As a limited company director, it’s likely you’ve got a few niggling questions that you would like us to answer. We turned to Google for the most popular questions regarding limited companies, and our research revealed plenty of topics that contractors such as yourself may need further guidance with.
We’ve answered the top four questions in our blog, so you know what your limited company can and can’t do.
Can my limited company pay my personal mortgage?
No. As your limited company is a separate entity, you cannot use your company account to pay your living expenses, including your personal mortgage.
There may be significant tax implications if you use your company money to pay your mortgage, or any other personal expenditure. As this cost would not qualify as an allowable business expense it would be treated as a director’s loan. If you are unable to pay this back within 9 months of your company year end, your company will have an S455 charge to pay to HMRC which is calculated at 32.5% of the loan amount. This is calculated and submitted with your corporation tax return and aims to deter the company from providing large loans to its directors, tax free. All loans over £10,000 will also be considered as a taxable benefit in kind. This must be declared by the business on your P11d, and there will be a national insurance liability to pay. Further to this the amount of the benefit, effectively the interest that should have been charged on the loan (currently 2.5%), will be included on your self-assessment tax return and taxed accordingly.
If you are ready to begin the mortgage process, we would recommend seeking assistance from a contractor mortgage specialist. They are kept up to date with the ins and outs of contracting and are far better placed to provide expert advice and support should you need it when applying for a mortgage.
Can my limited company pay into my pension?
Yes. Your limited company can pay into your personal pension, and provided it is reasonable it can be treated as a business expense.
Although tax relief is available on pension contributions made from personal funds, paying directly from the company will allow you to save corporation tax and will mean that you do not suffer any personal tax on the amount of the pension contribution.
In order to benefit from tax relief on your pension contribution they should only be made to an employee or director of the company and should not exceed the annual allowance of £40,000 or lifetime limit of £1,055,000.
You should seek advice from a qualified financial advisor prior to making contributions into a pension.
Can my limited company pay my personal taxes?
No. The tax owing to HMRC when you submit your self-assessment tax return is a personal tax liability and so it must be paid from your personal funds. This mean when paying dividends from your business you must make provision for your personal tax from this amount.
It is important that you plan for this throughout the year. No one likes an unexpected tax bill. Your accountant will be able to advise you on this throughout the year.
If you do pay your personal tax from the business bank account, you should repay this from personal funds. If you do not, this may give rise to a director’s loan and the tax implications discussed above.
Can my limited company donate to charity?
Absolutely. There’s even more good news here, donating money to charity could lessen your tax liability.
When you make donations to a UK registered charity through your limited company, in most circumstances this will reduce your corporation tax liability.
How can Nixon Williams help?
At Nixon Williams, we’ve been helping limited company directors make the most of their money since 1995. If you would like to switch to us, please do not hesitate to contact our team who will be more than happy to guide you through the process.