Guide to operating through your Limited Company

Transcription

1 Guide to operating through your Limited Company Open a company bank account Accounting records Corporation tax How to pay yourself How to pay your staff What expenses can you claim Opening a Bank Account Your new Limited Company will need its own business bank account. You will need to make an appointment with a suitable bank and take along the following documents:- Certificate of Incorporation (already ed to you) Photo identification for each Director or Shareholder Proof of address for each Director or Shareholder All the company s trading activity should be operated through this business account. It is advisory to keep your business and personal transactions separate. Money you take out of the business for personal expenditure should first be transferred to your personal bank account. Accounting Records It is important that you maintain good accounting records for the company s business activity. This will enable us as your accountants to complete accurate accounts for the business and ensure that your taxes are calculated correctly and ensure you keep on the right side of HMRC. To assist you in doing this we will have recommended one of our standard record keeping systems. DLR Cashbook (excel based) Online accounting systems (DLR Grid accounts) You will receive a separate covering the choice we made together during our initial meeting.

2 Corporation Tax Each accounting period we will complete a corporation tax return to calculate the tax due for the company. This will be based on the business accounts of the company. How is corporation tax calculated ( ) Income/Sales 45,000 Expenses 15,000 (includes directors salary) Profits 30,000 6,000 Available as dividends 24,000 No additional personal tax if you take dividends up to 30, /15 Tax is due 9 months after your accounting year end. Therefore your first payment if any will be 21 months after the company is formed. How to pay yourself Operating through a company provides good opportunities to reduce your tax liabilities on the money you take out of your business. We will normally recommend a combination of a low salary and dividends from the profits after company tax. This will ensure that you receive national insurance credits. At our initial meeting we agreed the best combination based on your personal circumstances. Any money you draw from the business should be transferred to your own personal bank account. National Insurance Contributions If you were previously operating as a sole trader then we will have written to HMRC and cancelled your self employed Class 2 National Insurance Contributions (NIC), from the date you started trading through your company. This is because you will become an employee of the company and will no longer be self employed. You should also notify your Bank to stop the Direct Debit to NICO unless you pay quarterly on invoice.

3 How to pay your staff We will be setting up a new PAYE scheme with HMRC for the company. If you have taken advantage of our payroll service we will also operate your payroll and send you payslips for your staff at regular intervals. You will receive a separate covering this service. If you are in the construction industry, a new CIS registration will be needed for the limited company. We can provide you with details on the procedure to obtain this. VAT Registration A popular misconception concerning the formation of a limited company is that you must also register for VAT. In fact, incorporation and VAT registration are two entirely separate things. Sole traders can be VAT registered or not, as can limited companies. The only time you must go VAT registered is when your sales exceed the VAT registration threshold ( 79,000 at the time of writing) for the preceding twelve months. There are times when it may be beneficial to be VAT registered before your turnover reaches the registration threshold however before that point your registration will be voluntary. Once you choose to go VAT registered, the two most common schemes to choose from are:- Basic VAT registration Under the basic VAT scheme you must retain all your receipts and calculate how much VAT you have paid, which you are then able to claim back from HMRC. Flat-rate VAT registration Under the flat-rate VAT scheme, which is designed to simplify accounting for small businesses with turnover less than 150,000, you will be assigned a VAT rate based on the type of business you operate (for example an IT consultant will have a rate of 14.5%, a photographer will have a rate of 11%, and a pub will have a rate of 6.5%, which you can use to calculate your VAT return from your VAT-inclusive turnover. If we are providing VAT services to your company you will receive a separate detailing this service.

4 Directors Responsibilities When you become a director of a limited company, you are subject to what is called the Director s Fiduciary Responsibilities. In less fancy language, this means things a director must do. The most important responsibilities of a director are The annual return This is a document giving a snapshot of the company. It includes the company name and address, details of company officers and shareholders, an overview of business activities, and where the company keeps its records (e.g. with their accountant). The annual return must be filed yearly (hence the name), usually on the anniversary of the company s formation. If we provide your accountancy services this is included in what we do for you. The annual accounts The annual accounts contain records of all income and expenses, all company assets and liabilities, and all goods sold and purchased in the last financial year. After your first year s trading you will have nine months in which to submit your annual accounts, meaning they are due 21 months after you incorporate. If you have engaged us as your accountants we will complete these for you from your bookkeeping records. Company officer details Any change of details in your company officers (directors and secretary) must be registered. You must contact us if you would like to make any changes. Registered office Our office at 11 East Hill Colchester Essex CO1 2QX will be the company s legal registered office. This is where all tax documents are sent. This is different from your trading address were you have your day to communications and the address your bank holds for you. Allotment of shares You must keep Companies House informed of the ownership of your business, and details of your company ownership is made public. We will do this for you. Other Other duties a director must undertake include compliance with employment law, and ensuring a suitable health & safety policy is in place.

