Advantages of Private Limited Company Ownership in The New Tax Year

As we enter April, the start of the new tax year brings taxation into sharp focus for millions of self-employed people across the UK. This is especially the case for those that operate through their own private limited company where the opportunity of maximising tax-efficiency can increase net income, but the pressure to meet your tax obligations, ensure compliance and avoid penalties is ever-present.

Each new tax year of course brings new legislative changes which exacerbates the challenge from a compliance perspective and the 2024/25 tax year is no different. These changes can be particularly significant for private limited companies, a case in point being the personal dividend allowance reducing again. At the start of this tax year it halved from £1,000 to £500 further eroding the tax-free dividend amount limited company directors and shareholders can receive.

On the flipside, some of the change is positive with class 1 National Insurance Contributions reducing by 2p in the £1 which equates to a potentially significant tax saving for self-employed people.

In this post we’ll explore some of the key private limited company advantages with a focus on tax now that the 2024/25 tax year is underway.

Optimising Your Remuneration

It goes without saying that the tax optimisation potential is one of the key drivers behind the popularity of the private limited company business structure. Everybody wants to earn more and if you’re operating outside IR35, by fully optimising your tax position that can be achieved without doing any more work whilst remaining fully compliant in respect of your tax obligations.

Despite the personal dividend allowance recently being reduced, by structuring your remuneration with an optimal split of salary and dividends, tax savings can be achieved due to dividend tax rates being lower than the equivalent tax rates on income tax from salary.

By paying yourself a tax-efficient salary based on your circumstances you can then supplement your income with dividends – company profits after expenses, salary and Corporation Tax are paid – and the lower dividend tax rates will result in a reduced overall tax liability which can equate to more take home pay. This is something our expert accountants can advise you on.

Use our Salary & Dividend Tax Calculator to test out various scenarios and see how much more you could take home!

Allowable Expenses and Tax Deductions

As a private limited company, you’re subject to Corporation Tax on your company profits and when considering the holistic tax-efficiency of your company, reducing the Corporation Tax liability is an important element.

It’s important therefore to make sure you claim all available allowable expenses that have been incurred wholly and exclusively for the purposes of running your business. Allowable expenses are deducted from your company’s income before calculating the Corporation Tax liability. The net effect of this is lower taxable profit which reduces the amount of Corporation Tax you pay.

Some of the main allowable expenses that can be claimed include, but are not limited to, purchases of mobile phones and computer equipment, travel and accommodation costs, training, business entertaining, insurance, subsistence, accountancy fees, stationery and annual events.

Keeping organised and detailed records of relevant invoices, receipts and supporting documentation will make claiming expenses much easier and more accurate helping to ensure that nothing is missed.

Pension contributions that you make through your private limited company are also tax-deductible enabling you to save for retirement while also reducing your Corporation Tax bill.

VAT Changes

There were some significant changes to the rules surrounding Value Added Tax (VAT) that were effective from 1st April 2024. For the first time in 7 years the mandatory VAT registration threshold changed, increasing from £85,000 to £90,000.

The mandatory deregistration threshold also increased to £88,000 (from £83,000) meaning that businesses will be able to exit the scheme sooner should they wish to.

This will certainly benefit some businesses in the sense that they’ll be relieved of the time-consuming administrative burden, including the record keeping, accurately charging VAT and submitting returns, that’s part and parcel of VAT.

Of course, businesses can still register for VAT voluntarily if their turnover is below the mandatory registration threshold and there are pros and cons of doing so. Check out our VAT Guide to learn more and if you have any queries, our expert accountants are on hand to offer advice and guidance.

Expert Accounting for Your Private Limited Company

Aside from the tax benefits, the other private limited company advantages including limited liability protecting your personal assets, safeguarding of your brand identity and improved perception of your business are well known. But a key action you can take to ensure you take to fully capitalise and help put your limited company in the strongest position possible for long term success is to appoint a limited company accountant.

When you work with Gorilla, you don’t need to keep abreast of any tax changes as we do that for you. It’s our job after all! You’ll have peace of mind that your dedicated accountant will ensure your tax obligations are met and no fines or penalties will be forthcoming. On top of that, we’ll get your business operating as tax-efficiently as possible to help maximise your earnings.

With our limited company accounting package all your business and personal accounting needs are expertly handled. You’ll receive a tailored service, unlimited support and advice, a guaranteed same day response and full access to FreeAgent cloud accounting software.

We make things simple, and our accounting service is designed to ease the pressure allowing you to fully focus on your business. If you have any queries about your tax affairs or our limited company accounting service, call 0330 024 04 06 to speak to an accountant or request a callback.