Directors Self assessment for company directors is a requirement by the HMRC.
What is director’s self assessment tax returns?
Self assessment for company directors is a requirement by the HMRC. It means that directors are required to file their own tax returns as well as pay any contributions such as National Insurance and Income Tax on any taxable income they have. Taxable income is anything above the personal tax-free allowance which currently stands at £11,500.
Private limited companies tend to have a flexible structure, which allows their directors to reduce both their Income Tax and National Insurance Liabilities. Limited companies can also be managed by an individual, which means they can register for self assessment and receive both a director’s salary and dividend payments which they would receive as a shareholder.
It all adds up to savings for the company and the individual, especially if the salary remains below the current National Insurance threshold of £8,164. Any remaining income can then be paid as dividends. Payments made through dividends don’t incur any tax liability unless the annual earnings reach more than £33,500 once personal allowance has been deducted.
How does it work?
Income from every source as well as capital gains, irrespective of whether they were received within the company or elsewhere, need to be declared on the tax return. Even if you have no tax to pay, a tax return is necessary.
There are deadlines in place when it comes to director’s self assessment. Any paper tax return has to be filed by midnight on the 31st of October after the most recent tax year. For instance, the deadline for paper returns for the year which ends on the 5th April 2018 is the 31st October the same year. Online returns have a later deadline of the 31st January. Final payments for both Income Tax and National Insurance must also be paid by the 31st January 2019. It is customary for HMRC to send a letter to you around April/May to remind you of your tax return.
How much National Insurance must be paid?
Both Class 2 and Class 4 National Insurance is paid via self assessment. Class 2 costs £2.85 a week once your income is more than £6,025. Class 4 is calculated by working out 9% of your annual earnings between £8,164 and £45,000. Any income which exceeds £45,000 will be liable to an additional 2% Class 4 National Insurance.
If you require any help completing your director’s self assessment tax returns then get in touch with our team. We can take care of everything from your taxable income to capital gains and beyond.