Starting a Limited Company is one of the most desirable options for many entrepreneurs. Although this structure allows you to save tax compared to others, there are some things you have to be careful about if you want to really reduce costs and save on taxes. In this article, we will walk you through some tips that might be applicable to your case.
Did you know that you can give yourself a retribution as a Ltd? You can do it via a small salary and/or dividends (returning part of the profits to shareholders). In case it goes under a certain threshold, you might not have to pay income tax, i.e. PAYE.
Another thing some people do is splitting your shares with your partner, especially if he/she has no income. You should first consult with us to find out whether this is a feasible option in your case.
Executive Pension Scheme
If your company invests pre-tax income in an executive pension scheme, you will save a good sum of money compared to the post-tax income investing path.
You know you can put expenses through your company, so you should take advantage of every kind of service or product expense you had to make for business duties. There are several types of expenses you might not have considered yet:
- Lodging Expenses
- Self Education Expenses
- Internet connection
- Home-working Expenses
- Childcare vouchers
- Personal Incidental Expenses
- Medical Tests (Work-related)
- Public transport
- Mileage Expenses
Dividend Declaration Timing
In order to save tax, another strategy is to delay drawing your company profits (in case you reached a specific rate) until another tax year. It is better to discuss this with your accountant in order to devise a good plan.
Pay VAT if they pay you
A smart way to reduce unproductive tax is the Cash Accounting Scheme for VAT. With it, you do not need to pay VAT on invoices that have been issues but not paid. In this way, non paying clients will not force you to pay additional taxes on top of the failed transaction.
No National Insurance Contributions
Dividends for limited company owners aren’t subject to National Insurance Contributions (NICs). This fact alone will save you tons on taxes compared to the sole trader route, in which NICs must be paid on all income.
Open up a business deposit bank account for your tax liabilities
If you open up a business deposit bank account, you may achieve an interest rate of 2 to 3 percent, which is much better than the rate of zero for most business current accounts.
Keep up with your tax and statutory deadlines
As a limited company owner, this is another important thing you will have to keep track of yourself. Ensure that you are aware of your tax and statutory deadlines for things like Annual returns, VAT returns, and self assessments, and that you handle them on time. If you pay them late, you will be subject to penalty.