Self-Assessment tips for for limited company owners

As a company director, you’ll almost certainly have to file a personal tax return before 31st January 2021.

The clock is ticking, so if you haven’t yet filed your tax return then you need to make sure you fill in and file your return sooner rather than later, to avoid an automatic late filing penalty of £100.

No time like the present, so grab a coffee and read on to see what Emily Coltman, chief accountant to award-winning online accounting software provider FreeAgent, suggests to help you fill in your tax return quickly and accurately.

Scroll to the bottom to find out more about the chance to pay your self-assessment bill via instalments in 2021 due to COVID-19 changes announced by the Chancellor in October 2020.

Record your income – not your company’s

Remember that as a company director, your business is a separate legal entity from you. This may be a new concept for you if you’ve just recently turned your business from a sole trader to a limited company.

For your tax return, that means that you’ll need to include your own income, not your business’s income and costs.

A company director’s income will typically include:

  • a salary from the company
  • dividends from the company

The business’s sales and running costs will go on the company’s tax return, rather than yours, so don’t worry about those when you are preparing your tax return.

Collect all your information in one place

Make use of this Self Assessment checklist to pull together all the information you will need to fill in your tax return.

Spend time collecting all your paperwork together before you start completing your return, as this will save you time during the preparation.

Next year, why not set up a file or folder to collect all these papers together as they arrive so that you don’t have to go looking for them when you are ready to prepare your tax return?

Make sure you include…

If you’re not asking an accountant to fill in your tax return for you, be very sure that you’re comfortable with what figures to include in which boxes.

For example:

  • If you are paying back a student loan, don’t forget to include it, and any repayments that have been made through your salary, on your tax return.
  • Check any Notices of Coding which HMRC may have sent you, to make sure that under- or over-payments of tax from prior years are included on your return.

…Make sure you miss out

Equally, be aware of what should not be included in your tax return.

For example:

  • If you have a personal ISA, don’t include the interest from that ISA on your tax return. Interest on an ISA is free of tax, so should not be included.
  • If you are making contributions to a pension, and these contributions come out of your salary and are dealt with through the company’s payroll, don’t include those on your tax return, because the tax relief is handled by your pension provider through your payroll.

If you’re not sure whether a particular figure should or shouldn’t go on your tax return, consult HMRC’s guidance or ask an accountant to help you.

Be careful with dividends

If your company is paying you dividends, there are a few potential traps to watch out for.

Remember to include dividends that you were due to receive in the tax year 6th April 2019 – 5th April 2020. If your company prepares accounts to a different date each year, such as 31st December, don’t be confused into including dividends for your company’s accounting year instead. If you’re using FreeAgent to keep your company’s books, the good news is that dividends declared by your company will pull through automatically to your tax return, for the correct period.

You may be aware that the way dividend income is taxed changed from 6th April 2016. Instead of treating all dividend income as having had basic rate tax already taken off, the government changed the rules so that the first £5,000 of every individual’s dividend income is taxed at 0%, and the remainder is taxed at 7.5%, 32.5% or 38.1% depending on how much other income the individual has. From April 2018, this ‘dividend allowance’ was reduced to a mere £2,000.

Don’t be tempted to take £2,000 off your dividend income before you put it on your tax return. For example, if you were due to receive £30,000 of dividends in the tax year to 5th April 2020, put £30,000 as dividend income, not £28,000. The £2,000 is still taxable, just at a rate of 0%.

If you think you may need an accountant’s help to fill in your tax return, bear in mind that accountants are very busy in January. Do not wait – find an accountant now if you don’t already have one, because if you only approach an accountant in January, they may not be able to help you, or may charge you a premium for last-minute help.

COVID-19 changes to self-assessment (updated Oct 2020)

As a result of the pandemic, the Government initially allowed self-assessment taxpayers to defer payment of their July 2020 payment on account (if applicable) until January 2021.

In October 2020, the Chancellor announced a further measure – to allow taxpayers to pay this July 2020 payment, the 2019/20 tax year payment (due in January 2021), and January 2021 payment on account via 12 instalments.

If you owe £30,000 or less, you can set up a payment plan here. Interest is payable, however, you will not have to finish paying the tax you owe in January 2021 until January 2022.

Partner Contractor Accountants

Last updated: 8th September 2021