10 Tips From an Accountancy Perspective
Posted on by Ceri John
Incorporation is not complex but it requires thought about the planning and procedural matters which need to be covered.
Here are 10 points to consider as a director of a newly incorporated company:
(1) You will need to think about the share structure. It may be desirable to give shares to partners if they are involved with the business. This will enable dividends to be spread amongst family members in a tax effective way, subject to the effect of the government’s proposed income shifting legislation.
(2) Corporation tax will be payable on company profits at 21% on taxable profits up to £300,000 per annum. Taxable profits of £1,500,000 or over are taxed at 28% and a marginal rate applies on profits falling between these figures. Monies should be put aside for payment of the corporation tax which falls due nine months after the company’s year-end.
(3) If you have VAT registration as a sole trader or partnership you can transfer the VAT registration number to the company if it takes over the business as a going concern. PAYE and CIS schemes will normally need to be set up separately in the company name.
(4) If you previously paid Class 2 National Insurance Contributions as a sole trader or partner you won’t need to pay these as a company director. You will instead pay Class 1 National Insurance in the same way as an employee would.
(5) You will need to notify any pension companies who hold schemes in your name about your change in circumstances if you have previously been self-employed as a sole trader or partner.
(6) If the company is taking over a business the insurers will also need to be notified of the change in trading style, as will the business bankers.
(7) Company accounts should not generally be paid privately and reimbursed as this may give rise to taxable benefit in kinds in the hands of the directors. Credit cards, telephone accounts and other suppliers should instead be set up in the company name.
(8) Consider how you are going to draw motor expenses from the company. This may be by having a fully expensed company car or by drawing a mileage figure relating to a privately owned vehicle. Mileage expenses rates are currently 40p per mile for the first 10,000 miles in a tax year and 25p thereafter. Benefit in Kinds for company motor vehicles on the other hand are based on CO2 emissions and the original list price of the car. You will need to consider the most cost effective way for you, based on your annual mileage.
(9) Private limited companies must file an abbreviated version of their accounts at Companies House within nine months of their year end. As a director you will also be responsible for preparing year-end accounts and a corporation tax return for H M Revenue & Customs. You may delegate this task to an accountant but it is still your responsibility and penalties may be payable if accounts and company tax returns are submitted after the statutory deadlines.
(10) Management consultants and IT contractors who incorporate their business should ensure that they are complying with the IR35 legislation. Contracts between the company and the agency or client should provide for independent working patterns and the ability to provide a substitute.
Information in this article is provided by Mr Robert Bradley.
Mr Bradley of Bradley & Associates (www.bradleyandassociates.co.uk) is an accountant based in the heart of Worcestershire and a member of the BIRR Accountancy Partnership Programme.
If you are looking for an accountancy firm who are genuine business advisers in the Worcestershire area get in touch with Bradley & Associates now.
Categories: Accountancy, Information