How hard is it to fill out a self-assessment tax return As the director and the only employee of a limited company?
In practice, filling out a self-assessment tax return is not difficult. In theory, however, quite a lot is at stake, because how you manage your income from all sources will affect how much tax you pay.
HMRC requires limited company directors to fill out a self-assessment tax return to pay income tax and national insurance contributions on all taxable income above their tax-free personal allowance of £10,600 (2015‒16). You will have received a letter at the registered company address from HMRC in April/May reminding you to prepare a tax return if necessary, but receiving a letter from HMRC would suggest slightly more complex tax circumstances. A director of a limited company with income from several sources should hire an accountant, as this will probably save the director more in tax and valuable time than paid out in fees, and of course accountancy fees are fully tax deductable.
Registration for self-assessment
Company directors should register with HMRC for self-assessment immediately the company is formed. Registration can take a couple of weeks: to register online you need to provide your national insurance number and the date of your appointment as director. After registration, you should receive your personal Unique Taxpayer Reference (UTR); note that a Personal UTR is not the same as a Company UTR.
Most people file online these days by 31 January annually (and anything owing must be paid at the same time). All income sources and capital gains, whether received from the company or elsewhere, must be declared.
Is a limited company director obliged to fill in a self-assessment tax return?
No, company directors should not assume an automatic obligation to file a self-assessment tax return. However, you do not need to file one if:
- Income is taxed at source via PAYE;
- The director is not considered self-employed for tax purposes;
- The director is an employee of the limited company;
Many limited company directors actually could keep their tax affairs more simple if they sought the help of an accountant. Below are some of the reasons why you might need to submit a self-assessment tax return. If requested by HMRC, you must do so, even if you believe no tax is due. It might be because:
- You were self-employed as a sole trader;
- You received £2,500 or more in untaxed income;
- You received interest income of £10,000 or more;
- You generated a Capital Gain;
- You received other taxable benefits from your limited company while the director;
- Your income exceeded £50,000 and you or your partner received child benefit;
- Your income exceeded £100,000
Making the UK tax system work for you compliantly
A major benefit of running a business as a limited company instead of as a sole-trader is that you, as the director, can reduce your income tax and national insurance (NIC) liability. In this scenario, and supposing you are registered for self-assessment, you will receive a salary as a director and take dividend payments as a shareholder. This saving, benefitting both the company and the individual director(s) of a company, is only possible providing the director’s salary is kept below the NIC threshold of £8,060 (2015‒16), and that remaining income is paid as dividends.
However, if you have income from several sources and other circumstances that increase or decrease your tax liability, then things will get more complex. An accountant will work with you to help ensure no income tax or Class 4 NI will be due on the director’s salary and that dividends will not incur any personal tax liability until annual earnings (after the deduction of the personal allowance) exceed £31,786.
Contact DNS Accountants to find out more about specialist services for small businesses. DNS Accountants is an award-winning accountancy practice offering Accounting & Bookkeeping Services as well as expert advice on all tax matters nationwide. Free online bookkeeping and accounting software empowers all our clients by helping them stay on top of their finances and benefit from expert advice and tax planning. If you’re the director and only employee of a limited company in the UK, and want to make filling out a self-assessment tax return in 2017 really straightforward, and probably save money immediately and in the future too, hire an accountant to look after your business and personal accounts. For free consultation please email at email@example.com