When you run a limited company, you need to pay corporation tax on the profits you make. HMRC will want to see annual accounts and a limited company tax return, detailing your corporation tax payment. 

It can get complicated, so let’s take a look at what you need to know. We’ll cover how to do a tax return for a limited company and focus on some potential ways to cut your tax bill.

What's included in your limited company tax return?

You need to submit your limited company tax return along with your annual accounts covering a 12-month accounting period.
Included within this, HMRC will want to see the turnover your business made and the profits you took. Specifically, that’s your turnover minus all your costs, which can include:

  • Your salary (but not dividends)
  • Employee salaries
  • Business expenses like travel, IT equipment, insurance or professional development courses.

Once you calculate your profits, you need to work out your corporation tax due, along the following lines:

  • 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.

HMRC will also want to see the dividends that were taken by company directors – remember, dividends can only be taken from the profits after tax.

Navigating HMRC requirements

Your limited company tax return isn’t like your self-assessment tax return, which everyone has to file by the same date. With your corporation tax return, it depends on your business’ financial year in line with when you set up the limited company.

For example, your financial year could be 1st October to 30th September. Your tax return is then due nine months and one day after the end of your accounting period. This would be 1st July in our example. If you miss the deadline with HMRC, you’ll be fined. Fines start at £100 and continue to rise the later you are with filing.

There are a number of things you need to send in your 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.

Corporation tax return

Your actual corporation tax return 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. 

You need to be super accurate with all the documents you provide as part of your tax return. Your accounts must meet UK or international accounting standards and you can’t afford to make mistakes with your numbers.

Optimising your limited company tax strategy

There are a few things you can do to limit how much corporation tax you pay:

Maximise your expenses

You incur business expenses when you buy things through your business. This could include laptops, travel expenses, insurance and professional development courses. These expenses are taken from your turnover before you calculate your profits. Paying for things through the business rather than your salary is therefore a more tax efficient strategy.

You can also throw a party once a year. Whether a summer or Christmas party, throwing an annual event enables you to claim up to £150 per person including VAT in expenses. This can include food and drink, transport and hotel stays.

Decide how you pay yourself

The way you pay yourself is a delicate balancing act. Salaries are taken out of your turnover before working out your profits. So, in theory the higher the salary you take the less corporation tax you’ll pay. Just remember that you start paying income tax on a salary over and above £12,570 a year.

Most limited company directors take a minimal salary and take the rest as dividends. Although the tax-free dividend allowance is now just £500 after 6th April 2024. You can also only take dividends if there’s enough profit in the business once your corporation tax bill is accounted for.

Hire a specialist

As a limited company business owner or director, you’re no doubt spinning plates every single day. Adding accounts and tax returns on top of that is another headache you likely don’t need. Plus, are you confident enough in your skills to complete your annual accounts to UK or international accounting standards?

Having a specialist accountant in your corner not only means that everything is above board when it comes to submitting your accounts and tax return, but they’ll also likely find ways to help cut your tax bill too.

Need help with your limited company tax return?

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