protects your personal assets in the event that the business experiences financial difficulties. For sole proprietors, however, personal liability for any obligations incurred by the business exists.

Operating as a limited company might also present a more professional image and possibly make it simpler to get funding or draw clients. This is due to the perception that limited corporations are more reputable and financially secure than sole proprietors.

You must pay income tax and NICs on your profits as a sole proprietor. Your overall income, your list of permissible expenses, and your unique situation will all affect how much tax you wind up paying. Depending on your income level, the tax rates for sole proprietors might range from 20% to 45%.

In conclusion, if you operate a limited company, you must pay corporation tax, which is currently fixed at 19% of your profits. Depending on your business activity, you can also be required to pay additional taxes like employer’s NICs or VAT. Being a limited company has a number of benefits over being a sole proprietor, including limited liability and a more professional appearance. You must pay income tax and NICs as a sole proprietor on your profits, with different tax rates depending on your income level.