Home » Limited Company (Page 3)
Category Archives: Limited Company
A company meets the qualifying conditions for a micro-entity if it meets at least two out of three of the following thresholds:
- Turnover: Not more than £632,000
- Balance sheet total: Not more than £316,000
- Average number of employees: Not more than 10
There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.
Most property businesses will have less than 10 employees and less than £632,000 turnover.
If you are a property investor filing Abbreviated or Full Accounts you have to report property values at their fair value, which means you tell everyone what you think the property is worth. You may not want to do that, especially if you are planning to sell as it tells the potential buyer what you think its worth and that might be an issue in negotiations.
Under the Micro Entity regime you aren’t allowed to use fair value and have to use Historical Cost. Which most Property Investors will prefer.
No notes are required with Micro Entity Accounts and any advances or financial commitments are shown at the foot of the Balance Sheet, often this is simply the value of the Mortgage outstanding.
When I ask business owners what their business will look like in a year, 5 years or even 10 years time I am often told they do not know – after all they are not a seer and don’t have a crystal ball.
This is a cop out in my opinion – and a dangerous one at that.
If you don’t have a plan of where your business is going, who will have? If you do not have a clear vision of what you want your business to look like, who does?
Clearly there are lots of things we, as business owners, have little control over: the general economy; the banks’ perception of business risk; how our competitors and our customers behave, to name but a few. But this does not mean that we have no control over our own business success.
In helping business owners to plan for the future I have found they become much more focused on what they want to achieve. They suddenly have a picture of what they need to do to get where they want to go and are motivated to get there. In some cases they are even reminded of the passion that drove them to start the business in the first place – something which is often lost in the day-to-day stresses of life.
They do not need to know for certain every detail of how their business will grow in the years ahead, but they do need a clear set of targets which, if achieved, will deliver a business which is successful in their terms. These targets will often revolve around sales achieved, new customers found , profits made, business owner earnings…
The picture they draw may become enhanced over time but will not change in essentials.
So, if you want to feel confident about the years ahead paint your own picture of your dreams for your business. Populate it with the subtle colours that will make your business shine. Then stand back and make sure you are happy to hang that picture on your wall for the long term.
Choosing a company name got a little easier as a result of changes in October 2013….
Measures to cut the list of ‘sensitive’ names that startup businesses must get approval for, prior to setting up, were announced by Business Minister Jo Swinson back in October.
Businesses that want to use words such as ‘Authority’, ‘Board’, ‘European’, ‘Group’, ‘International’ and ‘National’ will no longer have to get prior approval from Companies House, or a specified body. The same also applies to their Welsh and Gaelic equivalents. This red tape cutting exercise will result in a quicker process for companies wishing to use a ‘sensitive’ word or expression in their registered name.
The words and expressions to be retained are those which, when misused, are likely to cause confusion as to what the business actually does or has the legal authority to do. These words, amongst others, include ‘Accredited’, ‘Bank’, ‘Chamber of’, ‘Charity’, ‘Institute’, ‘Government’, and ‘University.’ The word ‘Sheffield’ is to be retained on the list after responses to the consultation showed support to keep it. The same applies to national words such as ‘English’, ‘Scottish, ‘Northern Irish’, ‘Welsh’ and ‘Cymru.’
Would you like to use a previously restricted name?
If you have a company which is no longer needed you have the following options:
- You can just keep it as a Dormant company
- You could strike it off at Companies House
- You could carryout a Members Voluntary Liquidation
If the company has assets the shareholders will want to release the assets and get hold of the money, so keeping it Dormant isn’t going to help.
Since March 2012, in the case of Strike Offs, ESC C16 has allowed the distribution of up to £25,000 as a Capital Distribution rather than as Income.
However, if you have assets in excess of £25,000 distributions can only be treated a Capital if the distributions are made through a formal liquidation.
With Entrepreneur’s relief, money paid to shareholders will only be subject to tax at 10% on the capital gain.
There could also be other benefits too.
New rules announced in Budget 2013 discourage participators in close companies from taking loans from their own companies, previously legislated under s.419 ICTA 1988, currently s.455 CTA 2010.
