Setting up a limited company rather than remaining as a sole trader has its advantages. One of them is Corporation Tax. The current rate is set at 20%. Simply put, corporation tax is income tax for a limited company. The rate is based on your yearly profits. However, corporation tax often ends up being less than you’d have to pay as a sole trader.
Here’s a look at some of the other advantages of corporation tax for small business owners.
There are various tax reliefs and allowances that can help minimise your company’s tax bill. For example: business expenses. As long as they are relevant to your business, any expenses can be off set against your final tax bill.
After Brexit, the Government intends to cut corporation tax to 17% by 2020. The economic advantage of this move will mean that the UK will continue to have the lowest tax rate in the G20. This is a great incentive for foreign companies to invest in the UK and can go a long way to improving the overall UK economy. It’s expected that the measure to reduce corporation tax will lower the tax bill of around 1 million businesses based in the UK.
Double Taxation Benefits
Small businesses that have foreign income dividends can also receive full tax exemption from these earnings if they come from another country that has a double taxation agreement with the UK. The HMRC defines a small company as:
- Less than 50 employees
- An annual turnover of less than £10 million
Things To Be Aware Of
When it comes to paying corporation tax, you need to keep a close eye on HMRC deadlines to avoid lay payments and avoidable penalties. Corporation tax needs to be paid 9 months and 1 day of the end of your financial year. Payments for corporation tax need to be made online.
HMRC doesn’t take kindly to mistakes, so it’s essential that your financial records are 100% accurate and up to date. All financial records should be kept for a minimum of 6 years.
Once you decide to move up from a sole trader to a limited company, it’s highly recommended that you seek a professional accountancy service that can deal with the paperwork required for corporation tax, so you don’t have to.
Accountspoint have a specialised team of accountants in Leicester who can provide professional and accurate advice and assistance on small business issues, including corporation tax. Contact us today for more information on our team of Leicester accountants, or to view our full range of accountancy services, visit us online.