If I trade through a limited company which taxes will become payable?

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.

In addition to these, the company has to pay the below taxes:

Corporation Tax

This is like an income tax for companies payable on the profits that the company makes. Corporation tax is currently charged at a much lower rate than personal income tax. There are three bands, according to the company's annual profit:

Taxable Profit Corporation Tax
Up to £300,000 per year 20%
£300,000 to £1.5 million per year 27.5%
Over £1.5 million per year 26%

Once a year you will need to complete an annual tax return (CT600) and also supply a signed set of accounts to Companies House.

Once you have set up your limited company you must tell HM Revenue & Customs (HMRC) that your company exists and that it is liable for tax. You (or your accountant) will need to file a self-assessment Company Tax Return for your company. For this you will need to calculate your own corporation tax bill and pay it without assessment by HMRC. Read HMRC’s guide to corporate tax self-assessment here.

A company can send in its Company Tax Return at any time after the end of its accounting period but must do so no later than the statutory filing date. This is the later of:

  • 12 months after the end of your company's accounting period
  • Three months after your company receives a "notice to deliver a Company Tax Return form CT600" from HMRC

If your company fails to send its Company Tax Return on time, it will be charged penalties, depending on how late it is. You must pay your corporation tax bill exactly nine months and one day after your normal due date, normally the last day of the accounting period.

Useful Resources

VAT

If your business is also VAT registered you have to complete a VAT return form for each tax period, usually every three months. This should show how much you have charged your customers, how much you have been charged by your suppliers and how much you owe HMRC or are owed by them.

You will be sent your VAT return form towards the end of your tax period. You must return the form and payment (if appropriate), normally no later than one month after the end of your tax period.

Useful Resources

IR35

IR35 allows HMRC to “look through” a freelancer’s limited company accounts and treat the fees paid to it as the freelancer’s salary on which PAYE income tax and national insurance contributions are then payable.

Only a 6.0% allowance for expenses is made and no allowance for the cost of training, holiday pay or sick pay is made.

Useful Resources

Starting Out, Business Tax