FAQ'sOur most frequently asked questions...
Limited company FAQ’s
What is a limited company?
A private limited company (LTD) is “an individual legal entity which is separate from that of its officers” (the people who run it). A limited company has its own assets and liabilities, profits and losses.
The liabilities belong to the company – in other words, the owners are protected should the company encounter any difficulty.
This is different from that of a sole trader or partnership, where the assets and liabilities of the business belong to the individuals.
For example, if you are a sole trader baker, you’ll more than likely own the mixer and other equipment. Yet if you traded through your own limited company, the company will more than likely own the assets.
Ownership of a limited company is through issuing shares.
In small owner managed businesses the shares are usually owned entirely by the Directors.
Limited companies must also file annual accounts to Companies House each year which are made available to the general public.
What are the advantages of setting up a limited company?
A limited company is the most tax efficient way of setting up a business. The most attractive benefit of trading as a limited company is the aspect of limited liability.
Advantages of being a limited company;
- Directors personal assets are protected should the company run into financial difficulty.
- Costs and administrative requirements are now not much more than those of a sole trader or partnership.
- Limited companies also give added confidence in suppliers and creditors. Many large organisations will only conduct business with limited companies.
- The ownership of a limited company can be divided up through the sale of shares.
- The shares can be further used to generate capital i.e. selling shares in your company.
What are the disadvantages of setting up a limited company?
If you are considering forming a Limited company, you already know that there are a few slight downsides to being your own boss. Working through your own limited company means more administration than working as a sole trader.
- It is costlier to start up. You will have to form a limited company, which will involve either a formation company or your accountant to do for you.
- Paperwork – There is a more paperwork involved when running a limited company. But, hiring a good accountant will help with the admin side and of course be on hand to help with any extra questions. Choose an accountant who doesn’t charge by the minute/hour but instead charges a fixed monthly fee with unlimited access to support. This means you can ask as many questions you like without being charged any extra. This is particularly important when first going limited as you’re bound to have lots of questions.
- Accountancy fees are generally more expensive, but then your accountant will be doing more work. As any accountant will tell you – going limited is one of the most tax efficient ways of working. With any luck you will also be paying a lower percentage of tax.
- If you’re income is less than £20,000 a year, it might be best to stay as a sole trader. Yet, it would be worth contacting an accountant and asking them for their advice.
We’d be happy to offer free support to help you with this, simply call or email us.
How do I register as self employed?
Your top priority should be to tell the HMRC. For any newly self employed person this is important, as failure to register within three months will result in a fine. The quickest and easiest way to do this is by registering online.
If you have an accountant or agent who will be completing the form for you, you will need to ensure that you have signed a 64-8 form. This is a formal agreement which allows your accountant to act on your behalf, and to contact HMRC.
Self Employment FAQ’s
What are the advantages and disadvantages of going self employed?
The advantages of being self employed are:
- You are your own boss.
- You will develop a unique range of skills and experience as you work for different businesses, and in varied roles.
- The freedom to work when and where you choose, and for however long you like.
- More flexibility over the payment terms that you can negotiate.
However you also need to consider the following:
- You are responsible for the day-to-day running of the business.
- Rarely will you have the resources at your disposal that are available to an established business owner. You may find you’re doing tasks your dislike.
- It is hard work, and large salaries or income are rare in the early days.
- It is not unusual for newly self employed people to have a second job to help provide a guaranteed source of income for day-to-day living costs. Or you could even start working for yourself when you are still in full time employment, providing your employer is OK with it.
- You need to offer a product or service for which there is demand.
- Growing too rapidly, or not being quick enough to seize a chance, may be detrimental to your business.
- Working from home is the most effective when you have the space and facilities to do so. If you work from other premises, you will need to pay rent and other overheads.
I haven’t been asked to file a tax return by the HMRC, who is responsible to get things right?
The taxpayer’s. This is you! The fact that HMRC have not issued a return or have told you that you do not need to do one means little, especially if HMRC is basing this on old information.
It is the taxpayer’s responsibility to check their position each year and advise HMRC if a return is needed and/or if their tax is wrong, even if it is HMRC’s error. If in doubt it may be best to submit a form.
I don’t have a UTR (unique taxpayer reference), how do I get one?
Only the HMRC can issue UTR’s. You need to contact HMRC and explain why you wish/need to submit a return. They will then issue a UTR.
Alternatively, if appointing an agent this is normally something that would be done for you. Once issued, a UTR is valid for ALL future years.
What are the deadlines for sending my Self-Assessment Tax Return?
If you are submitting a paper return, it must reach HMRC by midnight on the 31st October. If you decide to send your tax return online, it isn’t due until midnight on the 31st January.
You will be charged a penalty if your Tax return isn’t received on time.
When you send HMRC a Self-Assessment tax return, you will receive a Self-Assessment statement showing what tax you owe and how to pay. If you have paid too much it will show how much you will be repaid.
If you file your Tax Return online, you can view this before you even receive it in the post.
Tax Return FAQ’s
Do I need to complete a Self Assessment Tax Return?
If you do not pay PAYE i.e. are not a permanent employee, you’ll need to fill out a self-assessment tax return.
Also if you have a second income from overseas income, you’re a landlord or you have income from savings or investments. In a nutshell if you have any income that HMRC needs to know about you need to fill out a self-assessment form.