The basis of s.455 CTA 2010 is that, where a close company makes a loan to a participator (or associate of a participator) then it is required to pay to HMRC a tax equal to 25% of the value of the loan. The tax is due for payment 9 months and 1 day after the end of the accounting period in which the loan was made. However, if the participator repays the loan before that date, then the requirement to account for the ‘s.455 tax’ is cancelled, by virtue of s.458 CTA 2010. Where the loan is repaid after that date then HMRC repay the ‘s.455 tax’ 9 months and 1 day after the end of the accounting period in which the loan is repaid.
This brings us to one of the measures brought in by budget 2013. With effect from budget day (20th March 2013) ‘bed and breakfasting’ is no longer possible. ‘Bed and breakfasting’ is a commonly used loophole where the loan is repaid to the company before the day 9 months and one day after the year end to prevent the ‘s.455 tax’ charge becoming due, then soon after the trigger date has passed, the participator re-loans the money from the company. Or indeed, where loans are repaid after the ‘s.455 tax’ has been paid to HMRC, but again the participator soon afterwards re-loans the money from the company and reclaims the ‘s.455 tax’ from HMRC.
HMRC have long tried to challenge these cases. Their manual instructs inspectors to “obtain as much factual evidence of the transactions and the accompanying arrangements as possible” where they think they have found a case of ‘bed and breakfasting’ for referral to the Corporation Tax International and Anti-Avoidance technical team.
However, the new rules now give HMRC a statutory basis to deny relief in circumstances where s.455 tax has been paid if, within a 30 day period, repayments of more than £5,000 are paid to the close company in respect of amounts which have given rise to a charge which are then redrawn either via a loan, advance or ‘extraction of value’ – something else new to watch out for!
In addition, where the 30 day rule does not apply, relief will also be denied if there are amounts outstanding of at least £15,000 and, at the time of the repayment, there are arrangements or there is an intention to redraw an amount again through a loan, advance or an extraction of value.
There has been some discussion amongst tax commentators over whether there is a possibility that ‘s455 tax’ may never be repaid in the circumstances where a participator makes regular withdrawals from their company which are treated as debits to the director’s loan account and then are cleared via a payment of salary or a dividend before the nine-month cut off because there is an intention to continue withdrawing funds in this way in future; a common practice in many owner-managed companies. However our view is that s464C(5) will, in almost all cases, overcome this problem, as it is clear from the draft legislation that the restriction on repayment of ‘s455 tax’ will not apply in relation to a repayment which gives rise to a charge to income tax on the participator (or associate) by reference to whom the loan, advance or benefit was a chargeable payment i.e. where they are charged to income tax on the dividend or salary used to clear the outstanding loan account balance. Without the inclusion of s464C(5) this new legislation could have caused an awful lot of headaches for accountants, tax advisers and owner-managed companies the length and breadth of the UK, so this sensible, well thought through paragraph is really a saving grace in what could have been an extremely burdensome piece of legislation.
Watch out for the references to “extractions of value” in the revised s455 rules. This is an extension of the rules to cover less traditional arrangements where, instead of providing loans the close company seeks to extract and transfer value to a participator in some other way which would have been neither chargeable to tax nor within the s.455 charge before the introduction of this new wording.
Finally, there is a further new rule which puts beyond doubt that fact that loans made via a partnership, LLP or trustees of a settlement are caught by the s.455 tax charge!
For further advice – see your local CIMA qualified accountant.
Displaying the right information on the right documents is important, so here is a quick reminder…
The rules for companies are set out in The Companies (Trading Disclosures) Regulations 2008
The key sections is…
6. (1) Every company shall disclose its registered name on—
(a)its business letters, notices and other official publications;
(b)its bills of exchange, promissory notes, endorsements and order forms;
(c)cheques purporting to be signed by or on behalf of the company;
(d)orders for money, goods or services purporting to be signed by or on behalf of the company;
(e)its bills of parcels, invoices and other demands for payment, receipts and letters of credit;
(f)its applications for licences to carry on a trade or activity; and
(g)all other forms of its business correspondence and documentation.
