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Corporation Tax – A Limited company contractor guide

Paystream News

Michelle Derungs

Monday 8th Sep, 2014

Working as a limited company contractor allows you to operate in very tax efficient manner, enabling you to maximise your potential take-home pay.

If you choose to set up as a limited company contractor your company will be required to pay Corporation Tax on profits which it makes. This will involve the preparation of a set of business accounts, making a Corporation Tax Return and paying the calculated tax to HMRC.

Any unpaid Corporation Tax or late returns can leave your company with possible interest and penalties.

Contractors commonly turn to accountancy service providers such as PayStream, to help relieve this hassle and minimise any risks as well as providing peace of mind that they are receiving the best advice, to ensure that their company tax affairs are being dealt with in the most complaint manner.

Here is PayStream's simple user guide on the basics of Corporation Tax:

What is Corporation Tax?

Every limited company is expected to pay corporation tax on profits made, the current rate is 20% for profits under £300,000.

According to HMRC taxable profits include "profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently) and Capital Gains - known as 'chargeable gains' for Corporation Tax purposes".

How is Corporation Tax Calculated?

Corporation tax is based upon your company's taxable profit, which is your total turnover minus deductible expenses and allowances. As a limited company contractor you would deduct your employers NI, VAT, pension payments, allowable expenses and your gross salary to give you your taxable profit.

Corporation Tax deadlines and penalties

Your company's Corporation Tax Return is filed each year depending upon the company's accounting year end.

"Any Corporation Tax due must be paid within 9 months and 1 day of your company's accounting year end". - HMRC

What you need to do regarding Corporation Tax?

  • Register your new business
    When you set up as a limited company contractor you need to inform HMRC within 3 months. If you have an appointed accountant to operate on your behalf you must 'authorise your agent' to process your Tax, VAT and payroll.
  • Self-assessment tax return
    Every year HMRC will expect you, as the director of a limited company, to complete a self-assessment tax return which needs to be completed on time to avoid hefty penalties.

As with any good accountancy service provider, PayStream provide a personal tax return service that will complete and submit your return for you.

  • Maintain accurate financial records
    HMRC expect all limited company contractors to retain all financial and tax records for the previous 6 years including expenses, receipts and invoices.

This does not necessarily mean that you will be expected to keep mounds of paperwork. HMRC accept scanned versions of documents as 'legible alternatives'. With PayStream you are able to upload copies of your receipts to our online portal, PSC Insight, meaning that you’ll never misplace a receipt again.

As a limited company contractor it is important to understand what tax implications you will face so that you ensure you are operating compliantly.

This is why with our limited company service, My PSC, you get a dedicated accounts team who are trained to deliver the most up to date advice in order to ensure that you are working in not only the most tax efficient way, but in also the right way. Visit here for more information on how our limited company service can help you.


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