5 Limited Company Expenses Travel Accommodation Expenses When working at a client s site or travelling for business, any costs incurred through accommodation are expendable. Expenses must be wholly and necessarily required and personal use could be disallowed. This includes hotels / B&B s for business trips the VAT on such stays could also be reclaimed. Renting Accommodation If renting is a suitable alternative to staying in a hotel / B&B (for example if staying for a prolonged period of time), then rental costs can classed as a business expense. The contract for the rental should be in the name of your limited company. Bicycle expenses Active souls looking for a healthier way to work can claim bicycle expenses. The bicycle must remain the property of the company and it must be used more than 50% of the time for work-related travel. Limited company directors can simply purchase a bicycle plus necessary equipment in the company name and loan it to themselves. Where a worker uses their own bicycle for business travel a mileage allowance of 20p can be claimed. Travel Expenses Limited company directors can claim expenses on travel costs. HMRC states that deduction is allowed for the full cost of travel where necessary attendance is required. Necessary attendance refers to the journey made to or from a place that has to be attended in order for the performance of duties to be carried out. This does not include ordinary commuting or private travel. Mileage Expenses Business can save tax by claiming tax-free mileage allowance payments for the costs of their business journeys made in their own vehicle, under the Approved Mileage Allowance Payments Scheme. Travel should be to a temporary workplace. A temporary workplace is a workplace attended by an employee for a limited duration of time or for a temporary purpose (for the director of a limited company this is somewhere attended for less than 24 months.) The approved amount for mileage allowance payments = the number of miles of business travel x the rate applicable to the kind of vehicle

6 Car or Van: 45p per mile for first 10,000 miles, 25p per mile after that. Motorcycle: 24p per mile. Cycle: 20p per mile. Subsistence Expenses Subsistence expenses are business expenses incurred while travelling such as meals. If subsistence expenses are incurred while travelling on allowable business journeys, employers are able to make subsistence payments tax and NIC free. You need to be travelling for business purposes to claim food and drink expenditure. Personal Incidental Expenses This expense is intended to cover odds and ends you may require when on the road such as laundry service, a newspaper or phone calls. A director/employee can also claim 5 a night for personal incidental expenses in the UK and 10 when staying outside the UK. Home Office Broadband Internet Limited company directors can claim expenses on their broadband internet. In order for expenses to fall within the wholly and necessarily rules the internet connection must be established in the name of the limited company. If the broadband is taken out by you personally, only the business usage may be apportioned as an expense. Home Working Expenses Businesses who work from home are entitled to claim home working expenses. We will review your own circumstances and agree the appropriate amount to claim as an expense. Magazine and Book Expenses If certain books and publications are required for your business (for example trade publications or reference material) you can claim the cost as an expense. HMRC bases its guidance on books and publications expenses on the principle of whether the expense is reasonably incurred. When considering books and publications each expenses item should be considered individually. Before you claim expenses for books and publications make sure that: No-one personally benefits from the item That the publication is a necessity for the business and not for self-interest Generally, books, newspapers and magazines are zero rated for VAT purposes.

7 Mobile Phone Expenses Most Businesses will use a mobile phone for both business and personal use. You can claim a mobile phone purchase and running costs as a tax-deductible expense if: The mobile is owned by the business Invoices are made to that business The phone is provided for business use and has reasonable personal usage. If a mobile phone is only used for business then all of the input VAT is reclaimable. If there is some personal usage then only an apportioned amount of VAT may be reclaimed. However, this does not apply with the flat rate VAT scheme, as there is no input VAT. Other Childcare Vouchers Limited company directors can claim childcare vouchers under the government s childcare voucher scheme. Through the childcare voucher scheme employees are able to receive up to 55 per week ( 243 per month) in childcare vouchers. These are exempt from tax and national insurance contributions, and are available to each parent and legal guardian. The scheme can be accessed: By registering directly with HMRC By using a provider who will carry out registration and administration on your behalf Conditions of the childcare voucher scheme: The child must live with the employee. The scheme is available to each parent or legal guardian. The scheme must be offered to all employees of a company, and all must be able to claim expenses. Vouchers cover children up to the age of 15 and can only be used to pay registered and approved child carers (e.g. registered childminders, nurseries, after school clubs, holiday clubs etc.). If a relative is the child carer then they need to be registered and also care for other children who are not related. The childcare contract should be between the limited company and the child care provider.

