A limited company pays tax on its taxable profits for the year and the tax paid by limited companies is known as corporation tax.
Taxable profit: This is obtained by taking the company’s accounting profit and adding back expenses that are not permitted by tax law and then deducting allowances given to companies in the tax law.
Most income received by a company will be subject to corporation tax. So a company can receive income from a trade, for example, the company could be a retail shop supplying plumbing supplies. A company could receive income from supplying professional services to clients , such as a legal , accountancy or IT services.
If a company sell assets which it uses to pursue its business such as an office block, it can make a capital gain or loss however, its assessed for tax for the gain on the corporation tax regime. A company whose business is selling property would probably treat its profits on selling the property as trade income.
Other income received by companies include rental income and interest income received on loans made by the company or deposits held in bank accounts. All income from the sources described thus far are generally subject to corporation tax and are a limited company tax, directors must be familiar with.
Where a company receives investment income, some of the investment income may not be subject to corporation tax. Some income from overseas sources may also be outside corporation tax. Each situation must be assessed against the extant Income tax law at the time.
Other taxes remitted to HMRC by companies include PAYE which is paid by employees on their income and collected by their employer to be paid over to HMRC.
Another Limited company tax is VAT for VAT registered companies. VAT is an indirect tax which is levied on the price of goods and services sold by VAT businesses. For businesses with turnovers above the prevailing VAT threshold, VAT must be collected on the some of the goods or services they supply depending on the VAT rate applicable to their output. However, many items are exempt from VAT
One more common limited company tax are CIS deductions. The construction Industry Scheme requires that some firms withhold a given percentage from the amounts paid to independent sub contractors. The amount withheld must then be remitted to HMRC.
Its imperative that directors of small businesses familiarise themselves with limited company tax in order to make sure that their businesses comply with the law and they are able to prosper without undue problems with the state.