What are the current tax rates for limited companies?

Knowledge base from Boox

By Jonathan London on 10th April 2015

What are the current tax rates for limited companies?

The new tax year is underway and for small businesses and freelancers this means only one thing – a re-evaluation of their finances.

Companies have to be aware of their tax liabilities so they can plan properly for the year ahead. Without this knowledge, setting achievable goals will be difficult and profitability could be harmed.

For example, can a limited company expect a lower overall tax charge than a sole trader? Minimising the tax you have to pay on profits is always going to a priority, so this is why you need consider any changes in tax that will be beneficial to your operations.

So here’s a guide to all of the tax information you will need for 2015/16.

A guide to the current tax rates

Corporation Tax

The headline rate (for profits over £300,000 a year) is now 20 per cent, which sees it drop from 21 per cent in the 2014/15 tax year. It also puts it in line with the small profits rate, which stays at 20 per cent. Those who had profits between £300,000 and £1.5 million before April 1st 2015 may be entitled to marginal relief.

VAT (Value Added Tax)

From the start of this tax year you will have to register for VAT if your turnover has been £82,000 or more in the past 12 months. The de-registration threshold is £80,000.

Income Tax

The amount of money you can earn before you are liable to pay any personal tax is now £10,600, which represents a rise of £600 on the previous threshold. As a result of this, people with incomes higher than £100,000 a year will lose £1 of this personal allowance for every £2 they earn above this threshold, meaning it is eroded once they earn in excess of £121,200. The basic rate band (20 per cent) now applies to income up to £31,785, with the higher rate band (40 per cent) for incomes between £31,786 and £150,000. Anything above £150,000 is liable for a 45 per cent tax.

Dividend Tax

These are taxed in the same way as personal allowance, with basic, higher and extra rates applied. An exception to this rule is the fact people can receive a ten per cent notional tax credit on all dividends. The higher and additional rates are 32.5 per cent and 37.5 per cent, but this is effectively reduced to 25 per cent and 30.55 per cent respectively thanks to the credit.

Pensions Savings Tax Relief

The annual allowance limit is still £40,000 for the latest tax year – although this is subject to a lifetime allowance of £1.25 million. People can also get a maximum tax-free lump sum of their pension pot of 25 per cent.

National Insurance (NICs)

Companies face Class 1 NICs (13.8 per cent on salaries paid out of £156 per week or more), while sole traders and partnerships have to pay Class 2 (£2.80 per week) and Class 4 NICs (nine per cent of annual profits between £8,060 and £42,385 per year) respectively. Businesses can also reclaim up to £2,000 per year of their employers’ NIC costs through the Employment Allowance.

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