How to Know the Difference Between Personal and Business Tax Returns for Company Directors
One of the most important people in any business is the director.
From making key decisions to maintaining a happy and healthy workforce, there are plenty of roles for a director to fulfil on a daily basis.
A hugely important task for any company director is making sure all tax returns are submitted on time and in the right way.
A director may not just be responsible for the company's tax returns though; they also need to consider their own personal ones.
In this guide from the team at Blue Rocket Accounting, we’re going to dig a little deeper into the difference between business and personal tax returns and understand the role of a company director in both.
Let’s take a look.
The Role of a Director in Tax Returns
As mentioned above, a director needs to consider many things when it comes to tax returns. Some tasks they need to carry out are:
- Registering for self-assessment: You need to make sure you register and always file your personal income, including salary, dividends, bonuses, and any other forms of income.
- Understand the legislation: You must know how the tax system works. For example, dividends have different tax rates to salary income, and this should be factored into payments.
- Keep Track of Business Taxes: Many directors play a big part in company taxes, including corresponding with HMRC, keeping accurate financial records, and reporting data to Companies House.
- Stick to Deadlines: One of the most important things (and the hardest) is to ensure all payments are returns are done at the right time, so keeping track of deadlines is vitally important.
The role of a director is an important one, and working days are often busy. Ensuring you don’t neglect your taxes is vitally important, and the first step is understanding the difference between business and personal accounts.
Personal Tax Returns (Self-Assessment)
A personal tax return is your chance to report your personal income and pay the right amount of income tax and National Insurance. This should be reported to HMRC, who will inform you of any discrepancies in the payments and calculations.
When it comes to personal tax returns, company directors are required to file them if they receive income beyond their salary. This is often received by directors in the form of dividends, self-employment, annual bonuses, and more.
How to Calculate
It all starts with your total income, which is a combination of all payments. From here, you can break it down into different sources and work out any deductions that can be removed to calculate your final payment figure.
The deadline for filing a personal tax return is usually January 31st following the end of the tax year (April 5th).This may vary though so it is important to always be aware of the deadline in your specific scenario.
How to Pay
After all is done, you will have an amount to pay, and this should be paid personally by you, the director.
Business Tax Returns (Corporation Tax)
A company tax return is used to report the financial activities and tax liabilities of the corporation itself. This will include the income details, as well as outgoings such as expenses.
The company in question is responsible for filing the corporation tax returns. While the director may not play an active role in the submission of the returns, they do still have an important part to play in ensuring financial records are always accurate and complete.
How to Calculate
The first thing you start with in corporation tax is the company profits. To determine the amount owed, remove any deductions, allowances, and reliefs, before then calculating how much is owed.
The deadline for filing a corporation tax return is typically within twelve months of the end of the company’s accounting period. Again, it is essential to be on top of your own situation to ensure you don’t miss any important deadlines.
How to Pay
The tax in this case is paid by the company itself. A director may also be active in this process, ensuring that the company’s finances are managed correctly to meet any obligations in terms of payments.
Key Things to Consider
There are some key things you must consider as a director of a company when it comes to both sets of tax returns:
- A director will receive income from a company in several different forms, which all need to be put into their personal tax returns and assessed in their own ways (sometimes with different tax rates). Understanding the different sources and ways to pay them is crucial when it comes to calculating the right figure for payment.
- There may be some forms of tax relief available to directors of companies, such as Business Asset Disposal Relief, which can have an impact on both personal and business tax allowances.
- While a director may hire someone to handle their tax returns, they may still play an integral part in ensuring the financial records of a company are always accurate, and complete, and that returns are submitted on time and the right amount is paid.
- One thing essential in both personal and corporation tax returns is good organisation and accurate record-keeping. This is the cornerstone of good accounting, and a good process must be put in place to ensure it runs smoothly.
Tax Returns with Blue Rocket Accounting
If you’re a company director and are in need of some help with your personal and business tax returns, then you’re in the right place.
Blue Rocket Accounting has a team of experienced accountants who can handle both of these for you, contacting you on all important dates, letting you know exactly what is needed, preparing your tax returns for you, and making sure all deductions are added.
Our comprehensive service can take the burden of filing your own tax returns off your hands and may save you money in the long run.
Want to know more? Or if you would like to speak to one of our team today, then get in touch.