Companies

This website is designed for mobile phone users but you can look at it on a laptop or desktop computer as well. If you have set up a new company, then there are a number of issues you need to deal with. This page deals with these issues in the order in which you are likely to encounter them as a small private company. You should see an accountant if you have any problems, or if you are a public company. You may jump between sections on this page using the small coloured buttons:

 

Extracting Profit

If your company’s income is in the form of cheques or bank transfers, then in the first instance it should pass through a company bank account and not a personal bank account. Any cash you receive is company property and should be held separately. If you are making a profit, then you will soon need to think about how you will take out the profit in a tax-efficient manner. You cannot just help yourself to company cash, but need to go through a number of formalities:

A Basic Salary

Many company directors pay themselves a basic salary such as £702 per month so they do not have to pay any national insurance or income tax straight away. Each salary payment needs to be reported online to HM Revenue & Customs using the Real Time Information system (RTI). We can assist you with doing this. You don’t have to physically pay the salary, but can just leave it as a credit on a director’s current account which you maintain with the company. We can assist with this.

Should you fail to report a basic salary through the RTI system, then there is a risk that you will pay extra tax. This is a good argument for seeing an accountant sooner rather than later.

Directors of companies with other employees may be able to pay themselves £987 per month and claim Employment Allowance.

The £702 per month figure has applied since 6th April 2018.

Dividends

Additional profits can be taken out of the company using dividends. This requires paperwork in the form of minutes and tax vouchers, which we can assist you with. Again the dividend can be just a credit on your director’s current account, and we will encourage you to consider declaring a dividend every year to make best use of your basic rate tax band even if you don’t actually take it all out as cash. Just leave the difference as a credit on the director’s current account for a future year. Someday, you may be glad you did this.

In order to pay a valid dividend, the shares do need to be paid for. Usually this is done through a director paying for the company to be set up and then re-charging this to the company. Giving the company a computer is another common way to pay for the shares.

From April 6th 2018 onwards, dividends may be subject to a dividend tax starting at 7.5%, but the first £2,000 of dividend does not incur any tax charge. Obviously you should declare a dividend of at least £2,000 per year. Beyond this, you might choose to take the hit on the 7.5% dividend tax depending upon how much profit you wish to distribute.

The Director’s Current Account

It is advisable to have a resolution of the shareholders to make it clear that the director or directors are to be paid a regular salary only, and any additional payments go to the director’s current account where they may be offset against dividend declarations. We can assist with drawing up any minutes required.

Some thought may be given to charging interest on any overdrawn director’s current to simplify P11D reporting requirements. We have the technology to enable interest at the current official rate to be charged daily. If there is any prospect of you having an overdrawn director’s current account, then you should see us at once!

 

The Confirmation Statement

Previously known as the Annual Return

About a year after setting up a new company, you will be sent a request for a Confirmation Statement. You will need to list shareholders and directors and similar details, and send it back to Companies House with a small payment. There will be an annual Confirmation Statement to do in each subsequent year and it is made easy for you if there have been no changes to the details during the year. Online confirmation will cost £13, but postal confirmation costs £40.

The annual Confirmation Statement should not be confused with the annual accounts or corporation tax return, and the recent change of name should help. It is just like an annual health check to see if you still want the company to keep going. It is not unknown for a company to be set up and then forgotten about, and if you fail to make the annual Confirmation Statement then the company will be struck off.

Companies House can be a bit over-enthusiastic about striking off new companies if the Confirmation Statement is late, because they will assume that the company was just a passing fancy and has now been forgotten.

Here we will mention the general principle that you should not leave it to the last minute to do something. If you do and something else goes wrong (flooding, postal strike etc …), it will still turn out to be your fault even if you are not responsible, just because you have left things so late.

Many new companies start with 100 shares worth £1 each. You could make this 120 shares if you are thinking of bringing in other shareholders later, since there are more ways to divide up 120 shares into equal portions.

 

The Annual Accounts

The annual accounts of companies need to be submitted to Companies House. They are normally prepared by public accountants such as us. They are in a special format and there are many rules to comply with. Here we will just explain how the dates work.

Let’s say your new company is formed on 15th March 2016. It will need to prepare its first set of accounts to 31st March 2017, which is one year after the end of the month after the date of incorporation. These accounts will need to be submitted to Companies House twenty one months after incorporation, which is 15th December 2017. This deadline is near Christmas and the weather could be terrible, so it is easy to overlook. If you miss it then your company may be fined £150 if the accounts are submitted up to a month late (by 15th January 2018). After that there are heavier fines depending upon how much overdue the submission is. David Porthouse has often dealt with company accounts near or beyond the first deadline, and uses advanced technology to get things done quickly.

What happens in subsequent years is that the accounts need to be filed at Companies House nine months after the year end. For the accounts ended 31st March 2018 the deadline would be 31st December 2018.

You might ask why the first deadline is not 31st December 2017, which might avoid a nasty surprise? Well Companies House has a pedantic interpretation of the 2006 Companies Act and this is the way it is. They always insist literally on twenty one months after the date of incorporation and we just have to live with this.

Keep Everything

Everything that you get should be kept in a file, folder or box and handed over to your accountant, who will know what to do with it. That includes the P45 and P60 from your last job, your bank statements, any invoices or vouchers you receive or issue, and anything you get from Companies House or from the Revenue. If you lose anything then it is likely to cost you money.

In the Public Domain

You should be aware that anybody can download and view the accounts which have been submitted to Companies House. We will assume that you want to disclose as little as possible unless you tell us otherwise. Publicity is the price to pay for limited liability, and if you want to avoid this publicity then we will mention that there is the possibility of setting up a company which is not limited. Its accounts will not be published, but they will still be seen by HM Revenue & Customs and still need to be circulated around shareholders.

 

Corporation Tax

Small companies need to pay corporation tax at the rate of 19% on their profits. Normally we would calculate your corporation tax liability at the same time as we prepare your accounts. We would then advise when and how to pay corporation tax, and prepare your corporation tax return. The corporation tax return needs to accompanied by a set of accounts in a special format which is best left to accountants.

If you pay yourself a salary, this is deducted from your profit on which you pay corporation tax. There is therefore a bit of choice on what tax you want to pay. It is common to take a basic salary to roughly cover the personal allowance, so no income tax is payable. Corporation tax is then payable on remaining profits.

The rate of corporation tax has been 19% since 1st April 2017 and did not change in 2018. Prior to that it was 20%.

Value Added Tax

The VAT threshold is £85,000 and your company must register for VAT if you make taxable supplies of goods or services and your turnover exceeds this threshold. If you are anywhere near the the threshold, then you should check every month by looking back over twelve months. This “moving window” requirement is over the top, but it’s the law! Ask an accountant such as us to help you. We have software which makes VAT monitoring quick and easy, and usually do this as a one-off free service.

In addition, if you anticipate that your company will exceed this threshold in the next month alone, perhaps by getting a very big order, then you must register for VAT at once.

After registering for VAT, your company will need to submit a VAT return every three months. We can do this for you, and will give you a 25% discount on the accounts fee if we do. Just ask us for a quotation.

We would warn you that VAT can be a nasty tax to deal with. Speak to an accountant before you register, or get the accountant to register for you. Ignore this advice and you may be shedding tears!

The VAT threshold has been £85,000 since 1st April 2017 and did not change in 2018.

 

 

NOTICE

While every care has been taken in the preparation of this page, no liability will be accepted for any inaccuracies or incompleteness in the information presented. The intention of this page is to warn about common pitfalls, and you should see an accountant the moment you have any concerns.