As a limited company, you’ll have lots of tax compliance and obligations to deal with throughout the year.
The one good thing to take away from this is that limited companies needn’t worry about capital gains tax. Why? We’ll tell you.
What is capital gains tax?
You’re likely familiar with capital gains tax (CGT): a charge on the disposal of any asset or property that has increased in value, giving you a ‘gain’ compared to the amount you paid for it.
The amount a sole trader or individual can pay in CGT varies from 10% for basic-rate taxpayers 20% for higher or additional-rate taxpayers (or 18% to 28% respectively, if you’re disposing of property).
As a limited company, you won’t need to worry about a CGT bill if you dispose of your company’s assets or any associated property. You will, however, need to pay corporation tax on your company’s gains instead.
Corporation tax: the basics
Every limited company in the UK pays corporation tax – even foreign companies with offices or clubs inside the country. This is charged on a company’s taxable profits.
Any gains your company makes by selling or disposing of an asset will be taxable, and you’ll need to report them via your company tax return.
From April 2023, companies making an annual profit of £50,000 or less will only pay 19% corporation tax on their earnings. If your company makes an annual profit of £250,000 or more, you will pay the ‘main rate’ of 25% on your profits. For profits between the two thresholds, the 25% rate will still apply but will also be reduced by marginal relief.
This is fairly good news for limited companies, as the highest rate of CGT is currently 28% as mentioned above.
Can I reduce my corporation tax payments?
There are ways for you to lower your corporation tax liability. A primary example would be by claiming any allowable expenses you accrue over the year, including:
- employee salaries
- raw materials
- training fees
- accounting costs
- business-related travel and expenses
- business insurance.
If your company strives to make discoveries in science and technology, you may also be eligible for research and development tax credits. The R&D scheme allows you to offset a percentage of qualifying expenditure against your corporation tax and lower your bill.
Or, if you invest in equipment and machinery to use in your business, you could reduce your tax bill through capital allowances. These include:
- The full expensing scheme, which allows you to claim 100% of the costs within the first year of purchase on qualifying new main-rate plant and machinery investments from 1 April 2023 until 31 March 2026.
- The 50% first-year allowance for expenditure on new special-rate (including long life) assets.
- The annual investment allowance, which provides 100% first-year relief for plant and machinery investments up to £1 million. This is available for all businesses, including unincorporated businesses and most partnerships.
Understanding your company’s taxes
To be clear, your limited company will not have to pay capital gains tax – but corporation tax is as important, and something you cannot afford to get wrong.
We’re here to help you understand the finer details of your tax obligations, with personalised business tax advice.
To get ahead on your upcoming tax liabilities, or for help registering for corporation tax, get in touch.