Introduction

Directors of limited companies are normally classed as employees and have income tax - and National Insurance contributions - deducted from payments made to them by the business under the PAYE (Pay As You Earn) scheme. But a company director must also complete a self assessment tax return. This applies even if you are already taxed under PAYE or are not paid by the company at all. You use the tax return to declare all your income - for example, salary, fees, dividends and interest. You must also declare any taxable benefits you receive, such as a company car. The tax return also lets you claim any allowances or reliefs allowable in calculating your tax bill, such as the personal allowance and tax relief on pension contributions.

What you have to pay tax on?

You must declare all your taxable income. This can include:
- employment income, such as a salary and director's fees
- other business income
- any income from self-employment
- taxable benefits provided by the company - such as a car or private medical insurance
- payments in the form of shares or share options
- dividends on shares you own in any company
- interest on savings
There are various allowances and reliefs that you may claim. Every taxpayer automatically qualifies for the personal allowance. Some pension contributions and some other payments qualify for relief. If you have significant capital gains - for example, from selling shares at a profit - these may also be taxable. You personally do not pay tax on any company profits.

Tax rates and allowances

Your total business profit plus any other income is taxable. However the amount of income and profits chargeable to tax will be reduced by any allowances you can claim. Find tax rate and allowances on our site.

Keeping the right records

Keeping the right records is essential. It makes it much easier to manage your business and to complete your tax returns. It's also a legal requirement. Everyone must keep records of their income - and any capital gains - for at least 22 months after the end of the tax year. If you're self-employed, you must keep the records for at least five years and ten months after the end of the tax year. If you're paid as an employee, the company should provide you with the information you need. As well as your pay slips, the main forms are:
- an annual P60 - showing your total income
- an annual P11D - summarising any taxable benefits
- a P45 if you leave - showing your income to date
If you are self-employed, you need to keep records of all your business income and expenditure. This usually includes preparing accounts.
In both cases you also need to keep records covering other personal income. For example:
- dividend vouchers for any dividends you receive
- information on any state pensions or benefits you receive
- bank statements or annual statements showing any interest received

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