We’re always being asked by new start-up companies, whats the difference between being self employed and a limited company. To find out what the difference is, read on…
There are tax difference, and there USED TO BE a very specific tax advantage of being a limited company where the first £10,000 net profit was tax-free (in the UK), but that has since changed. The accountants will always tell you the best structure ‘depends’ on what it is you want to achieve – true. But there are reporting differences. The video explains what they are. This blogpost will just recap them.
Limited Liability companies:
- You have to file annual accounts with Companies House
- Your year end can change, but its set to the end of the month in which you formed the limited company e.g. if you formed the company on 10 July, your year end will always be to the end of July (unless you change it)
- You can change your year end by downloading the form from Companies House
- The accounts you have to file consist of a profit & loss and Balance Sheet and are available to the public (for a small fee) from www.companieshouse.gov.uk
- You have to file a Corporation Tax Return 9 months after the end of the financial year e.g. with a year end 31 March, your return is due 31 Dec
- CT is approx 20% …. and so with Sales – expenses = net profit before tax minus Corporation Tax = Net Profit After Tax… and out of this figure (NPAT) you can pay dividends to your directors
- There is an annual form (on the anniversary of opening the company), which is due every year e.g. in this example, every 10th July, the company will get a reminder to fill in the form. Theres a small charge to fill it in online (about £13, or paper version £30), and it just asks – who are the company directors? date of birth? address? whats the main type of business the company is classed as e.g. accounting, law etc., Share capital.
- You file a ‘self assessment tax return’
- The year end is government-set and is always to the 5th April
- You can file online at hmrc.gov.uk
- Your ultimate deadline is 31st Jan, (although if you get it in my 30th Sept, then the HMRC will help you to calculate the tax due for you)
- Every UK individual has a tax-free allowance which they can earn, before tax is due (around £9,400 at time of writing)
- Sales, minus allowable expenses = net profit…
- National Insurance & Tax of about 33% is due on the earnings / net profit above the tax-free allowance
It’s important to keep on top of your receipts, and to get your accounts done on time, otherwise penalties and fines will be coming your way! The UK government give you plenty of time/notice to file ontime, so there isn’t really any excuse if you are late. If you are a bit disorganised and need a hand with these things, then do contact us.