The most common reasons to fill out a Tax Return:
- If you are self-employed (including being in a partnership).
- If you are a company director or a minister of religion.
Although, if HMRC ask you to complete a tax return you must do so. This will normally be to make sure you are paying the right tax and getting the right allowances.
If you don’t already complete a tax return form, you’ll need to do so if you receive any of the following:
- Income from savings and investments of £10,000 or more.
- Income from untaxed savings and investments of £2,500 or more.
- Income from property (before deducting allowable expenses) of £10,000 or more.
- You receive income from overseas
- Income from the estate of a deceased person on which tax is still due.
- If you or your partner receive child benefit and your income is over £50,000.
- Your taxable income was over £100,000.
How do I pay Income Tax?
Income tax can be paid in various ways depending upon the type of income and whether you are employed, self-employed or not working. The different ways Income Tax is collected include:
PAYE (Pay- as- you-earn).
- Tax deducted ‘at source’. Whereby tax is deducted from your bank/building society interest before the interest is paid to you.
- In some cases, a one off payment.
If you are an employee or you receive a company or private pension, your employer or pension provider will deduct tax throughout the year using the tax code HM Revenue & Customs (HMRC) provides them. This is known at the Pay As You Earn system (PAYE).
If you are self-employed, you will be responsible for filling in a Self-Assessment Tax Return which can be done either online or by filling out a paper form.
You will probably pay your income tax in two instalments plus a third final ‘balancing payment’
What happens if I don’t pay my Corporation Tax on time?
If you don’t pay your corporation tax on time, known as a late payment, or you do not pay enough (underpayment or non-payment), HMRC will charge your company interest.
Late payment interest is charged from the day after the tax should have been paid (normally 9 months and one day after the end of the accounting period) until the date you pay it.
Interest charges are automatic, however, interest is not charged on interest itself. Any late payment interest you pay to HMRC is deductible for tax purposes.
What are the deadlines for filing your Company Tax Return?
You must file your company tax return, which includes a company tax return form and other supporting documentation, within 12 months of the end of your companies corporation tax accounting period.
Your company tax return filing deadline is known to HMRC as your ‘statutory filing date’. If you file your return late your company will be charged an automatic penalty, even if it does not owe any corporation tax.
What penalties could I face if I do not file my Company Tax return on time?
The HMRC will usually send your company letter telling you that you need to file a company tax return.
HMRC calls this letter a ‘Notice to deliver a company tax return’. If HMRC has sent you this notice and you don’t file your return on time, your company will be charged a penalty. You will be charged a flat-rate penalty of £100.
HMRC will charge a further £100 penalty, if you file your return more than three months late.
If your company tax return is late for three or more accounting periods in a row, the initial flat-rate penalty increases to £500 with a further £500 charged if you file your return more than 3 months late.
Additional penalties for very late company tax returns:
- 18 months from the end of your corporation tax accounting period.
- Your filing deadline.
HMRC may charge your company, further penalties from that date. These penalties will be on top of the flat-rate penalty or penalties you’ve already been charged.
These additional penalties are known as tax-related penalties because they are related to the amount of corporation tax your company owes. They are calculated as follows:
- Where a tax return is filed between 18-24 months after the end of your company’s accounting period = 10% of any unpaid corporation tax.
- Where a return is still not filed 24 months after the end of your accounting period = a further 10% of any unpaid corporation tax.
The amount of unpaid corporation tax is the amount due that you didn’t pay by the date your company first became liable to a tax related penalty.
VAT Return FAQ’s
What is VAT?
VAT stands for Value Added Tax.
If you are VAT registered you need to add 20% on top of whatever you sell.
To make things a little more complicated there are certain things that are zero rated like: food, books, newspapers and magazines, young children’s clothing and footwear. This means they do not attract vat at 20%.
When do I have to register for VAT?
If in the previous 12 months your turnover has reached the VAT threshold amount of £85,000 (As of April 2018) or you expect your turnover to reach £85,000 in the next 30 days then it is mandatory that you must register for VAT.
If you are under the VAT threshold amount of £85,000 then you do not have to charge VAT on your goods and services.
The threshold amount can change so make sure to check the HMRC website each year to ensure you are not over or under this amount.
How do I register for VAT?
Once you are at the required threshold amount or if you have voluntarily registered for VAT, you will need to fill in the VAT registrations forms on the HMRC website.
You will then receive a VAT registration number, which you will need to add to any raised invoices, and a certificate.
When do I charge VAT on my sales and other supplies?
You begin charging VAT on all sales and invoices from the day you register for VAT.
So, for example, if you register for VAT in January, but do not receive your VAT registration number until February, you would still start charging VAT on goods and services provided from January.
It can take up to 30 days before you receive your VAT registration number and certificate, so within these 30 days you will still need to charge standard 20% VAT onto all invoices raised.
Once your VAT number is received you will then need to include your VAT number onto invoices raised within this time.
Can I register for VAT even if I am not at the mandatory threshold amount?
Yes, some businesses feel that having a VAT number adds a certain credibility and prestige to their company, so they voluntarily register for VAT.
How often is VAT paid?
This is dependent on the VAT scheme you have chosen. Every quarter or month you will need to fill in a VAT form (online only) to HMRC. This can be managed by bookkeeping software, such as Xero or Quickbooks Online, and can be filed directly.