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corporate profits, HMRC, dividend policy, books and records

3rd Feb 2011
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New client writes: ‘i am looking for an accountant.   I just started my ltd company and i need advice.

Reply: from David Barry

Shareholders: Not too many problems here.  Unless there are several involved you can issue one share.

Paye: A paye scheme is opened and you are made a director and entered at a salary of £5720 per annum that is £477 per month.  In this way there is nil tax/ee/er per month.  All balances can be withdrawn as dividends on a dividend schedule.

Dividends: Any excess above £5720 per annum can be withdrawn as dividends. However dividends are not tax deductible in the profit and loss account (unlike salaries.)  Therefore in a loss making company (mostly during the early years of a business but not exclusively) the cost to the company is nil.  Conversely if there are corporate profits the tax rate is effectively 21% but still less than the cost of extra salary that is 20% tax rate plus ee/er at 12.80% x 2  = 45.60%.

Vat: The de minimus level is £68000 being 1307 per month.  Therefore you must keep a constant eye on turnover and make sure that your monthly amounts received are consistently below this amount.  Otherwise you fall foul of the vat rules.

Books and records: I can teach and explain how best to keep the books and records of the business .  This makes the business more efficient, you keep better control of the business affairs and very importantly keeps you clean from HMRC.  Also, Your accountancy fees are also reduced because it becomes easier to prepare the books and records of the business and so it better enables the incumbent accountant to give you effective tax advice. 

Have a look at my website etc and you will see that I am very technically trained, approachable, modern in my approach.

I look forward to your reply,

David Barry

davidbarryaccountants.co.uk

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