WHAT?
Self-assessment is the method by which HMRC collects tax from those of us who are self-employed and/or a Company Director.
DIRECTOR OF A REGISTERED COMPANY
If you are named as a company director of a limited company that is registered with companies’ house or has been a director at any point in the tax year you are required to complete a self-assessment tax return.
The only exception is persons who are
- Named as Director of a dormant company
- Named as Director of a non-profit making organisation/charity where the organisation is not paying you any money
WHEN?
WHAT INFORMATION DO I NEED TO DO MY SELF-ASSESSMENT?
Income. As a limited company director, the company might pay you one or both of two kinds of income that you have to put on your own Self-Assessment tax return
Your salary - The company can employ you as an employee as long as it is registered with HMRC as an employer.
Any dividends - If you own shares in a company, then it can pay you dividends as long as it has enough profit to do so
WHY and HOW ARE DIVIDENDS DIFFERENT
It's important to remember if you're employed by a company, that the money the company earns doesn't belong to you personally.
There are three ways in which you can take money out of the company
- Paid Salary as an employee
- Paid Dividend on the shares that you own in the company
- Repayment of money that you have loaned to the company
If you take out more money from the company than you are owed or that the company can pay then there may be taxation implications. Please remember that dividends are payable from the balance remaining only after corporation tax has been calculated and deducted.
A quick example to illustrate
The company has made a £1,000 profit before corporation tax has been calculated. During the year the directors took £1,000 dividend
Company profit £1,000
Corporation tax @ 19% (£190)
Balance remaining £810
The maximum amount of dividends therefore payable is £810, therefore the company could not afford to pay £1,000 out in dividends.
If the company’s paying you back money that you lent it (that is, you’re taking money from your director’s loan account), then as long as you don’t take out more than you are owed, there are no tax consequences and you don’t have to put that money on your tax return.
All your business-related expenses
When you’re the director and shareholder of a limited company, you’re not self-employed; the company is your employer and you are an employee. That means that you have to report on your tax return not only the salary and dividends that the company is due to pay you during the tax year, but also any expenses that the company has reimbursed you for.
Working from Home costs
HMRC offer a simple way to calculate your working from home expenses using a flat rate calculation rather than trying to work out the rooms in your home that you work in, for how long and then dividing that percentage sq footage into your utility bills
- 25-50 Hours £10 per month
- 51-100 Hours £18 per month
- 101+ Hours £26 per month
SELF ASSESSMENT TAX RETURN
Each director must file a tax return for him/herself, which will show his/her income from the company in the form of salary and dividends. When you as a Director register for self-assessment you will be given a separate Government Gateway ID which is independent of that of the company.
This is different and separate from the company tax return known as a Corporation Tax Return. The timescale and deadline for Corporation Tax returns are also different.
If you would like assistance with your self-assessment please get in touch
Email: janet.jensen@ekstraas.co.uk Tel: 07458 302 512 Website: www.ekstraas.co.uk