Many small businesses are registered as sole proprietorships, partnerships, limited liability companies, or corporations on an annual basis. Setting up a limited company in the UK has become quick, cheap, and simple thanks to a welcoming business environment. In fact, if you have all of the necessary information, you can register your new business in a single day. 

If you want to start your own business, a Limited Liability Company (LLC) is an excellent choice. An LLC, unlike a sole proprietorship or a partnership, protects your personal assets from legal claims arising from business debts. An LLC also provides significant tax benefits. 

Initially, if a limited company is based in the UK but earns income from other countries, it was subject to double taxation. This is no longer the case. Over 100 countries have signed double taxation treaties with the United Kingdom. You can now claim exemption tax relief on a variety of sources of income. The exemption, however, is not automatic. You must submit an application to HMRC.. 

 

How does a limited liability company pay taxes? 

Do you run a single-member or multi-member limited liability company? In any case, it’s critical to understand how your company is taxed. Unlike corporations, LLCs are never taxed separately from their owners. Instead, the profits and losses of the company are distributed to each of the owners. In other words, LLC owners report the profits and losses of the business on their personal tax returns. Depending on the number of owners, HMRC treats limited liability companies similarly to a sole proprietorship or partnership. 

Owners of a multi-member limited liability company are taxed based on their share of profits and losses from the business. In fact, HMRC automatically taxes a multi-owner LLC like a partnership. Once you receive your share of the returns based on your operating agreement, all you have to do is report it via personal income tax return. Bottom line, the business still doesn’t pay the tax directly. In countries like the US, it is advisable to file form 1065 which indicate what each of the members is getting from the business. This helps Internal Revenue Service (IRS) to determine 

When it comes to taxation, single-member LLCs are automatically treated as sole proprietorships. Ideally, this means that the company does not pay taxes. HMRC requires you to include your company’s earnings in your personal income tax return. However, you can choose to be treated as a 

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 whether each of the partners is reporting the correct income. 

 

In order to enjoy additional tax benefits, you can elect to have your limited liability company taxed as S corporation. 

 

General Guidelines for Avoiding Double Taxation for an LLC 

Double taxation can be extremely costly to a business. Some of the legal methods for avoiding it are as follows: 

Choose a distinct company name that will not be confused with the name of another company. Don’t forget to include the LLC designation at the end. 

Engage the services of a professional to assist you in developing a comprehensive operating agreement. The document should go over how the company is structured and managed in great detail. Consider outlining how income will be shared if the company is multi-owned. 

Register your company with the local government. 

Create a business bank account that is separate from your personal account. This will assist you in distinguishing between business and personal finances. It also allows you to stay organised and avoid potential tax mistakes. 

Is it difficult for you to keep track of your company’s finances? FBS Accountants accounting professionals are available to assist you. Our experienced financial professionals are well-versed in UK business registration and taxation policies. Call us today to find a low-cost accountant for small businesses and get all of your business issues resolved. 

 

For more information about FBS Chartered Accountants, get in contact today call: 0204 526 5195 or drop us a line hello@finchleybusiness.co.uk