Essential tax advice for limited company directors

There are plenty of ways that limited company directors can improve their tax position and one of the best methods is to hire experienced professionals who really know how to handle limited company accounts and can give you good tax advice.

Of course, you should ensure that any accountancy firm you turn to has the right sort of accreditations and expertise with limited companies in your sector to give sound tax advice. In the meantime, what are the main points you should be looking into in terms of your own company accounts to ensure you don’t get into a dispute with HMRC?

tax adviceConsider dividend payments

Many company directors, especially those who run SMEs, pay themselves a salary just like everyone else who works for the company. This is not the only way to operate, however. If you pay yourself a dividend rather than a salary, then you may not need to pay any income tax via the PAYE system at all. Furthermore, depending on your exact circumstances, you may be able to avoid National Insurance Contributions. So long as your salary is beneath the thresholds allowed in law, then this could constitute a big saving. If so, then you may need professional tax advice with your self-assessment return at the end of the year to account for your dividend payments properly.

Don’t file late returns

When it comes to your personal tax issue, your corporation tax payments and your VAT returns, late filing is a no go. Of course, from time-to-time, many company directors get tied up with the day-to-day running of their business and such deadlines get missed. This is where a fast-moving accountancy firm can be invaluable. The tax authorities will sometimes accept reasonable excuses for late returns, but if you miss more than one, then you can expect both penalties and interest charges to be levied. If you think you will be late, or there is even the possibility of missing a deadline, then turn to experts.

Make the most of expenses

All reasonable business expenses can be claimed for which will significantly reduce your overall tax bill. However, the rules on what are considered reasonable expenses and those which are spurious really depend on the exact nature of your business. Put simply, what is reasonable in one commercial context will not be in another. As such, you should claim for what you can but take care to avoid expenses claims for things which lie in the ‘grey area’. If a tax officer thinks you are pushing the limit of what is allowed, then you could face a lengthy tax investigation. For this reason, hiring accountants with direct sectoral experience of your business niche is certainly worthwhile.

Know when to register for VAT

Although many SMEs operate for years without ever needing to declare VAT, HMRC is much more proactive in cracking down on limited companies that should be paying it and are not doing so. If your turnover is approaching the threshold, currently set at £85,000, then you need to take advice. Registering for VAT only after you have gone beyond this limit may not satisfy the tax authorities completely. In short, it is better to register as you approach the threshold even if, in the end, your company turnover does not go on to exceed it in a particular trading year.