Accounts Tax Vat

Accounts, Tax and Vat explained in plain English

5 Tax Tips for Limited Companies

Limited CompanyHere are 5 basic but often missed tax tips for those that run/own a Limited Company. How to extract money from a Limited Company the most tax efficient way and how to reduce your corporation tax liability.

1. Dividends

One of the benefits of being a shareholder in a Limited Company is the ability to be receive dividends.  Dividends have the benefit of being taxed at a lower rate when an individual reaches the higher rate tax bands of 40 & 50% plus they do not attract national insurance.

The Limited Company must have sufficient retained profits in order to pay any dividends and the correct paperwork must be completed and declared properly in accordance with company law requirements.

One thing to take care of when using the dividend route is to make sure that those receiving dividends still receive a salary high enough to make national insurance contributions.

2. Pension Contributions

Consider setting up pension payments from a Company as these are usually tax deductible for Corporation Tax purposes.  They also have the benefit of increasing the marginal tax rate of those who receive the contributions, providing the relevant limits are not exceeded.

Using pension vehicles such as Small Self Administered Scheme (SSAS) or a Self-Invested Personal Pension (SIPP) can be beneficial when business premises are being purchased as the rent received will not be taxed in the SSAS/SIPP and the Company will usually receive a tax deduction for the rent paid.

3. Annual Investment Allowance

The annual investment allowance or AIA for short is a capital allowance which provides full write off of capital expenditure in the year of purchases for plant and machinery.  The allowance has decreased from £100,000 to £25,000 as of April 2012 but a temporary increase to £250,000 has been agreed for two years from January 2013.

By reviewing and planning expenditure it is possible to reduce profits subject to Corporation tax and fully maximise the use of the AIA.

4. Company Cars

Have you considered whether the cars used in your business would be better owned personally. If you use a company car personally you will be subject to National Insurance on the benefit in kind, this can be costly depending on the vehicle and if the fuel is included.

Owning the car personally will not attract the benefit in kind and mileage can be claimed at the approved rate of 45p/25p per mile. The right choice however will depend on the circumstances and the vehicle involved.

5. Family Members

Do family members (spouse, children) help or work in the business. If so then consider splitting shares with husband/wife in order to best utilise your other half’s tax allowance.
If your have children aged at least 13 who earn less than £8,105 and they help out in your business you can pay them a wage to reduce taxable profits.

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