Need a Limited Company? Questions you may be asking yourself

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Need a Limited Company: Questions you may be asking yourself

“What are the main differences between being self-employed and running a limited company?”

“What are the advantages and disadvantages of having a private limited company?”

The major difference between running a private limited company and being self-employed are the administrative requirements you are required to do by law & although the volume is more, the data contained within those returns are pretty similar to being a sole trader.

A limited company will:

  • need to keep company records
  • report any changes to Companies House & HMRC
  • need to file an annual company tax return along with the company’s accounts, giving an undistorted view of its finances.

So why go through the extra cost and resources of having a Limited Company?

In forming a limited company, you are limiting your personal liability.  What this means is that the Limited Company becomes a legal entity of its own.  Think of it as another being, that you work for.  However, it is important to keep in mind that you cannot abuse your power with the limited liability, to take selfish and unnecessary risks.  As a director, you are ethically and morally responsible for the business decisions and transactions the company makes.

As a director of a private limited company you will:

  • make decisions that benefit the company rather than your own
  • abide by the rules and regulations outlined by the company Articles of Association, which are written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary
  • notify any shareholders if you might benefit personally from a company transaction
  • always act with the intention of making the company successful.

Having a Limited company can also add professionalism to your business.  This can help your business become even more successful because customers, clients, and B2B companies will be more inclined to trust you and buy your products or services if you are a limited company rather than a sole trader. It is quite common for B2B companies only to trade with another limited company as a general rule.

A final benefit is, if you have a profitable Limited Company, how you distribute salaries and dividends can have income tax savings, especially once your Read more

New tax planning & tax advice service from Taxfile

New: Tax Advice & Planning Service

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New tax planning & tax advice service from Taxfile

You can now get tax planning and tax advice from Taxfile. We have highly experienced senior accounting staff who can give you the right tax advice when you need it most — for example, when your circumstances are changing, if you’ve had trouble keeping on top of your tax commitments and need to bring things up to date, or perhaps a friend or relative simply needs a bit of reassurance with regard to their tax situation. Perhaps you have assets or income abroad as well as income in the UK and want to make sense of your tax position. Or, perhaps you have recently made a tidy profit trading crypto coins like Bitcoin and want to know where you are from the standpoint of Capital Gains or Income Tax. Maybe you need to disclose income from property rental that you have previously not told HMRC about (more about that in a later post). Those are all examples of typical situations where our new Professional Tax Advice and Tax Planning services can help you to see the wood from the trees.

A Free Telephone Consultation

In the first instance, we are inviting clients to speak for just 15 minutes with one of our resident tax planning experts. This will be in the form of a free, introductory telephone call, perhaps in February or March if it suits you. We can then see what’s needed and take it from there. We can, of course, discuss any costs with you before you commit to anything further, and there is no obligation.

Whether it’s about labour taxes, investment taxes, business taxes, disclosures to HMRC or even professional help to support you during an HMRC tax investigation, we can make sense of all the options for you and — in a fair and ethical way — help to make sure you are paying no more tax than you should do. With decades of experience in accountancy and tax planning, we know exactly what’s what when it comes to tax, so can definitely help you. Call 0208 761 8000 to arrange your free 15 minute telephone appointment with a tax expert, at a mutually convenient time. Alternatively, Read more

The Spring Budget, March 2017

Spring Budget 2017: Key Changes Affecting SMEs & the Self-Employed

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Philip Hammond, Chancellor of the Exchequer, delivered his Spring Budget to the House of Commons today.

If you missed it, you can watch and listen to the entire speech by clicking the video above. For those without 55 minutes to spare, we spotlight the key changes, particularly in relation to tax, National Insurance, the self-employed and small businesses.

  • For the self-employed, Class 2 National Insurance Contributions (NICs) were already set to be abolished from April 2018. Today, to the surprise of many, the Chancellor announced that Class 4 NIC rates will increase from 9% to 10% from April 2018, increasing again to 11% in April 2019. The Chancellor said that this was to more closely align self-employed NI rates with those paid by employees, particularly in view of the new State Pension to which the self-employed will now have access.
  • Tax-free dividends for those working through a limited company will also be reduced from the current £5,000 level to just £2,000 in April 2018. Corporation Tax will then be charged above that threshold. Again, the reason cited was to bring the self-employed more in line with employees in terms of tax paid overall.
  • The National Living Wage, for those over 25, will increase to £7.50 per hour from April.
  • From April this year, the personal allowance (the amount people can earn before paying income tax) will increase to £11,500 and to £12,500 by 2020. The threshold for higher rate tax will also increase from £43,000 to £45,000 this April.
  • Up to £2,000 (tax-free) will be available towards the cost of childcare for children under 12 from April this year. So for every 80 pence you pay in childcare costs up to £10,000 maximum, the government will add a further 20 pence.
  • Those lucky enough to be able to afford it will be able to save up to £20k maximum in their ISAs from this April. There will also be an NS&I bond introduced, which will pay 2.2% interest on a maximum of £3,000 per person.
  • There will be help for businesses following business rate increases, particularly pubs, which will receive a £1,000 discount if their rateable value is less than £100k (apparently that’s 90% of all English pubs). Also businesses coming out of ‘small business rate relief’ will be helped through the transition with a promise of increases no larger than £50 per month from next year.
  • There will also be an expansion of the clampdown on tax avoidance where some businesses were converting capital losses into trading losses.

Other announcements made by the Chancellor Read more

Corporation Tax (CT)

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The fourth largest source of government revenues is Corporation Tax, charged on the profits and chargeable gains of companies. The main rate band is 30%, which is levied on taxable income above £1.5m. The small companies rate of 19% is charged on the first £300,000 of profits where profits are between £50,000 and £1,500,000.
Profits between the lower and upper profit thresholds (£300,000-£1,500,000), are in effect charged at a marginal rate of tax of 32.75%.
Companies that are resident in the UK are subject to Corporation Tax on their profits (income plus gains) arising in an accounting period which cannot be more than 12 months.
Non-resident companies may be subject to Corporation Tax (CT) where they trade in the UK through a permanent establishment.
• A company incorporated in the UK is treated as UK resident.
• A non-UK incorporated company is treated as resident in the UK if its central management and control is exercised in the UK.

A company’s trading losses can normally be set against:
• Income and gains of the same accounting period.
• Income and gains of the previous year.
• Trading profits from the same trade in future years.

In terms of Dividends, companies do not have to pay tax at the time they pay a dividend. Corporation tax is paid at the normal time on the company’s taxable profits without any deduction for dividends paid. For small companies, profits that are paid out as dividends are charged at not less than 19%.
A shareholder receives the dividend with an accompanying tax credit equal to 10% of the dividend plus tax credit. The tax credit is equivalent to the basic rate of income tax on dividends. Companies pay no tax on dividends received.
Companies normally have to file their return within 12 months of the end of the accounting period. If a return is filed late, the company is automatically charged a fixed penalty of between £100 and £1,000, depending on how late the return is and whether lateness is habitual. An additional tax-linked penalty is charged if the return is filed more than six months late.
If you need to know more about corporation tax, our tax experts at Taxfile in South London can help you understand it better and at the same time minimize your tax liability, making sure you pay the right amount of tax.