A quick guide for your new limited company

Getting at your profits

Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. In order to pay a dividend the company must have sufficient after tax profits. ie for a £10k dividend to be paid the company must have approx £12.7k pre tax profits (corp tax rate of 21%).

Do not be tempted to withdraw more than is legally available as dividend, as it would be “illegal” and HMRC may class it as a salary or a loan to the director (taxable benefit in kind if over £5k) and charge tax & NIC.

For more on how to extract your profits in a tax efficient way, read our article “Save tax and National Insurance with your limited company”.

Dividends must have the appropriate documentation ie directors’ meeting minutes and vouchers as they are legal documents (the dividend voucher proves your income and the tax credit attached to the dividend). In this respect you have the same legal responsibilities as BT etc.

Blank directors meeting minute ~ http://hrbs.biz/id?5
Blank dividend voucher ~ http://hrbs.biz/id?6

Under current tax and NIC rules, your wage can be £455 per month to earn NIC credits without paying NIC (neither employers nor employees). However, to receive the online “tax free” filing incentive you must pay a small amount of PAYE or NIC so an annual salary of £5,465 would suffice. The incentive for 2008/09 is £75.00 .

Bank Account

A bank account in the limited company name is a must. The limited company is a separate legal entity even though you are owner, sole decision maker and (maybe) only employee. Opening a bank account can take ages depending on the bank. Most banks offer free banking to new businesses eg Alliance & Leicester, Abbey and also Natwest currently offer 2 years free banking for new businesses .

Company credit card

Some banks insist on a personal guarantee, but I would suggest if they do this, have a dedicated personal credit card (cashback or skycard) which is only used for business purchases. This separates the business purchases from your personal affairs which is important as the credit card statement will form part of the company’s accounting records and be viewed by your accountant and, should you get an audit visit, by auditors from HMRC/VAT.

Office Expenses

Mobile phone, broadband etc - bills must be in company name, otherwise will be taxable as a benefit in kind (HMRC rationale is that the company is settling your personal liability). If you have a home office licence agreement you can reclaim the costs of running the business from home. At HRBS, we provide our clients with an agreement, as part of our limited company fixed fee service.

Travel and other expenses

As you are now an employee the rules are much stricter, expenses must be wholly, neccessarily and exclusively incurred for business purposes. At HRBS we recommend applying for a p11d dispensation to reduce the administration and number of year end PAYE returns you need to complete.

Accountancy and business advice

Don’t use your accountant just at the year end! A good accountant will provide ongoing business support and advice which may stop you making costly mistakes and missing registration deadlines etc.

At HRBS we provide a fixed fee service which includes regular business reviews so that, for example, we can identify when VAT registration will be needed; prepare regular management accounts to make sure your dividend is legal and so that you know how your business is performing; act as a financial sounding board for your business ideas; help you to chase those debtors which are messing up your cashflow etc.

You would be amazed as to how few small and medium sized companies prepare regular management accounts and the directors rely on “gut feel” to run their business.

Involving your accountant throughout the year may not cost much more than just using them for the year end accounts, as part of the accounts preparation can be done throughout the year and this should be reflected in the overall fee.

VAT

Depending upon your trade sector, you may consider registering on the Flat Rate Scheme. At HRBS we monitor our clients’ businesses and recommend a suitable VAT scheme. For more information, please read our “Flat Rate VAT Scheme” article.