Owner Managed Business
- Book-keeping
- Cash Flow Statement
- Invoicing
- Budgeting
- VAT returns
- Company formation
- Annual return with Company House
- Filing with HMRC
- Management Accounting
- Payroll bureau
Tax efficient profit extraction from my company?
How to extract profit from my company?
Salary:
- You could take a optimum salary of £12,570/year to preserve a qualifying year for state pension and free employee National Insurance.
- Although employer’s NI is due (£1,136) being excess of £5K, you can save Corporation tax on the salary which is deductible.
- If you are the only director and have no other employees, you can’t claim the Employment allowance of £10,500 (25/26).
Dividend:
- After paying yourself the optimum salry of £12,570, you could take the profit out as a dividend paying for Income tax as follows:
- First £500 of dividend is tax free allowance.
- Up to £50,270 total income is at 8.75%
- Above that is at 33.75% or 39.35%.
You don’t pay for national insurance on the dividend but the dividend is not deductible for your company.
Savings income:
You can have £1,000 or £500 of savings allowance for basic and higher tax payer respectively, in addition to the £5,000 with saving start band.
Hence, if you lend money to your company and charge interest which is deductible for Corporation tax, you can exploit this opportunity for you and your company.
Rent:
Rent is Non Saving income and not subject to NIC. You could charge your company a licence fee for its use of your home. However, this is not tax efficient where your income tax rate is 20% on the rent whereas tax relief on the rent for company can be only at 19% for small profit company.
Pensions:
You can take the profit as pension for free of tax. Pension contribution by your company is tax exempt for you and your company can have a relief too.
You can take maximum annual contributions allowance (AA) of £60,000 per tax year providing your relevant earning is that amount and you can claim unused AA of 3 previous years providing a member of pension.
Tapered AA for High Income Individuals
Where your threshold income is more than 200K and adjusted income is over £260K, the AA is reduced by £1 for every £2 on the excess of £260K but reduced to minimum £10k.
P11D: reporting benefits and expenses
Employers have an annual obligation to complete forms P11D in respect of each employee in receipt of taxable employment benefits or expenses.
Deadline for the filing and payment of NIC 1A on the taxable benefits are by 6 and 19 July respectively.
Typical taxable benefits are private expenses paid by employer, medical insurance, loan, car/fuel, private use of company asset & excess of approved mileage allowance etc.
What’s the best option for the benefits for employees & company?
Please contact!
Capital allowance
Annual Investment Allowance (AIA)/Writing Down Allowance (WDA):
When you make an investment on plant and machinery (excluding cars), you can claim AIA 100% up to £1 million per 12 months of accounting period. For any excess to the AIA, you can claim tax relief by WDA at 18% on general pool or at 6% on special pool.
The special rate pool is applicable to Long-life assets, Integral features and high emission Cars.
Structures & Buildings Allowance (SBA)
If you mak an investment on building or structure, you can claim SBA at 3% with a straight-line basis.
- It applies to eligible construction costs incurred on or after 29 October 2018.
- You don’t need balancing adjustments on sale of the assets as the 33 or 50 year write off will continue as ownership changes.
- You must useThe building or structure:
- In a trade, profession, vocation, UK or overseas property business that is an “ordinary” business (not a furnished holiday let business) or
- In managing the investments of a company with investment business, within seven years of the expenditure.
- You can also claim it on expenditure on renovations or conversions of existing commercial structures or buildings.
- You cannot claim on expenditure on dwellings or buildings that function as dwellings, including home offices which are an integral part of the home but you can claim on hotels and care homes.
- You cannot claim on any land costs either.
- For mixed use properties (used as a dwelling and commercially) at least 10% of the cost must meet the conditions for relief.
- SBA expenditure will not qualify for the Annual Investment Allowance. The claimant must have an interest in the land on which the asset is constructed (e.g. a freehold or leasehold).
Structures and buildings include:
- Offices
- Retail and wholesale premises
- Walls, bridges and tunnels
- Factories and warehouses.
Leases
Where the term is less than than 35 years, the allowance is with lessor. Where leases exceed 35 years, and capital sum paid for a lease is two third or more of the sum of that capital amount and the value of the retained interest in the property, the relevant interest for the purpose of the SBA is transferred to the lessee.
Filing company accounts & Corporation Tax
Company Residence
If your company is incorporated in the UK or place of central management and control is in the UK, then, your comany is UK Resident company and you pay for corporation tax on worldwide income.
Whereas Non-UK resident companies are chargeable to UK corporation tax only if they carry on a trade of dealing or they carry on a trade in the UK through a permanent establishment.
Corporation Tax is charged on any corporate body including limited/unlimited, unincorporated associations.
Notification of chargeability
You must notify HMRC within 3 months of the start of your company accounting period (AP).
Filing Corporation Tax Return (CT600)
You should submit the return and company accounts by later of 12 months of the end of AP or 3 months of receipt of filing notice (CT603).
Amending & correcting return
HMRC can amend the return by 9 months from date of receipt and you can amend it by 12 months from the filing due.
Corporation Tax Payment
If your company is small or medium company you have to pay for corporation tax by 9 months 1 day from the end of AP whereas for large company by 4 instalments.
Corporation Tax Rate
From 1 April 2023
- Taxable profit £50k or less: 19%
- Taxable profit £250k or above: 25%
- Taxable profit between 50K and £250k: marginal rate.