Starting a Limited Company is one of the most desirable options for many entrepreneurs. Although this structure allows you to save tax compared to others, there are some things you have to be careful about if you want to really reduce costs and save on taxes. In this article, we will walk you through some tips that might be applicable to your case.
Paying yourself
Did you know that you can give yourself a retribution as a Ltd? You can do it via a small salary and/or dividends (returning part of the profits to shareholders). In case it goes under a certain threshold, you might not have to pay income tax, i.e. PAYE.
Your spouse
Another thing some people do is splitting your shares with your partner, especially if he/she has no income. You should first consult with us to find out whether this is a feasible option in your case.
Executive Pension Scheme
If your company invests pre-tax income in an executive pension scheme, you will save a good sum of money compared to the post-tax income investing path.
Expenses
You know you can put expenses through your company, so you should take advantage of every kind of service or product expense you had to make for business duties. There are several types of expenses you might not have considered yet:
- Lodging Expenses
- Self Education Expenses
- Internet connection
- Home-working Expenses
- Childcare vouchers
- Personal Incidental Expenses
- Medical Tests (Work-related)
- Entertainment
- Public transport
- Mileage Expenses
Dividend Declaration Timing
In order to save tax, another strategy is to delay drawing your company profits (in case you reached a specific rate) until another tax year. It is better to discuss this with your accountant in order to devise a good plan.
Pay VAT if they pay you
A smart way to reduce unproductive tax is the Cash Accounting Scheme for VAT. With it, you do not need to pay VAT on invoices that have been issues but not paid. In this way, non paying clients will not force you to pay additional taxes on top of the failed transaction.
No National Insurance Contributions
Dividends for limited company owners aren’t subject to National Insurance Contributions (NICs). This fact alone will save you tons on taxes compared to the sole trader route, in which NICs must be paid on all income.
Open up a business deposit bank account for your tax liabilities
If you open up a business deposit bank account, you may achieve an interest rate of 2 to 3 percent, which is much better than the rate of zero for most business current accounts.
Keep up with your tax and statutory deadlines
As a limited company owner, this is another important thing you will have to keep track of yourself. Ensure that you are aware of your tax and statutory deadlines for things like Annual returns, VAT returns, and self assessments, and that you handle them on time. If you pay them late, you will be subject to penalty.
FAQs on how to save tax on a limited company:
How can a limited company save tax?
A limited company can save tax through various strategies such as claiming allowable expenses, utilizing tax reliefs and allowances, and tax-efficient profit extraction.
What are allowable expenses for a limited company?
Allowable expenses for a limited company include costs directly related to running the business, such as office rent, salaries, and business travel expenses.
What tax reliefs and allowances are available for limited companies?
Limited companies can benefit from tax reliefs and allowances such as capital allowances, research and development tax credits, and the annual investment allowance.
What is tax-efficient profit extraction for a limited company?
Tax-efficient profit extraction involves strategies such as paying salaries and dividends, pension contributions, and utilizing tax-efficient investment schemes.
How can a limited company reduce its corporation tax liability?
A limited company can reduce its corporation tax liability by maximizing allowable deductions, claiming tax reliefs, and utilizing tax planning strategies.
What are the key considerations for tax planning in a limited company?
Key considerations for tax planning in a limited company include managing profits, utilizing tax-efficient structures, and staying compliant with tax regulations.
Are there any specific tax-saving strategies for small limited companies?
Small limited companies can benefit from tax-saving strategies such as utilizing the annual investment allowance, claiming research and development tax credits, and utilizing the small profits rate of corporation tax.
How can a limited company benefit from pension contributions as a tax-saving strategy?
Making pension contributions on behalf of directors and employees can be a tax-efficient way for a limited company to save tax while providing long-term financial benefits to the individuals.
What are the tax implications of paying dividends from a limited company?
Paying dividends from a limited company can be a tax-efficient way to distribute profits, as dividends are subject to different tax rates compared to salaries.
Can a limited company benefit from tax relief on charitable donations?
Yes, a limited company can benefit from tax relief on charitable donations through the Gift Aid scheme, allowing the company to deduct the donation from its profits before calculating its tax liability.
Are there any tax implications for transferring assets within a limited company group?
Transferring assets within a limited company group can have tax implications such as capital gains tax and stamp duty, so it’s important to consider the tax consequences before making any transfers.
How can a limited company structure its operations to minimize tax liabilities?
Structuring operations through efficient use of subsidiaries, group relief, and cross-border tax planning can help a limited company minimize its overall tax liabilities.
What are the tax implications of selling a limited company?
Selling a limited company can have significant tax implications, including capital gains tax and entrepreneur’s relief, so it’s important to seek professional advice before proceeding with a sale.
Can a limited company benefit from tax credits for innovation and development?
Yes, a limited company engaged in innovative activities can benefit from tax credits such as research and development tax credits, providing valuable tax relief for qualifying activities.
How can a limited company stay compliant with tax regulations while maximizing tax savings?
Staying compliant with tax regulations involves maintaining accurate records, filing tax returns on time, and seeking professional tax advice to ensure that tax-saving strategies are implemented within the framework of the law.
