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

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. In order to pay a dividend the company must have sufficient after tax profits. ie for a £10,000 dividend to be paid the company must have at least £12,500 pre-tax profits (corp tax rate of 20%).

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 £5,000 .

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.

Under the 2013/14 NIC rules, your wage can be £640 per month to earn NIC credits without paying NIC (neither employer’s nor employee’s NIC). You would need a PAYE scheme and submit returns to receive the NIC credits.

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 several weeks depending on the bank. Many banks offer free banking to new businesses for an introductory period.

Company credit card

Some banks insist on a personal guarantee, but I would suggest if they do this, have a dedicated personal credit card 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 inspection 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.

Read our home office guide here.

Travel and other expenses

As you are now an employee the rules are much stricter, expenses must be wholly, necessarily and exclusively incurred for business purposes.

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 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. Our fee guide is here.

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.

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