Our top tips for setting up a limited company…

At Surrey Hills Accountancy we can help you with your annual accounts and tax return. It’s necessary to keep good accounting records to ensure the filing process is smooth and easy.

By using a cloud based accounting software you can keep all the information in one place:

• Money received and spent
• Assets and debt details
• Purchase and Sales of goods
• Stock information

It will help in keeping the necessary records of the money spend ( receipts), received (invoices).

Filing Accounts

• For a limited company you need to file your accounts including the balance sheet, profit and loss accounts.
• If the turnover is more than £10.2M or the balance sheet is more than £5.1M or there are more than 50 employees the accounts may need to be audited.
• Small and micro-entities can prepare simpler accounts to meet statutory minimum requirements and these do not need to be audited.
• Small and micro-entities can also choose whether to send a copy of the director’s report and profit and loss account.
• Accounts are filed online to HMRC and must be submitted alongside CR600 (Company Tax return) and Corporation Tax computation.

Tax Return

• All entities must file a Company Tax Return.
• The deadline for your tax return is 12 months after the end of your accounting period.
• Even if you have made a loss or do not need to pay corporation tax it still needs to be filed.
• The corporation tax needs to be paid within 9 months and 1 day after the end of your accounting period.

Penalties

• The penalty for late filings is £100 per day.
• After 3 months from the deadline, it is an additional £100 per day.
• There is a 10% penalty on the unpaid tax that will be added if the deadline is over 6 months.
• If the tax return is filed late 3 times this will increase to £500 per day.

Annual Return

The confirmation statement needs to be filed on an annual basis; usually a year after incorporation or the date you filed your last annual return. This is confirmation to Companies House if anything has changed within the company.

For example you must report the below changes to HMRC

• Details of registered office, directors, secretary
• Business contact details
• Appoininting new accountant
• Statement of capital and shareholder information
• SIC code
• Change to ‘People with significant control’

The statement can be filled online and it costs £13. If the return is not filed within 14 days of the due date the company could be fined up to £5,000.

In addition, changes to the company name, removal of a director, company’s article of association needs to be approved by the shareholders (the majority of votes).

Any changes can be recorded via the Companies House online services.

How you can remove cash from your Limited company?

• Salaries and benefits

As the owner of the company you can decide whether to pay yourself a salary, to do this you will need to be hired as an employee.

The company will need to pay Income Tax and National Insurance on your earnings on top of your personal Income tax charges. However, for the tax purposes salaries are deductible expenses (pre corporation tax calculations).

Company Benefits

If you decide to use the company equipment for personal use or receive any other benefits from the company e.g. company car, then this may be classified as a benefit in kind and tax will need to be paid on this by the company and you.

Here are some of the benefits in kinds (paid/provided by the company) that are tax-free for the employees:

• Free canteen meals (if provided to all employees)
• Contribution to occupational/personal pension scheme
• Personal gifts (unconnected with the job)
• Counselling services
• Childcare arrangement
• ‘Trivial’ benefits – value < £50, not exchangeable for cash, not salary sacrifice
• Dividends
• Directors Loan

Dividends

Dividends can be paid by the company to ALL of its shareholders when the company makes a profit. The dividend payments are not deductible expenses for purpose of the corporation tax calculation. However, dividends are taxed at a favorable rate for the shareholders and the company does not need to pay tax on these payments.

To pay a dividend, you must:

• Declare the dividend during the directors meeting
• Keep minutes of the directors meeting (even you are the only director)

Directors’ loans

If you have paid out more money from the company than you have paid in and it is not a dividend or salary, it would be classified as director’s loan.

You must keep a record of all the loans in the directors’ loan account.

Depending on if you owe or lend money to the company there might be some tax consequences at the end of the financial year if not repaid:

· Example of owing money to the company

Loan repaid within 9 months of the end of your corporation tax accounting period.
Company’s Responsibility – Loan > £5,000 – pay Corporation Tax at 32.5% of the original loan (25% if loan pre 06/04/2016)
Borrower (Director) – No responsibility

Loan not repaid within 9 months of the end of your corporation tax accounting period.
Company’s Responsibility – Pay Corporation Tax at 32.5% on the outstanding amount. Interest on the Corporation Tax should be added until the loan is repaid in full. Once the loan repaid, Corporation tax can be reclaimed on the loan but not on the interest rates.
Borrower (Director) – No responsibility

Loan ‘written off’
Company’s Responsibility – Deduct Class 1 NIC
Borrower (Director) – Income tax needs to be paid