What is the most tax efficient way of running a limited company?

If you’ve recently made the transition from being a sole trader into becoming a limited company it can sometimes seem like you’ve been bombarded with a bunch of extra responsibilities and now things have become a lot more complicated. With growing your business towards being a limited company also comes along with it a growth in responsibilities. When you’re running your limited company you’ll be aware that the tax situation has now become a lot more complicated so it’s important to know how to run your business, no matter what industry it’s in, in the most tax-efficient way possible.

 

Here are some of how you can ensure that you’re paying the minimal amount of tax possible:-

 

  • If your company is making a profit and you’re a director you can start taking payments out of the company through what is called ‘dividends’ which aren’t taxed in the same way taking money out of a sole trading company would be as they’re not subject to national insurance contributions.

 

  • In addition to paying yourself through dividends as a director, you may also want to consider paying yourself a small salary so that you can avoid paying any PAYE or Income Tax if you fall below the threshold.

 

  • If you’ve held shares within your limited company for more than a year and you’re considering selling your company, you can apply for what is called entrepreneurs relief which will be only 10% rather than the standard rates which can be up to 28%.

 

  • When taking dividends out of your limited company, be sure that there are sufficient profits available within the company to account for these dividends being paid otherwise you could find yourself receiving a penalty.

 

  • Wherever and whenever you can make sure that you take advantage of claiming expenses through your business. If you are unsure of what you can be claiming on we have a guide here [INSERT INTERNAL LINK] to advise you on what you can be claiming on.

 

  • If your business has reached the point whereby it has exceeded a turnover above £85,000 you must then VAT register your business. If you don’t do this you’ll find HMRC will be on your back.

 

  • Consider splitting shares within your company with your spouse. You should always consult an accountant before pursuing this option to ensure this is viable for your situation.

 

If you want to know more about how you can run your limited company in the most tax-efficient way get in touch with the team here at D&K Accounting. We can guide you through the process to ensure that your business is running as streamlined as possible meaning you have more funds to dedicate to other areas of the business.

 

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