8 Eye Tests HMRC states limited company directors can claim employee expenses for: Eye tests that are required by health and safety legislation for employees who are required to use a computer screen. Glasses or contact lenses that you re obliged to provide because an eye test required by health and safety legislation shows them to be necessary for VDU work as long as the glasses or lenses are only used for VDU work. N.B. Expenses cannot be claimed on glasses or contact lenses that are used for everyday wear. If you are unsure or need any further guidance on expense please contact us. Administration Suppliers & Customers You should notify all suppliers & customers of the change in status including new company name, & if appropriate the new bank account details. We have provided a standard letter for suppliers and customers for this. Ensure all customers make future payments in the company name. If you operate from business premises, ensure you notify all utility companies of the changes including rates (water & general), gas, electricity and telephone. Use the supplier standard letter we have provided you with. It is important that you consider the telephone bills. Preferably these should be in the company name. DO NOT have a phone in a personal name being paid direct by the company bank account. This can result in PAYE issues. However, if your phone is not presently a business line, it may be more expensive it may be preferable to keep in your own name and reclaim business use. We recommend that you speak with your telephone company to obtain details of costs before you proceed. You should contact any professional organisations or trade associations to ensure there are no problems with transferring the trade. If there are no problems, write to advise on the change same letter as to suppliers. Check whether there are any special licences or other agreements which may need transferring to the company (if appropriate). Eg. Public entertainment licence, alcohol licence, franchise agreements, operator s licence, data protection registrar, etc.

9 Insurances You should notify your insurers of the change to ensure all cover is transferred to the company as the insured person. Again, we have provided a standard letter. Use the opportunity to review your insurance cover is it adequate? Remember, you will now need employers liability insurance. Leases and Hire Purchase Agreements If you have any equipment leases or HP, you need to advise the finance companies of the change in status, and arrange for the agreements to be transferred to the company (if appropriate) using the standard letter we have provided you with. Business Premises If the business operates from leased premises, you need to notify the landlord to arrange for the lease to be assigned to the company as the tenant. We have provided a standard letter to send to the landlord. We have also provided a standard letter to send to your solicitor. Costs may be incurred see your solicitor for a quote. We can introduce you to a solicitor if you have not got your own. If you are the landlord, we will have discussed whether the property should be let out to the company, and if so, agree the rent payable (if appropriate). If the property is to be transferred to the company you will need to consider CGT, Stamp Duty and legal implications and costs. Other Matters You should review your pension arrangements to ensure these are not affected by the change in status. You should review your will in light of the transfer of the trade, especially if the business is a significant size and value. If you have no will, we recommend that you have one prepared especially if children or unmarried partners are applicable. Please contact us for the name of a local solicitor we can recommend.

10 Example of a letter notifying your staff of the change in status Your name Your address Date Name of your Staff Member Address of your Staff Member Dear Employee Notification of change in circumstances In accordance with the advice of my/our accountants, I/we have decided to change my/our trading status from that of a sole trader/partnership to a limited company with effect from.(insert date here). The name of the new limited company is: [Insert name here] This change will have no impact on your employment with us. You will cease to be an employee of the sole trader/partnership business on the date the trade is transferred to the limited company. We will issue you with a P45 at this date to signify the end of your employment. At the same time, you will commence employment with the limited company. I/we can confirm that for Employment legislation purposes, your employment with the limited company is deemed to be continuous. This means that any rights or entitlements that you have accrued with the existing business are carried into the limited company as though there had been no change in your employer. This change should have no other impact on the terms of your employment. If you have any queries regarding this change, please speak with me. Yours faithfully Your name

11 Example of a letter notifying your suppliers of the change in status Your name Your address Date Name of your Supplier Address of your Supplier Dear Sir/Madam Notification of change in circumstances My existing account number is. In accordance with the advice of my/our accountants, I/we have decided to change my/our trading status from that of a sole trader/partnership to a limited company with effect from.(insert date here). The name of the new limited company is: [Insert name here] Could you please ensure that all invoices you send to us after the above date are addressed in the name of the new company. This change should have no other impact on our business relationship. Yours faithfully Your name

12 Example of a letter notifying your customers of the change in status Your name Your address Date Name of your Customer Address of your Customer Dear Sir/Madam Notification of change in circumstances In accordance with the advice of my/our accountants, I/we have decided to change my/our trading status from that of a sole trader/partnership to a limited company with effect from.(insert date here). The name of the new limited company is: [Insert name here] [Could you please ensure that any payments that you make to us after the above date are made payable to the company name set out above.] [Could you please continue to make payments in my/our old trading name in respect of invoices sent to you in my/our old trading name.] This change should have no other impact on our business relationship. Yours faithfully Your name

13 Company letter head example ABC Limited 123 The Street Any town Any county CO1 2QX Tel: Date: 01/01/2014 Dear John, Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Yours faithfully John Doe Managing Director Notes; if you have a trading name the footer should read: Widget Co is a trading name of ABC Limited Registered in England company number Otherwise just Registered in England company number You do not need to put director s names but if you do you need to put all of them.