Are you a limited company contractor? Here’s some of the taxes that could affect you…

Thursday 23rd January, 2014
Personal tax

Becoming a limited company contractor, at first glance, can be the most tempting route to go down. It is without a doubt the most tax efficient option a contractor can take. However, what a contractor also has to take into account when deciding to work in this way is the admin and paperwork that comes hand in hand with this option. So, before venturing down this route it is essential to understand what is expected of you as the limited company director and how PayStream can assist you with the running of your limited company.

Corporation Tax

Corporation tax lays a claim to the taxable profits of limited companies. These taxable items consist of profits from the taxable income, including trading profits, and capital gains. The rates of Corporation tax are conditional to the company size and profits.

  • Lower rate charged: 20%, this is for small profits.
  • Upper rate charged: 23%, this is for greater profits.

So, what are the corporation tax late penalties?

When it comes to corporation tax the major liability is not informing HMRC that the company is liable to pay corporation tax. HMRC advise that they must be informed within 12 months of the completion of the corporation tax period. The 'potential lost revenue' or PRL acts as an indication to how heavy the penalty will be. It is calculated on the level of unpaid tax or the figure that the company is liable for. HMRC have given limited companies an opportunity to exempt themselves for not informing them on time, providing the excuse is worthy.

The rates of the penalty are conditional and hinder on whether or not the company's failure to inform was deliberate or accidental.

How can PayStream help?

PayStream's My PSC service will provide guidance to ensure you are paying the correct amount of corporation tax, tailored to your company's circumstances. We will assist you in completing paperwork and admin duties that is up to HMRC standards, safeguarding you from any nasty penalties.

VAT Registered Returns

VAT is another tax that should be taken into consideration for those running a limited company and are VAT registered because failure to submit a VAT return each quarter can carry a fine.

So, what are the VAT Return late penalties?

Your penalty is calculated as a percentage of the VAT due, starting with the date that you should have registered to the date that a notification was received. According to HMRC the penalty figure all hinders on how late the registration was made. A minimum penalty of £50 exists.

Less than 9 months: 5% of the tax due

More than 9 months but less than 18 months: 10% of the tax due

More than 18 months late 15% of the tax due

How can PayStream help?

Here at PayStream our My PSC service will assist you with the preparation of your quarterly VAT returns, ensuring that your business records are complete and up to date, alleviating any pressure on you and making them accessible for VAT inspection, ensuring you avoid any penalties.

Submission of a self-assessment tax return

Your self-assessment tax return must be done on a yearly basis and failure to submit your return on time can result in hefty penalties. There has been recent discussion that tax returns will become a paperless application form. More information regarding paperless self-assessment tax can be found here.

So, what are the self-assessment late penalties?

One day late leaves you with an instant penalty of £100.

After three months of being late, every day following will give you a fine of £10 per day for a 90 day period. That can rack up a total of £900!

After six months of being late, an extra £300 or 5% of the tax due gets added. That can summate to a total of £1,200 in the short space of 6 months!

How can PayStream help?

Our Tax Team can ensure that your personal tax return is not only completed on time but also accurately, based on the information you provide. For added peace of mind PayStream will always come to the rescue if any problems arise with overdue tax.


The Pay as you Earn (PAYE) system is a method of paying income tax and national insurance contributions. As the director of your own company you must set up a PAYE system if you intend to receive income in the form of a salary as well as dividends. Your PAYE and NI contributions must be paid quarterly and failure to do so can lead to penalties.

Also since the introduction of Real Time Information (RTI) in April 2013, businesses must report wages, salaries, PAYE and National Insurance electronically to HMRC each time an employee is paid.

So, what are the PAYE late penalties?

The penalty charges for late liability payments vary from 1-4% of the liability due, depending on the number of defaults in the year. There will be an additional penalty of 5% if the liability is outstanding for longer than 6 months and a further 5% if this is not paid after 12 months.

Also, late filing penalties will apply on a monthly basis where the necessary RTI filings have not been made on time and this will range from £100-£400 per month depending on the number of employees.

How can PayStream help?

Our accounts team are always on hand to offer professional advice and support. At PayStream we will assist you in calculating the most tax efficient level of salary you can draw as the director of your company. The level we will advise you on will ensure you still qualify for state benefits and for tax relief. We will calculate and file your RTI submissions on your behalf, advising you on the quarterly figure that needs to be paid.


Your self-assessment tax return must be done on a yearly basis and failure to submit your return on time can result in hefty penalties.