Contact Point Accountancy on 0208 508 6477
Contact Point Accountancy on 0208 508 6477

Limited Companies

There are lots of benefits of setting up a Limited company one of the main ones being Limited Liability, if you have any questions regarding this our experts can assist you in these matters.

Every Limited company is effectively its own legal entity and a Director is in effect just a manager of the company who runs all of the day to day activities on the company’s behalf.

As every other individual companies are not except from paying tax although a company is not liable for income tax it is liable for corporation tax which is currently set by H M Revenue and Customs at 20% of the total annual profit figure shown on the CT600 form that has to be submitted to HMRC.

A Director can take a salary from a company where they can use their personal allowance as a normal employee would, although if the director is also a shareholder they can also take dividends from the company.

HMRC tax dividend’s differently to income tax as there is no national insurance to be paid on these and different tax rates have been set the rates set from April 2017 are listed below:

  • Dividend tax free allowance: £5,000 regardless of other income this will reduce to £2,000 from April 2018
  • Basic Rate tax payers (up to £45,000 inclusive of salary and self-employed income): 7.5%
  • Higher Rate tax payers (£45,001  - £150,000 inclusive of salary and self-employed income): 32.5%
  • Additional Rate tax payers any income above £150,000 inclusive of salary and self-employed income): 38.1%

Taking dividends can work out beneficially for some directors although the company still pay’s corporation tax on the amount taken.

For Example:

Company A makes £20,000 profit in the financial year therefore has to pay £4,000 corporation tax leaving £16,000 of expendable cash Director Mr B would like to draw this £16,000 as his dividend figure after his wages which were £25,000 therefore the amount payable by Mr B is displayed below:

                                                Wages: £25,000

                                                Dividends: £16,000

                                                Total Earning £41,000

Therefore all of the dividends will come in to the basic tax rate of 7.5% bar the tax free allowance

                                                Dividends: £16,000

                                                Tax Free Allowance: £5,000

                                                Dividend due for taxation: £11,000

                                                Taxation due: £11,000 x 7.5% = £825.00

Therefore on the £16,000 dividends that the director Mr B will take he will be liable for £825.00 of tax to be paid to HMRC.

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