If you’re starting a new business as a limited company or developing your current sole trader or partnership business into a limited company in the United Kingdom, you must register for business taxes.
Limited companies are subject to various taxes, and it’s important to understand your company’s tax liabilities. Limited company tax requirements can be complex and liable to change, so working with an accountant or tax professional can be beneficial.
In this guide, we set out the different types of business tax, what you might expect to pay, and when you are liable to pay.
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What Are the Types of Business Tax?
Business owners of limited companies in the UK may be liable to pay a range of business taxes. While Corporation Tax is mandatory on all limited companies, other taxes are specific to particular business situations, such as the level of turnover or the industry operated in. Our UK Tax Rates, Tax Allowances, and Tax Bands article is updated with the latest news and information.
Here is a brief overview of some of the taxes that limited companies in the UK may be liable to pay.
What is corporation tax?
All limited companies are required to pay UK corporation tax on their profits. The current rate of corporation tax is 19%. Each year limited companies are required to file a corporation tax return to HMRC within 12 months of the end of the accounting period.
The company’s corporation tax return is a detailed document and must include the details of all the company’s income and business expenses for the accounting period. It will also include all tax allowances and reliefs that the company is entitled to claim. Crucially, the company must provide supporting documentation to back up the claims made in the corporate tax return.
How do you pay corporation tax?
Payment of corporation tax can be made via various methods, including online, by bank transfer, or by phone. The payment reference number must be included when making the payment.
When do you pay corporation tax?
If you have taxable profits up to £1.5 million, the company must pay taxes within nine months and one day of the end of the accounting period. Your accounting period is usually your financial year, but you may have two accounting periods in the year you set up your company.
If you have taxable profits above £1.5 million, then payment is made in instalments.
Value Added Tax (VAT)
What is VAT/the VAT threshold?
Value Added Tax, commonly known as VAT, is a tax that is added to most goods and services. If a limited company reaches a turnover of £85,000, excluding VAT-exempt sales, it must become VAT registered. It’s also possible for a company with a turnover underneath the threshold to register for VAT, and there may be financial reasons for doing so.
Once a limited company is VAT registered, it must charge VAT on all qualifying products and services. You will also be required to submit a quarterly VAT return whether or not you have any VAT to declare or wish to claim back. Every VAT-registered company can also claim back VAT on products and services purchased. If this amount is higher than the VAT you collected, you can reclaim the difference in your VAT return.
If you have collected more VAT than you paid, you will be liable to pay the difference to HM Revenue & Customs.
How do you pay VAT
VAT payment can be made to HMRC online via bank transfer or direct debit.
When do you pay VAT
Any VAT due must be paid to HMRC by the due date. This will usually be one month and seven days after the end of the VAT accounting period. Penalties and surcharges may apply for late payments.
What is PAYE?
PAYE stands for ‘Pay As You Earn’, and it’s the way in which HMRC collects tax and National Insurance from employees’ salaries. Under the scheme, it’s the responsibility of the employer to manage tax deductions and National Insurance at source before making a salary payment to the employee. This is then submitted to HMRC on behalf of the employer.
Every time a new employee starts work with the company, the employer must register them for income tax and National Insurance. The employer then deducts income tax and NICs from the employee’s salary each pay period, based on their tax code and National Insurance category. The employer must also pay the employer’s NICs on top of the employee’s NICs based on the employee’s earnings. PAYE is a mandatory system for employers, and any failure to operate PAYE correctly can result in penalties and interest charges.
How do you pay PAYE?
After income tax and National Insurance has been calculated for each employee and deducted from their salary, the employer then provides the details to HMRC through payroll software or HMRC’s online service. The employer will then pay the total due online, via direct debit, or by cheque.
When do you pay PAYE?
An employer is required to pay the amount of PAYE due to HMRC by the 22nd of the following month. If they are paying by post, payment should be received by the 19th of the following month.
DS Burge provides a fully outsourced payroll service, including PAYE.
CIS (Construction Industry Scheme)
What is CIS?
The Construction Industry Scheme (CIS) is a taxation scheme that applies to all contractors and subcontractors in the construction industry in the UK. It regulates the payment of taxes by construction industry contractors and subcontractors and sets out how tax is collected and paid by contractors and subcontractors.
Contractors must register with HMRC to verify the tax status of their pay contractors. Subcontractors are required to register with HMRC and provide their Unique Taxpayer Reference (UTR) to their contractors.
Contractors are then required to deduct a percentage from the subcontractor’s payment as an advance payment of the subcontractor’s tax and National Insurance contributions. This is then forwarded to HMRC. The deductible percentage depends on the tax status of the subcontractor and whether or not they are registered for CIS.
CIS can be complex, so to be confident that contractors and subcontractors are compliant with the scheme, it is advisable to take advice from an accountant or tax professional.
How do you pay CIS?
CIS payments are made online through HMRC’s website, using a debit or credit card, or by bank transfer.
When do you pay CIS?
CIS payments must be paid by the 22nd of the month following the tax month. Penalties may be applied for late payment or non-payment.
Construction is one of the most critical industries in the UK and a vital part of the economy. At DS Burge & Co, we help take you through CIS, explain how it impacts your tax situation, and deal with HMRC on your behalf:
What is ATED?
ATED stands for Annual Tax on Enveloped Dwellings. This is a tax that the government charges annually on UK residential properties with a value of more than £500,000 and owned by Non-Natural Persons (NNPs). A Non-Natural Person is a body such as a company, a partnership with at least one corporate member, or a collective investment scheme.
The scheme was introduced in 2013 to end a loophole to discourage the indirect holding of residential properties from reducing or avoiding paying taxes such as stamp duty land tax when the property is sold.
The ATED legislation requires that property held by a Non-Natural Person be revalued every five years to calculate the returns. The chargeable period begins on the 1st of April and ends on the 31st of March of the following year. The chargeable amount depends on the value of the property. The business rates for the current year can be found on the HMRC website.
How do you pay ATED?
Non-Natural Persons with property valued above the ATED lower limit of £500,000 need to register with HMRC in order to pay online. To register, you will require the name of the NPP and the Unique Taxpayer Reference number. You will then submit an ATED return, and HMRC will then calculate the charge to be paid. The deadline for submitting an ATED return is the 30th of April.
When do you pay ATED?
The deadline for ATED payment is 30th April. This can be paid in full or via instalments, with the first payment due on the 30th of April. Later payments must then be made on 31st October, 31st January, and 30th April of the following year. Failure to submit a return or a payment on time can result in penalties.
At DS Burge & Co, we help clients negotiate the complexities of ATED and ensure they meet their ATED requirements.
Preparing for Limited Company Tax Returns
Business taxes can be challenging to understand. Ensuring you meet all liabilities and maximise your allowances to reduce your tax liability is crucial to good business financial management. Expert advice and guidance can save you time and ensure that your tax affairs are in good order.
DS Burge & Co can give you business tax advice, help you register for your taxes and ensure that you meet your tax obligations. Contact us today to find out more about our services.