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Goal:

To determine the types of taxes (and how they're calculated) that a UK-incorporated limited company is liable to pay.

Details:

This post is based around an example of a limited company based in the UK with two directors, of which one is also the sole employee of the company. In this case, the director who is the sole employee pays themselves via a PAYE scheme.

Some questions (including some research attempts) arising from this scenario can be seen below. If anyone is able to share some knowledge on these topics, it would be highly appreciated:

Questions:

Q1. What are all of the taxes that a limited company must pay to HMRC annually?

So far, it seems that a company must pay corporation tax, employee NIC and employers NIC.

Q2. How much corporation tax must a limited company pay to HMRC?

It seems that the rates for 22/23 are: (1) 19% for £50k and below (small rate), (2) 25% for £250k and above (main rate), and (3) Main rate minus £50k marginal relief for profits £50k to £250k.

Q3. What is the difference between employer NIC and employee NIC?

As per this resource, it would seem that both are paid by the limited company, but employee NIC is taken out of earnings whereas employer NIC is paid regardless of earnings.

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    This question seems a bit broad. It may just about be on topic as it's essentially about a sole trader not running a business, but it might be better split into different questions. Jan 31, 2023 at 15:04

1 Answer 1

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As an employee, you get a salary, and you pay income tax and NI on your salary. Your employer takes that money out if your pay and sends it to HMRC, on your behalf, so employees don’t “forget” to pay their taxes.

The employer also pays employers NI which is a cost to the employer. Your salary (including income tax and employees NI) and employer NI reduce the company’s profit.

The company pays corporation tax on its profits. Below £50,000 it is 19%, above 250,000 it is 25%, between 50,000 and 250,000 it is 19% on the first 50,000 and 26.5% on the rest.

The company may pay you dividends. You as the receiver of the dividend pay taxes on that. 2000 is tax free, then anything that brings your total income to 12570 is tax free, then anything that brings your income up to 50,270 is 8.75%, and anything above is 33.25% going up to 39%.

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  • This was extremely helpful, thank you. Regarding the sentence about income tax/ NI (and how this is taken out of an employees pay and sent to HMRC) does this mean that income tax payments are made from the company's bank account?
    – p.luck
    Feb 1, 2023 at 10:33
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    @p.luck Yes, it means exactly that.
    – Mike Scott
    Feb 2, 2023 at 17:04

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