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New limited company first year tax returns due. Have I got it right?

Hello,

Thanks for your time.

Last March I started a company and the company accounts year ends on the 3rd of March. I just want to run by you what I've gathered so far about tax implications for Limited Companies to see if I'm barking up the right tree :)

I'm all up for getting an accountant to do the actual end of year returns but I want to understand my company accounts too!

So based on an example total turnover of £50,000;

Total turnover: £50,000

Expenses: £15,000
Salaries (myself and my wife at £442 per week): £10,608
Total expenses: £25,608

Total pre-tax profit: £24,392
Total corporation tax due (20%): £4,878.40

Profit available for dividends: £19,513.60

Questions;

  • Does this look correct?
  • I only have to fill in a Limited Company tax return? Or are there more forms?
  • Paying ourselves this salary which is the NI threshold, the company doesn't have to pay tax on the salaries?
  • My wife and I, we don't have to pay tax on these salaries either?
  • I'm able to then give the remaining amount (or a part thereof) to myself as dividends. The company doesn't pay tax on dividends. Do I have to pay tax on those dividends?
  • Finally, do we have to fill in a standard self assessment? Or not because we are seen as an employee of the company and the salary is below the NI threshold?

Thanks for your time!

Replies

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23rd Feb 2012 15:50

I have to be honest with you.  You are asking many questions about the running of a ltd co. and the tax consequences.  I would suggest that you prepare a P&L and BS, have your invoices and bank statements in good order and visit an accountant.  You will have done most of the book keeping so you will only have to pay for the advice and the cost of the various on line submissions.  That all said you are about right subject to caveats and some details!    

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23rd Feb 2012 16:00

Well

It would be impossible to incorporate a full review based on the information you have provided (and my time) but the following thoughts spring to mind:

- Are you sure the 20% tax rate is correct?  The rate changed to 20% on 1 April 2011.  It looks like you will have actually have a 21% rate.

- What are the £15k expenses?  Some might need to be adjusted for tax purposes, e.g. entertaining, leased cars.

- No fixed assets? Accounting depreciation is replaced by capital allowances for tax purposes.

- Normal documents to file for the company are a CT600 form (iXBRL tagged), tax computations (showing the tax adjustments) and statutory accounts (iXBRL tagged).  You could use the joint filing template to file all these documents, including filing your accounts at Companies House.

- Salaries, do you mean £442 per month (you put per week)?  If so, it looks like it's below the NI threshold and therefore no PAYE/NIC will be due.

- Income tax will be payable on dividends which fall into the higher rate band for the recipient.  Make sure you do the minutes/vouchers for the dividend declaration.

- HMRC would say that any company director must file a self assessment tax return. 

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23rd Feb 2012 16:16

Practical stuff...

Then there are the nuts and bolts of actually submitting the return - i.e. online.  That means you'll need iXBRL-tagged accounts, relevant computations etc.

For an accountant with decent software, quick work indeed.  Trying to do it all yourself...not so much.

I'd echo the advice to find a good accountant.  you sound clued-up and organised, so costs shouldn't be too high.

 

WS.

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By sgray
23rd Feb 2012 16:23

Thanks for the quick and informative answers.

@Fred Smith

Thanks, I should be able to generate the P&L and BS using Clear Books.

@thisistibi

Yes apologies I meant £442 per month for the salaries.

Thanks for bringing up the 21% corporation tax. I had noticed the change in rate on the HMRC site but glossed over that it would apply to my as the company started right before the change.

Company expenses are pretty basic; cost of web design, web server payments and so on.

Fixed assets, I guess the only one would be the computer I use to work with which I put down as an expense when it was bought last year. Other than that there are no investments and I work from home.

Thanks for bringing up the company minutes/vouchers for dividends. Also as the dividends are below the higher rate threshold there's no income tax to pay on them.

Thanks again,

Your replies have been very helpful.

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By sgray
23rd Feb 2012 16:24

@wilcoskip

Thanks for the advice. I'm still open to getting an accountant to review the accounts and complete the returns and so on :)

 

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23rd Feb 2012 18:43

Strange

Year end is 3rd of March?

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23rd Feb 2012 18:51

iXBRL

"Normal documents to file for the company are a CT600 form (iXBRL tagged), tax computations (showing the tax adjustments) and statutory accounts (iXBRL tagged).  You could use the joint filing template to file all these documents"

The tax computations need to be iXBRL tagged, too.

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23rd Feb 2012 19:11

don't forget companies house

You also have to file accounts at companies house, which comply with the companies act..... (so not just a p&l account and balance sheet).

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23rd Feb 2012 19:20

Use of home as office

"I work from home."

Expenses?

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24th Feb 2012 12:21

If you started trading on 3 March the 1st period (to 31 March) will be a long period of account and will require 2 returns.

 

Does your wife have another job?

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27th Feb 2012 14:12

Limited company

Yes - to all the previous comments but can I summarise?

You very definItely need an accountant who is experienced with small limited companies based at the directors' home. He or she will be able to advise on expense and charges that can be deducted before fiixng the taxable profit incl.capital allowance ( AIA or WDA ) on all fixed assets that are now used by the business.

