Corporation tax in the UK how does it work

14 years ago

Hi,

Your best bet is to talk to a Qualified Accountant.

They will advise you what is the correct and proper way to deal with this.

If you pay yourself through your LTD company, you will be paid as a Director. That means you need to contact the Inland Revenue and get your company a PAYE account.

Corportation tax is paid on Profits - Profits are what are left after you have paid your wages and other expenses chargable to the business.

Seriously go and find and speak to an Accountant.

Thanks

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Frank Donovan

14 years ago

Hi WWW,

The short answer is that the Limited Company will be liable for corporation tax on any profits. You'll also separately be liable for income tax on any money you pay yourself out of the company. The tax rate will vary depending on whether you pay yourself a salary or a dividend.

That's only a broad outline - you really need to discuss the whole matter with your accountant.

Frank

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David Walker

14 years ago

I cna only echo what's being said - you need to speak to an accountant who can discuss all your options, what to put through as company expenses etc. to keep your tax bill as low as possible.

You also need to submit company accounts as well so a good accountant is well worth the expense.

I couldn't do all of the accounting, tax stuff by myself - it would fry my brain and not be at all cost effective!

David

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Owen Smith

14 years ago

Right I wont be earning more than £40,000 for my first 2 years (projected profits)

So here is what I figure happens.

I make the money, deduct any expenses which gives me my profit.

I will be paying in dividend between me and my business partner, which would mean we both seperatelly pay our own tax? Or so I pay tax on the overall profit and then divide what is left between the two of us.

If so which tax type would it be that I pay earning £40,000 through dividend.

Thanks for everyones help so far its been brilliant.

Thanks
1 reply

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competitive

14 years ago

You are far better off paying yourself and your partner a salary of £6,000 p.a each without paying tax or national insurance becuase its below the threshold. You would also be far better off declaring expenses each month which reduce your end of year profits so lets say that amounts to £20,000 then if there is £20,000 left you would pay Corporation tax at the small companies rate of 28%. You don't want to pay yourselves a dividend otherwise your paying tax twice.

Originally Posted by webworldwonders

Right I wont be earning more than £40,000 for my first 2 years (projected profits)

So here is what I figure happens.

I make the money, deduct any expenses which gives me my profit.

I will be paying in dividend between me and my business partner, which would mean we both seperatelly pay our own tax? Or so I pay tax on the overall profit and then divide what is left between the two of us.

If so which tax type would it be that I pay earning £40,000 through dividend.

Thanks for everyones help so far its been brilliant.

Thanks
1 reply

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GuerrillaIM

14 years ago

Originally Posted by competitive

You are far better off paying yourself and your partner a salary of £6,000 p.a each without paying tax or national insurance becuase its below the threshold.

There are some complications with paying yourself nominal PAYE and deriving profits from dividends if you have a mortgage. I don't know the exact ins and outs, buts its worth asking an accountant regarding this as it was an issue when I was in a partnership. Now I own 100% of a company apparently its not an issue. Ask your accountant about it as there is some law or regulation regarding it.

PS. Don't skimp on accounting services and book keepers. I got a £20,000 fine from the revenue in my last company even though I employed a book keeper and accountant. Repuatable and established accountants cost a lot but they make up for it. My new accountant charges 3 times as much but I am happy to pay it as I get good service, but ultimately it is your legal responsibility as a director to double check your accountant and book keeper are doing their job right.

Thanks

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competitive

14 years ago

This is how you do it.

You declare your turnover and deduct cost of sales such as loans for setting up the company or exhibition costs or seminar costs (if any) then you add on bank interest this is then your gross profit. Then you deduct all of your office expenses and bank charges and declare your net profit. You pay Corporation tax on the small business rate. You are taxed on your worldwide profits.

For yourself you can take a salary £6,000 p.a without paying tax or national insurance becuase its below the threshold. You can also have expenses each month for travelling, business meetings and sustenance, all expenses are tax free. It would be unlikely you would make a profit in your first year unless you were really successful and you can only take a dividend if you have made a profit.

You would need to complete your CT600 and submit to the revenue create your profit and loss accounts along with a balance sheet of your company and also submit your accounts and annual return to companies house.

Thanks

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Owen Smith

14 years ago

Gosh it doesnt sound simple. I will make a profit in my first year as I am already trading making a good profit. My overheads are small. I also have a job which I earn the tax free thresh hold.

So this is how it is.

