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Free Guides for new and growing businesses from HRBS - fixed fee accountants and business advisors

Loans to directors

loans to directors Loans to directorsThe good news … a company can loan a director up to £10,000 without shareholder approval.

The bad news … HMRC consider interest free loans to directors as benefits in kind.

Where the loan (or total if more than one loan) is over £10,000 the benefit (interest), calculated at the HMRC official interest rate (currently 2.5% pa) is taxable and must be reported on form P11d by 6th July and included in the director’s personal tax return.

If the director pays the company interest (minimum 2.5% pa), there is no benefit in kind.
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Charge rent for use of your home office

hrbs.biz guide to home office rent agreement Charge rent for use of your home officeAs a limited company company director you can charge your company a rent for using a room in your home as an office. We recommend that you have a rental agreement in place between you and the company and the agreement states that the company has non-exclusive use of the room.
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How to form a limited company

hrbs.biz guide to forming a limited company How to form a limited companyMany businesses are making the change from being a sole trader to running their business through a limited company to take advantage of the limited liability and also the opportunity for tax planning. The potential tax savings reduced from April 2016 onwards due to the change in the taxation of dividends.

Suppliers and customers often prefer to deal with a limited company as it can imply stability, longevity and also the company’s accounts and details of directors are in the public domain. This makes it easier for credit reference agencies and debt insurance providers to recommend credit limits. Unfortunately your competitors can find out about your company’s performance, ownership and mortgages etc at Companies House for free!
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Maximise use of your basic rate tax band

hrbs.biz guide to maximising the use of your basic rate band Maximise use of your basic rate tax bandI originally posted this article on the a4uforum in March 2007, and have updated it for the current (2019/20) tax thresholds.

I recommend to all director/shareholder clients that due to the tax changes in recent years they maximise the use of their basic rate band where possible. This can be done by declaring interim dividends to take total taxable income up to the maximum at which the basic rate will still apply. If they do not need the funds, they can loan the dividend back to the company as explained later in this article.

The current (2019/20) tax rates on dividends are:
0% on first £2,000
7.5% for basic rate tax payers
32.5% for higher rate tax payers
38.1% for additional rate tax payers

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A quick guide for your new limited company

hrbs quick guide to limited company A quick guide for your new limited companyGetting at your profits

Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. To pay a dividend the company must have sufficient after tax profits.
eg for a £10,000 dividend to be paid the company must have at least £12,346 pre-tax profits (corporation tax rate of 19%).
ie £10,000 = £12,346 profit minus £2,346 corporation tax

Do not be tempted to withdraw more than is legally available as dividend, as it would be void and treated as a loan repayable to the company. If the loan is to the director it would be a taxable benefit in kind if over £10,000 .

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