(2) Every company shall disclose its registered name on its websites.
Companies House enforce the regulations and can levy penalties of £1000 for non compliance.
Sole Traders can trade under their own name or a “trading as” name provided its not offensive, contains sensitive or resticted words, includes PLC, Limited Company, LLP or is similar to another business (check the internet for potential conflicts).
Partnerships should show all the partners names or if there are more than 20 partners it may keep a list of names at its principle place of business.
Basically if your company makes a loss you carry it forward.
The amount of trading loss available to be carried forward is the loss sustained less any loss relieved in the current year or surrendered as group relief.
Carry forward a corporation tax loss is automatic, therefore as no claim is required there is no time limit.
The legislative reference for a trading loss carried forward is: CTA 2010 s45) [old reference ICTA 1988 s393(1)].
You can also make a claim to carry a loss back 12 months.
The legislative reference for carry back loss relief is: CTA 2010 s37(s)(b)(6)(8) and s38 [old reference ICTA 1988 s393A(1)(b)(2)-(2C)].
But there is another option, to help improve your cash flow, lets say you have been making profits and you have just come to the end of your accounting period, the next few months are going to be tough and you will make a loss. If you change your year end by extending it or having a shorter period you could help your cash flow.
Corporation Tax is payable 9 months and 1 day after your year end, so you will have a return for 12 months and have tax to pay but if you had a 6 month return to follow it you could reduce the time before you claim relief for the loss.
If you extended your accounting period to 18 months the figures might even look better for credit rating.
You can shorten as much as you want but not beyond the start date of the accounting period being changed.
You can only extend once every 5 years.
See the Companies House Checklist for details
Economy in recovery
It now looks like the UK economy is in recovery. Even if this isn’t the case, when people think that times will get better they start to spend money again. With interest rates at historic low rates there is little incentive to stockpile cash in the bank for consumers and for entrepreneurs debt is relatively cheap to finance a new venture.
What’s your plan?
If you are starting a new business, it is important to work out what you will be selling, but to survive the early days of a start-up you will need good projections of your cash flow. As you grow you may need investment from banks or other third parties. Without good quality management accounts is it more difficult to persuade a potential investor to part with their cash.
Ask for help!
You can’t do everything on your own. Work out what your core activities are and how much time you need to do them. If you have time left over for ancillary activities then you are better completing these yourself too. The cost of hiring specialist help, whether it be an accountant, web designer or lawyer can seem to be too much for a nascent company to bear. However if you are spending so much time working out your accounts that you don’t have time for your customers you will cost yourself more in the long-term.
Business booming in Scotland
According to this article from the BBC more Scots are starting up their own business. Records from Companies House show that more than 340,000 companies were formed in Scotland last year. Glasgow and Edinburgh are at the forefront of the economic recovery in Scotland. If you have a good business idea, now could be the time to let that idea take form, especially if you have a service that supports other new businesses.
Give yourself a break
To give your business the best start, make sure you understand your finances. Don’t forget that if you registered a company you are obliged to file accounts with Companies House as well as HMRC. For more information on company formation see my blog here.
For support and advice on the finances of your business contact Alterledger or visit the website alterledger.com.
Micro-entity accounts are a new type of accounts that can be submitted to Companies House. They will provide the smallest companies with the opportunity to prepare and publish simplified financial statements (profit & loss account; and balance sheet) if they wish.
A micro-entity is defined as meeting two of the following criteria:
- Balance sheet total: £316,000
- Net turnover: £632,000
- Average number of employees during the financial year: 10 (or fewer)
Micro Entities are exempt from filing their profit and loss with Companies House.
Business Minister Jo Swinson said:
“Thriving micro-businesses are a vital ingredient for a stronger economy. However, because of their size they don’t always have dedicated finance teams behind them. We therefore need to make sure that they can focus on growing their business – rather than completing unnecessarily detailed paperwork.”
There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.
I don’t think this is going to help much? Micro Businesses still need to file corporation tax returns, deal with PAYE, RTI, VAT, minimum wage, Auto Enrolment Pensions, and a wide range of other requirements