I take any expenses out of the total I have made, e.g. petrol expenses and so on. What ever is left over, I can split the lot between me and my partner.

I will then have to pay Corporate Tax, after paying corporate tax, I can then split the amount between me and m partner, we then need to declare our earnings as self employed and pay our idividual taxes?

Thanks
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competitive

14 years ago

Originally Posted by webworldwonders

Gosh it doesnt sound simple. I will make a profit in my first year as I am already trading making a good profit. My overheads are small. I also have a job which I earn the tax free thresh hold.

So this is how it is.

I take any expenses out of the total I have made, e.g. petrol expenses and so on. What ever is left over, I can split the lot between me and my partner.

I will then have to pay Corporate Tax, after paying corporate tax, I can then split the amount between me and m partner, we then need to declare our earnings as self employed and pay our idividual taxes?

Correct if you have separate self employment you will still have to submit a personal return under self assessment and your self employment and company salary could make you pay higher rate tax.

Thanks

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Owen Smith

14 years ago

Right so If I want to take that money out, and there is £20,000, how do I then have that money without paying extra tax on it?

Thanks

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Owen Smith

14 years ago

So basically, If I pay myself a salary I dont have to pay corporate tax, would I not be classed as employed by the company then and would my business partner not be?

Thanks

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Owen Smith

14 years ago

So I could just take out my percentage of the fees and his, pay my tax and send him his money with a receipt, I will then nit be reponisible if he has not bothered paying the tax

Thanks
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Janet Sawyer

14 years ago

Originally Posted by webworldwonders

So I could just take out my percentage of the fees and his, pay my tax and send him his money with a receipt, I will then nit be reponisible if he has not bothered paying the tax

Look dude, go and see a Qualified Accountant or Business Advisor, the information here is so - DIRE - and WRONG

To quote you, yes you WILL be a "nit" and more than likely you will be responsible for any outstanding taxes for the Compamy regardless of where any Director lives. If the Company is registered in the UK, it has to comply with UK law.

What you are setting up is a very difficult situation regarding tax, etc, and you should not be relying on the answers here to be your guidance.

GO AND SEEK PROPER PROFESSIONAL ADVICE.

Thanks

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blackjack

14 years ago

Originally Posted by webworldwonders

So I could just take out my percentage of the fees and his, pay my tax and send him his money with a receipt, I will then nit be reponisible if he has not bothered paying the tax

It is not that simple. You need to get professional advise because depending on how your arrangement with your Canadian Partner is.

1. You can not just withdraw any left overs. If it is LTD company then it needs to declare dividends in a meeting of directors. Then you pay divined per share held in the company.

2. If your partner in Canada is 50% share holder in your LTD then you pay dividends when declared. HMRC gets bit fishy about LTD with individual who are in not UK being share holders of LTD

My best advise is to get a professional accountant and you will save money in the long run.

Thanks

Thanks

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Owen Smith

14 years ago

Janet, I am receiving professional advice on Monday. I simply came here to get a better overall understanding as I was 100% unsure how the process worked. The reason for my bad spelling is due to the fact I am using my iPad, apologies...

Thanks
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Janet Sawyer

14 years ago

Originally Posted by webworldwonders

Janet, I am receiving professional advice on Monday. I simply came here to get a better overall understanding as I was 100% unsure how the process worked. The reason for my bad spelling is due to the fact I am using my iPad, apologies...

Don't worry about bad spelling! I get things wrang all the time, especially with regarsd to spelling

Worry about getting things wrong business wise and you are in for a bad time with the IR (Inland revenue) your projected profits? you need to seriously be talking to an accountant.

Do you need to be registered for VAT? that's not dependant on profits, but on turnover.

Do you need to be looking at what is and isn't ruled as under the CIS scheme?

It's a minefield and if you get it wrong, you'll get fined, left right and bl**dy central.

Talk to an Accountant.
{ I know you said you are meeting one on Monday - ask them what they know about internet marketing- holding funds in two or maybe three or four seperate currencies, how to charge vat according to who purchases, and how you keep records to show this!}

[what about Canada sales taxes, how is this going to affect sales receipts?]

Make sure they have professional indemnity insurance and then if it goes wrong for you, you always have the option of suing them for wrongful advice.

[Nothing I have said here is hard or fast rules, if you need professional adivice, seek out a qualified professional Accountancy or Lawyer whatever you need to make it work for you.]

Thanks

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Corporation tax in the UK how does it work

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