If you run your own business as a limited company, you need to pay corporation tax. Limited company taxation can get complicated in terms of how much you need to pay and when you need to do it. You’ll also want to reduce your corporation tax liability as much as you can. Here, we’ll take a look at exactly what it is, and a few strategies to help you along the way.

Limited company tax explained

Your limited company tax is your corporation tax, which covers a 12 month accounting period. It’s charged on any profits the business makes. So that’s your turnover minus all your costs, which can include:

  • Paying yourself a salary (but not dividends).  
  • Paying employees a salary.  
  • Business expenses like travel, IT equipment, insurance or professional development courses.  

There’s been plenty in the news recently about corporation tax increases, so you’ll need to know exactly what you have to pay.

  • If you make profits of less than £50,000 you’ll pay 19% in corporation tax.
  • If you make profits of more than £250,000 you’ll pay 25% in corporation tax.

Anything between this is subject to marginal relief, where you can reduce your bill from the 25% rate.

What is a limited company UTR number?

A limited company UTR number is your unique tax reference number. This is a 10-digit code that uniquely identifies your business, and you can’t submit a company tax return without it.

You’ll get it when you first set up your company – HMRC will send it to you in the post around 10 days later. You’ll also see it in the HMRC app, and it’ll be at the top of most letters you receive from HMRC about your business and tax returns.

You’ll also get a personal UTR for your Self Assessment tax returns. The two numbers are different.

RIFT Refunds Head of Finance, Jason Scrivens-Waghorn says

Don't get your company UTR confused with your company registration number (CRN) either. You'll receive a CRN when your company is 'incorporated', which is when it basically becomes it's own legal entity. You'll need this when you're dealing with Companies House.

Limited company tax return process

The first thing you need to work out is when your tax return is due. Every limited company has a 12 month accounting period that relates to when the business is set up. This doesn’t necessarily follow the usual April to April financial year.

For example, it could be 1st November to 31st October. Your tax return is then due nine months after the end of your accounting period. In this example, it would be 31st July. You then need to pay your corporation tax bill nine months and one day after the end of your accounting period – so, 1st August in our example.

The next step is to understand what you need to send to HMRC, and it’s a lot. When it comes to paying your corporation tax, HMRC wants to see full statutory annual accounts and your corporation tax return.

Full (statutory) annual accounts

This must include:

  • A balance sheet: Showing the value of everything the company owns and is owed on the last day of the financial year.
  • A profit and loss account: Illustrating the company’s sales, running costs and the profit or loss made over the financial year.
  • Notes about the accounts.
  • A director’s report.

Your accounts must also meet UK Generally Accepted Accounting Practice (UK GAAP) or International Financial Reporting Standards (IFRS), depending on the company's size, its type, or if it's part of a larger group that uses international standards. Meeting these standards ensures that your financial statements are prepared in a consistent and transparent manner, allowing for comparability across different periods and with other companies.

Corporation tax return

Alongside your accounts, you also need to submit a corporation tax return which must include:

  • Profit or loss for Corporation Tax (this is slightly different from the profit or loss shown in your annual accounts).
  • Corporation Tax bill.  

There are a few different ways you can file these with HMRC, but the most common is filing them together using HMRC’s online service or accounting software. You’ll need to compete a CT600 form to do this.

You also need to submit a confirmation statement every year to let HMRC know if anything has changed with the business. It’s usually due every year on the date you originally set the company up.

Sounds complicated? It is. This is why most limited companies work with an accountant to do all the heavy lifting when it comes to the number crunching and the filing.

Expert insights and strategies

When you run a limited company, it’s vital to keep on top of the numbers and know how your tax works. These tips should stand you in good stead:

File on time

Get to know your specific filing dates like the back of your hand. Remember, the deadline depends on your business’ tax year. If you miss the deadline, HMRC fines start at £100 and rise from there.

Think about how you pay yourself

As a director of a limited company, of course you need to pay yourself. And you’ll want to do it in the most tax efficient way possible.

For many people, that involves paying themselves a small salary that’s within the income tax allowance threshold, alongside dividends. In the UK, you can pay yourself up to £12,570 annually without incurring income tax – that works out at £1047.50 a month.

The rest of your income from the business can be made up of dividends. You get £1000 every year without tax and will need to pay income tax on the rest, as follows:

  • Basic rate: 8.75% tax.
  • Higher rate: 33.75% tax.
  • Additional rate: 39.35% tax.

Remember, this isn't your only tax return

As a director of a limited company, you have two tax returns to pay:

  • The Corporation Tax return is when you pay your corporation tax.
  • Your Self Assessment tax return is when you pay your personal tax.

The former relates to the business and the latter relates to you, but they are of course connected. You’ll need to stay on top of the numbers across both.

Understand how you can take money out of the business

When you pay yourself a salary, this goes down as a business cost so it’s subtracted from your turnover before you calculate your profit. Dividends on the other hand are taken from the profits of the business, and you can only take them if there is enough profit to do so.

One important thing to remember with dividends is that they’re taken from the profits after tax. This means you’ll need to work out your profit and the tax you need to pay before you know what dividends can be taken.

This can get complicated and leads many directors to take more that they should in dividends (even if there’s money in the business account). If you take more, you’re getting into the territory of director’s loans where the business is effectively lending you money. There are a whole host of rules around this with HMRC too.

Consider how to lower your corporation tax bill

There are a few strategies that you can employ, including:

  • Maximise your expenses: When you buy things through your business – like laptops, travel, insurance, professional development courses – this is viewed as a business expense. Business expenses are deducted pre-tax and VAT. Paying through your business is a more tax efficient strategy than paying yourself and then buying them, as you’ll be taxed on the latter.
  • Throw an annual party: If you throw an annual event, like a Christmas party for all employees, you can claim up to £150 per person (including VAT) which can include food and drink, transport and hotel stays. This is an HMRC-approved exemption , and the cost per head must not exceed £150. Otherwise, the total amount becomes taxable
  • Claim for start up costs: For expenses incurred before your company is officially formed, it's possible to claim these as pre-trading expenses once the company is operational, provided they are incurred exclusively for the purpose of the business and would have been deductible if incurred after the company was formed. This includes costs such as market research, professional fees related to the company setup, and purchase of initial stock.

These strategies can effectively reduce your corporation tax bill, but it's essential to ensure that all claims are legitimate, properly documented, and in compliance with current tax laws and HMRC guidelines. Misusing these strategies or attempting to claim for expenses that are not strictly business-related can lead to penalties. Therefore, it’s worth speaking to tax specialists like RIFT Refunds or an accountant to ensure that your actions are both compliant and tailored for your specific situation.

At RIFT, our specialist accounts can take the hassle out of your accounts and corporation tax return. We’ll crunch the numbers with you, advise you how to lower your tax bill and get everything boxed off well in time with HMRC. Get in touch with us today to find out more.