When forming your own limited company, you will be appointed as director (and employee) of the company and will be responsible for managing the company affairs.
The company will pay you a salary for acting in this capacity. You will also be the owner (shareholder) of the company and will receive dividend income from the company’s taxed profits. The frequency and amount of this dividend income is decided upon by the company’s director(s). All the cash held in the company bank account legally belongs to the company, the finances of the company are separate to your own personal finances. You can extract funds from the company by a combination of the following:
Salary – as an employee, a net salary is paid after income tax and NI deductions.
Dividends – paid to you as a company shareholder.
Expenses – you can claim your allowable business expenses.
Each year, the company will have to pay corporation tax on its profit where profit is calculated as the total amount of sales income earned less any business expenses incurred.
As a director of a UK limited company, you will be legally obliged to complete a personal tax return each year. Danbro can assist you with this return. In calculating your personal tax liability, you may have to pay additional income tax on your dividend income if you are a higher rate tax-payer.