Tax of previous years’ profits?

[AlexMcN]

Hi all

Probably a stupid question so please forgive me!

I’m looking to start a limited company that’ll be providing services and charging a fee.

My question relates to taxation:

I’m currently an employed higher rate tax payer and this new venture will be treated as more of a side hustle to begin with.

Therefore I’ll not be taking any money out the business. Let’s say year 1 it makes £5,000. Year 2 it makes £3,000 so there’s £8,000 in the company account.

Do I only pay tax on the money the company made in each tax year? So pay tax on £5,000 year 1 and £3,000 year 2? Even though there would be £8,000 in the account - for simplicity.

Any help would be appreciated!

 

[GLAbusiness]

A few basics you need to understand:

1. The company is a separate legal entity.
2. You don't pay the tax - the company does (Corporation Tax)
3. CT is based on the company profit - not the turnover. So when you say it makes £5,000 I assume you mean profit after you have accounted for allowable expenses
4. CT is due after the accounts for the company's financial year have been finalised. So tax on £5000 in year 1 and £3000 in year 2. Note this is not the income tax year but the company accounting year which will be defined when you set up the company.
5. Limited Company accounts are not simple. Best advice is to get an accountant on board before you start setting up the company. You need to make sure it is set up to reflect your own circumstances. This forum has many threads trying to solve problems created by DIY set up.

 

[AlexMcN]

A few basics you need to understand:

1. The company is a separate legal entity.
2. You don't pay the tax - the company does (Corporation Tax)
3. CT is based on the company profit - not the turnover. So when you say it makes £5,000 I assume you mean profit after you have accounted for allowable expenses
4. CT is due after the accounts for the company's financial year have been finalised. So tax on £5000 in year 1 and £3000 in year 2. Note this is not the income tax year but the company accounting year which will be defined when you set up the company.
5. Limited Company accounts are not simple. Best advice is to get an accountant on board before you start setting up the company. You need to make sure it is set up to reflect your own circumstances. This forum has many threads trying to solve problems created by DIY set up.

Thanks so much

 

[Daybooks]

Firstly your personal circumstances have no direct bearing on what taxes a company pays.

The company pays corporation tax on its taxable profits - which may not the same as your accounting profits. The taxable profits relate to your accounting periods. These are normally one year periods. This can be longer or shorter but for tax the period cannot exceed one year so sometimes a longer than 12 month accounting period requires two physical tax returns and payment is normally due 9 months and one day after the end of the specific tax periods.

Your duties as a director will commence as soon as you become a director; so please make sure you understand them. They are not lessened by operating as a side hustle.

A final tip would be to use an accountant that doesn’t operate their services as a side hustle. Otherwise good luck.