What personal tax liabilities might I have to pay if I trade through a limited company?

There is one very important point to remember - you and the limited company are two separate legal entities. Therefore, the way tax is paid on limited companies is different to the way that non-limited companies pay tax. Directors and employees of limited companies pay income tax via the PAYE scheme and employee’s National Insurance Contributions.

Income Tax and PAYE

Directors and employees of limited companies pay income tax on their taxable income. This will be deducted monthly through PAYE (Pay As You Earn), which is HMRC’s system for collecting income tax from the pay of employees, including directors, as they earn it. An employer is required to deduct income tax and National Insurance Contributions (NICs) from its employees’ pay and to submit the deductions to HMRC.

This usually needs to be done by the 19th of each month, unless your average monthly payments are likely to be less than £1,500, in which case you may be able to pay them quarterly.

Employees and directors are also taxed on benefits in kind, such as a company car or medical insurance. As an employer, you will also have to pay class 1A NICs on benefits. These are declared annually via a form P11D.

Useful Resources

Starting Out, Business Tax, Personal Taxation