Self Assessment for company directors can be a confusing process, as directors often receive income from different sources.
Here, we take a look at what income company directors pay tax on, and the self assessment process.
Do I need to register for self assessment?
As a company director, you don’t automatically need to register for self assessment. It all comes down to how you pay yourself through the company. The purpose of self assessment is to report any untaxed income.
If your income from all sources is paid and taxed through PAYE (or similar), then you don’t have to register for self assessment.
However, if as a company director you receive dividends or any other untaxed income in addition to your director’s salary, then you will need to file a return. This is so HMRC can use this information to work out how much tax and National Insurance you need to pay
How are directors paid?
When you start a business, you will need to appoint shareholders and assign shares. You may be the sole director or shareholder of your company or you may have several shareholders.
As a director, you can pay yourself a salary. Depending on how much your salary is, the payments may need to go through PAYE.
However, if the salary is less than the Lower Earnings Limit (£6,396 in 2022/23) then you won’t need to register, but anything above this amount will need to go through the PAYE system.
If you are taking a salary less than the Lower Earnings limit, then the company acts as your employer, and any income tax and National Insurance is deducted from your salary.
However, most company directors are also shareholders, which means they are able to be paid a smaller more tax-efficient salary and then pay themselves dividends. You are entitled to be paid dividends from your business provided the company is in profit.
As a company director, you may be entitled to some tax-free benefits. This is where you need to be a little bit careful because there are a lot of rules around what is and isn’t tax-free.
For example, a company may pay for something that you use personally such as a company car or private healthcare. These are called Benefits in Kind and you may need to include these items on your return.
A Director’s loan is money paid to you from the company which isn’t a salary, dividend or a reimbursement for expenses.
It is ok to do this as long as the loan account is repaid within 9 months after the end of the company’s financial year, otherwise HMRC will see this as you receiving income from the business, and you will need to pay tax on it.
How do I register for Self Assessment?
If you need to register for Self Assessment, it is important that you do it as soon as possible to avoid paying penalties.
If you are filing a self-assessment tax return for the first time, you will need to register with HMRC. You can do this online via HMRC’s website.
Each year, you will be responsible for filing your own Self Assessment tax return to report your annual income from all sources. Any personal tax you owe must then be paid to HMRC by 31 January after the end of each tax year.
How can Blue Spire help?
Completing your self assessment tax return as a company director can be a complicated process and easy to overlook something that could save you paying more tax than you need to.
|Blue Spire can submit your Self-Assessment Tax Return on your behalf taking care of the whole process for you and keeping you informed along the way. Please do not hesitate to contact us today if we can help.