What’s the Story with a Limited Company?
Creating a limited company can have loads of advantages, depending on what type of company you’re registering and how you would like it to trade. Today, we’ll go through a few of the benefits that come with having a limited company that not many business owners may know about. These tips can help you run your business more effectively and hopefully find some ways for you to save money.
What is a limited company?
Going back to the basics, a limited company is a form of business which separates the legal entity from any owners (shareholders or directors) and is publicly registered with Companies House.
This changes a few things about how your business may deal with taxes and dividends. For example, you will be taxed differently to other forms of business, paying corporation tax on your taxable profits. As of February 22nd, this number is currently at 19% but it is subject to change, so it’s always important that you stay up to date with tax reforms. You can always find out more about corporation tax rates on the government website, which will be updated shortly after the tax announcements in early April.
Dividends and tax rates in a limited company
As the head of a limited company, you will also be able to pay your shareholders dividends from the company. These dividends will be taxed differently to regular income and may be subject to certain allowances set by the government each year. You must declare these dividends on your personal tax return, generally at 7.5% tax. At the moment, the higher band is 32.5% and the additional band is at 38.1%, however, these may be subject to change in April as well. Everyone is allowed to have a £2,000 dividend allowance per tax year, which means that you are able to receive £2,000 in dividends and not have to pay any tax on them. According to current announcements, the tax on dividend income will be increasing by 1.25% in April 2022 in order to support the NHS, health and social care. For the full rates and breakdown, visit the government website and check back in April for any updates.
National Insurance contributions
Generally, company directors and shareholders are able to take a small salary, but just enough to bring them up to the National Insurance threshold. This means that if you qualify for National Insurance contributions for your state pensions, you can take the rest of your income from the company in the form of dividends. This can give you an overall lower rate of tax in most cases. However, it is important to note that when you declare a dividend in a company, you will need to produce a couple pieces of paperwork, including a dividend certificate and a dividend minute. You can find some handy templates on the ACCA’s website to help with the completion of these papers.
The best way to make the most of your tax bands is with a proactive advisor – and that's exactly what we do at Sllick. We get to know your business from the bottom-up to understand how we can help you make the most of your accounts, financial position, and financial processes.
Book a free discovery call with our Virtual Finance Team today to find where your business can save money and cut costs.
