What is on a personal Tax Return, if I run my own company? How does it affect my tax?

Your personal Tax return includes a summary of salary and dividends from the company.  This is effectively monies you have withdrawn from the company.

Payments you have made from your personal account to cover business expenses are not treated as dividend.  These are expense reimbursements as a director.  A classic example of which is use of home as office.

 As a clarification:

1.  The company Tax return is based on profits.
2. The personal Tax return is based on your extraction of those profits from the business.

 Since you will pay extra income tax on the extraction of profits (the rate of tax increases the more that you withdraw) it pays to keep money in the company.  Tax can be saved by retaining funds in the company, and extracting these all when the company is struck off.  A profit withdrawal at the time a company is dissolved is treated as capital gain and therefore subject to tax at a lower rate.

However:

A personal Tax Return is used to determine your income for the purposes of your borrowing ability.  For instance, mortgage lenders tend to base their decision on your own income, and not that of the company you own.  Means tested benefits, the clawback of child benefit and student loan repayment are all based on your personal income.

You will want to take your earnings out of the company at some stage.  If you are not planning to dissolve the company then the capital treatment would not apply.  More often than not, you will pay less tax by keeping your profit extractions even, than by having one year where there is a sudden spike in your income.  For instance, you start to loose personal allowance once your total income exceeds ￡100,000.  This is where remuneration planning can help to mitigate tax considerably.

Further methods for keeping your personal tax liability low include:

• Paying another person, such as a spouse or family member via the company. The dividends will be the personal income of that shareholder.  This can be suitable where you share household expenses with another person.
• Making pension contributions via the company, which is highly tax efficient.
• Buying a hybrid car or motorbike via the company.