All UK private and public companies are required by law to maintain accounting records and to file their company accounts at Companies House. Unless you are filing your company’s first accounts and these cover a period of more than 12 months, the time normally allowed for delivering accounts to Companies House is 9 months from the accounting reference date for a private company and 6 months from the accounting reference date for a public company.
If you are filing your company’s first accounts and these cover a period of more than 12 months, they must be delivered to Companies House:
- within 21 months of the date of incorporation for private companies.
- within 18 months of the date of incorporation for public companies.
- 3 months from the accounting reference date, whichever is longer.
A small company can file abridged accounts with Companies House which means less information about your company will be publicly available. A company will be small if it has at least 2 of the following:
- A turnover of £10.2 million or less
- £5.1 million or less on its balance sheet
- 50 employees or less
A company will also need to submit an annual confirmation statement to Companies House confirming the information held by Companies House is correct every year or confirming any changes.
Small companies are usually exempt from audit unless they are members of a group which breaches certain size limits or are charities. Additionally, sometimes the company’s articles or the shareholders will require an audit.
An audit is performed by a registered auditor and the objective is to form an independent opinion on the financial statements of the company. The opinion includes whether the financial statements show a true and fair view and have been properly prepared in accordance with accounting standards.
UK limited companies must prepare and submit a company tax return to HM Revenue and Customs (HMRC) by the deadline which is usually 12 months after the end of the accounting period. They must also pay corporation tax on their taxable profits by the deadline which is usually 9 months and 1 day after the end of the accounting period.
The corporation tax rate is currently 19%.
Taxable profits / Deductions and reliefs
Taxable profits include money the company makes from trading (trading profits), investments and selling assets for more than they cost (chargeable gains).
In calculating taxable profits, the company can deduct all expenses incurred wholly, exclusively and necessarily for the purposes of their trade. Some examples of such expenses are mileage, salaries, travel and training. There are certain costs which are not allowable for tax purposes such as the costs incurred in entertaining clients.
The company may be able to claim capital allowances on the purchase of business assets such as cars, equipment and machinery. The annual investment allowance (AIA) is currently set at £200,000 per annum and is available for most business assets excluding cars. The AIA would allow a company to deduct the full value of an item in calculating its taxable profits. For business assets where the AIA is not available, the company could instead claim written down allowances which would allow it to deduct a percentage of the value of an item each year in calculating its taxable profits.
There are also several other corporation tax reliefs available that can potentially minimise a company’s tax bill. These include:
- Research and development (R&D) relief: This allows companies that seek to research or develop an advance in their field to claim a larger deduction when calculating taxable profits.
- Patent box: A lower rate of corporation tax would be available on profits earned from patented inventions and certain other inventions.
- Creative industry tax reliefs: This allows companies in creative industries (film, television, video gaming) to claim a larger deduction when calculating taxable profits.
Value Added Tax (VAT)
A company must register for VAT with HMRC if VAT taxable turnover is more than £85,000 in a rolling 12-month period. VAT taxable turnover is the total value of everything sold that is not exempt from VAT. There are different thresholds for buying and selling from other EU countries.
From the effective date of registration, a company must charge the correct amount of VAT, pay any VAT due to HMRC, submit VAT returns and keep VAT records.
Directors of UK companies (regardless of their residency status) would be required to register for Self-Assessment with HMRC and submit annual Self-Assessment tax returns to HMRC.
In the UK, an annual tax-free personal allowance is available to individuals. For the current tax year to 5 April 2019, this is £11,850. You will be entitled to this tax-free allowance if you are UK resident; a citizen of a European Economic Area (EEA) country or if it is included in the double-taxation agreement between the UK and the country you live in.
How much income tax you pay each tax year in the UK depends on how much of your income is above your personal allowance and how much of your income falls within each tax band. Income tax rates and bands (for all income apart from dividends) are currently as follows:
|Band||Taxable income||Tax rate|
|Personal allowance||Up to £11,850||0%|
|Basic rate||tra £11,851 e £46,350||20%|
|Higher rate||tra £46,351 e £150,000||40%|
|Additional rate||Over £150,000||45%|
For dividend income, the current tax-free dividend allowance is £2,000. Above this allowance, you pay tax depending on which income tax band you are in. Dividends are always taxed as the top slice of income. Tax rates on dividends are as follows:
There is a statutory residence test in the UK which determines your residency for tax purposes. Residency is primarily determined by how much time you spend in the UK in a tax year and ties you have with the UK. If you are UK tax resident, then you are normally liable to UK tax on your worldwide income and gains. If you are non-UK tax resident, then you are only liable to UK tax on your UK source income and gains.
UK resident individuals who have their permanent home (‘domicile’) outside the UK can claim the remittance basis of taxation and therefore may not have to pay UK tax on foreign income if it is not bought into the UK. An annual remittance basis charge applies if an individual has been UK resident for 7 out of the last 9 tax years.
Inheritance tax (IHT) is a tax on the estate (property, money, possessions) of someone who has died. The standard IHT rate is 40% which is charged on the value of the estate over the threshold.
The current IHT threshold is £325,000. This threshold can increase to £450,000 if you leave your home to your children or grandchildren and your estate is worth less than £2 million in total.
There are various IHT reliefs and exemptions available such as business relief which can allow business assets such as shares to be passed on tax free.
If an individual is non-UK domiciled, IHT is only paid on UK assets. You will be treated as being domiciled in the UK if you have either lived in the UK for 15 of the last 20 years or had your permanent home in the UK at any time in the last 3 years of your life.