He or she will also be able to advise on;

1- the correct periods for the first one or two Corporation Tax Returns to be based on the first accounts.

2- any work-in-progress that may need to be included for work expended but not invoiced and how to value it.

3- probably lots of other really basic things that will be extremely valuable

 

Peter J Lashmar

Lashmars Tax Accountants

tel 01590-688838

[email protected]

 

 

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27th Feb 2012 15:51

Get an accountant

.............and if he can't explain everything to you then you know you've got the wrong one.

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27th Feb 2012 16:31

Any Answers or Touting For Business?

Which one?

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27th Feb 2012 20:46

EU directive re cash accounting

Not relevant to this OP's first year - but his comments might have been set up as those an intelligent trader would make once the proposed reporting simplification had been put in place.  The replies point out the many places where he may have missed something that could save tax or have the wrong end of the stick, (no offence intended to SG, you are clearly much more capable than the average client), and he is still only "open" to possibly involving an accountant, and that just to punch the data into the Returns.

In the new regime he would just press "file" in Clear Books.

I really am considering my future.

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27th Feb 2012 21:39

Penalties

"In the new regime he would just press "file" in Clear Books."

Maybe when he gets penalties for his errors he will be more than just open to getting an accountant.

 

 

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27th Feb 2012 22:07

It's sad really

So many incorrect assumptions in the OP starting with 'Last March I started a company and the company accounts year ends on the 3rd of March' ''''

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28th Feb 2012 08:51

?

Chris Smail wrote:

So many incorrect assumptions in the OP starting with 'Last March I started a company and the company accounts year ends on the 3rd of March' ''''

Not sure I agree - what OP says seems reasonable.  It might be unusual to have a 3rd March accounting reference date, but perfectly acceptable.  Is there something in particular which you are referring to?

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28th Feb 2012 10:05

Likely?

thisistibi wrote:

Chris Smail wrote:

So many incorrect assumptions in the OP starting with 'Last March I started a company and the company accounts year ends on the 3rd of March' ''''

Not sure I agree - what OP says seems reasonable.  It might be unusual to have a 3rd March accounting reference date, but perfectly acceptable.  Is there something in particular which you are referring to?

The company year end would be 31 March by default unless the OP changed it. Is that likely?

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27th Feb 2012 22:07

I can see the cost saving advantages of clients just pressing file, certainly for sole traders maybe for ltd companies.  Some of my clients do come very close to what I consider to be the correct answer.  However, I think that HMRC will always make the task complicated.  Ultimately they need to collect revenue and tax payers need to be given rules that need to be followed which is where the accountant steps in.  In addition to this some clients do not have an appetite for book keeping; I deal with some accountants as clients and they are great in their specialism but not up to speed with on line filing and small company affairs which is where I add value.  Also, LTD companies offer certain protections and that protection has a cost which is compliance.  I have met potential clients who want to do the work and just ask a few questions but really would you rewire your house if all you had done was ring an electrician or send a couple of emails to a sparky forum?

 

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28th Feb 2012 09:18

The OP doesn't say whether a PAYE scheme has been set up. If not, and the directors want to benefit from the "free" Class 1 NI credits, this will need to be established prior to the 31 March 2012!

I agree with the year end date anomaly too. 31 March will be the year end (unless deliberately changed to 3 March) and two Tax Returns will be required, but only if the trade started before 1 April following the incorporation, otherwise the trade would only be carried on for less than 1 year and therefore 1 Tax Return would be sufficient.

I also reiterate acquiring the services of a good accountant, no matter how clued up the OP is. There are too many pitfalls for people in business without the "specialist" knowledge that our profession has.

 

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28th Feb 2012 19:54

@peter

Yes, I understand the point, but to say "So many incorrect assumptions" seems a bit strong.  I didn't express myself very well...

The whole "you must get an accountant" trend on this thread sticks in my throat a bit, contrary to some accountants belief it is possible for a taxpayer from a non-finance background to learn what they need to deal with their own affairs.  My Dad managed to read about the rules and file his own self-assessment returns since SA was introduced until he retired a few years ago.

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28th Feb 2012 20:27

Self assessment v Limited company

I think there's a difference between preparing and submitting your own tax return and preparing and submitting your own company accounts and company tax return.

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By Old Greying Accountant
28th Feb 2012 20:29

I can fix my car ...

... but it is more cost effective to pay someone else.

I generally (but not without exception) find the same applies for car mechanics when it comes to accounts and tax compliance.

I suppose it really boils down to if you have/want a life or not!!

 

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29th Feb 2012 10:36

Agreed. I can do DIY, but I choose to work harder, earn some more money, and pay someone to do it for me! 1) Because I hate DIY :D, and 2) because the professionals invariably do a better job than the amateurs and are usually more willing to fix things if it goes wrong! ;) (And my DIY invariably does!)

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21st Oct 2015 12:47

abbrievated accounts

 

 

I set up a limited business only for contracting for a contract which should have lasted 2 years but wound up in 6 months I have since been unemployed for over a year cannot afford an accountant as my earnings are from benefits, I am going to have to do it diy as I don't know any free accountants

 

stephen 

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