Tax

When you start a business it is important to think about the type of company you will be and what consequences this will subsequently have on your taxation and personal liabilities. Your Virtual Office London provide free expert advice on this matter to all clients, more often than not it makes a lot of sense to become a Limited company and trade under this legal status. If you do own a Limited company you would often take your profit as a dividend. A dividend is taken by a shareholder, only a shareholder in the company can take a dividend, staff or employees are unable to do this if they do not own a share. A shareholder can take a salary and a dividend, depending your personal circumstance we would advise you to talk to us about your situation and how a dividend can help reduce your tax overheads.Dividends are subject to the highest tax bracket in which income is between £31,865 and £150,000. This is after taking into account the personal allowance that is taxed at 32.5%.Part of that obligation is represented by the dividend tax credit of 10%, but an additional 22.5% tax on the gross dividend is paid by the shareholder. In some cases, the dividend does not belong to any of the basic rate or higher rate tax bands, but rather include both. In this case, dividends will be taxed at the basic rate, and the remainder to a higher rate.Dividends, which are located in the additional rate tax band, will have a taxable income of over £150,000 and are taxed at 37.5%. Some of them have a tax credit of 10% of the dividend. This means that there is no tax of more than 27.5% of the gross dividend payable. This is equal to 30.56% of net dividend received.The shareholder must always be prepared to pay additional tax. This happens when the dividend income falls in the highest rate, or as additional rate tax bands. This means that the dividend will have to be set aside to meet tax obligations.This additional tax paid to HMRC, has a deadline of 31 January following the tax year in which the dividends are received.Persons are subject to its own declared dividends received under the tax refund.Due to the effect of a dividend on the overall fiscal position of the individual, tax advice from an accountant should be sought prior to the payment of dividends to your firm. This can also determine the optimal combination of wages and dividends. Shareholders may elect to waive dividends, but these exceptions should be made before the announcement of the dividend.

When the company makes a profit, the benefits paid to all shareholders are classified as dividends. Because of the potential tax benefits, small business owners often pay a dividend in both the salary and not just one or the other.Like any other type of income, someone with dividends from UK corporation tax will pay personally. This article provides an overview of the taxation of shareholders of dividends in the UK. Whether you own a business and run the company through a virtual office or work from home as a shareholder in a Limited Company you will probably take a dividend from the profits. We look to explain how a dividend is taxed;

How does the dividend tax credit?

To escape the double taxation of dividends paid by the company will pay tax or income tax, which is known as a tax credit for dividends to the shareholder shall be provided in order to avoid double taxation. This tax credit is offset by the income tax due on income from dividends.For now, the tax credit is 10%. The tax credit is calculated by dividing the amount of net dividend of 9 net dividend is then added to the deduction. This then gives the "gross dividend", which is the sum of income tax. This is the starting point that determines whether further tax is due.When a shareholder receives the dividend plus the tax that you pay, depends on the total income. This includes income from salaries and pensions, bank account and other savings or dividends received.Taxation of dividends are at the same prices, if you bring your own small business or PLC, which is listed on the stock exchange. The same is true for dividends received from trusts or open-ended investment companies. However, combining the interests of the corporation is subject to different rules, unlike dividends.

Here are three tax rates applicable to dividends:

• The basic rate consists of a taxable income of up to £ 31,865 will be taxed at 10%.
• The higher rate band, comprising of taxable income between £ 31,865 and £ 150,000 and is taxed at 32.5%. This part is included in the dividend tax credit.
• A decrease in revenues from dividends in the band of another kind, consisting of taxable income of more than £ 150,000 is taxed at 37.5%.

The tax of 10% of the gross dividend received is completely covered by the tax credit a 10% dividend. Dividend income is taxed after the adoption of any savings and includes the use of or premiums.

Both memorandum of association and related products are required for an established company in the United Kingdom under the Companies Act, 2006. The Memorandum of Association is a document establishing the company and the terms of association setting out how the company is run, managed and owned. Therefore, the terms of the association will include the responsibilities and powers of the directors and the means by which members promote the control of the board of directors.

Memorandum of Association

The Memorandum confirms that subscribers want a company under the Companies Act and agree to become members of the company. In the case where a company is to have a capital stake, they are committed to getting at least one share each.The Memorandum of Association must have a prescribed form and must be authenticated by each subscriber. The MOU, which include a compliance statement, must be sent to the company along with the company's application and the product of the company's new association.

Articles of association

The articles of association set out how the company is run, managed and owned. Articles may place restrictions on the powers of the company - which may be useful if the shareholders want to be assured that the manager would not pursue a certain course of action, at least not with the approved by shareholders. By default, however, the Companies Act 2006 a company has unlimited power.In addition to the articles, which is a public document, shareholders may participate in a shareholders agreement to additional articles related to the operation, management and ownership of the company that they want to keep out of the public domain.

Articles of association – what needs to be included?

There is no prescribed form for the post although there are certain rules that need to be included in it. To support this, model articles for three of the most common types of company (private company limited by shares, private companies limited by guarantee and public companies) are defined in the company regulations 2008 and have been amended. The most up to date version is available on the companies House website. In addition, for the company's charities Charity Commission, a set of model articles can be used and firms adjust interest community has a version for companies interested in community contract.

The article should include the following:

• Responsibilities of the members;
• Directors' powers and duties;
• Directors meetings, voting, and other delegates;
• Keep records of the directors;
• Appoint and dismiss directors;
• Issuing shares;
• The different class sections;
• Shares;
• Share transfers;
• Dividends and other distributions to its members;
• The decision of the members of Congress and participants;
• Media and communications;
• Compensation insurance for directors.

Articles may be amended by a special resolution of the members. If a company changes its article other than to the pattern post a copy of the article must be submitted to the Company within 15 days of the change to consider. A copy of the resolution on the amendment must be submitted within 15 days after adoption. You do not need to tell the company why you are changing the terms of the association.Director and company secretary (if indicated) of a company should have a good working knowledge of the constitutional documents of the company, especially in terms of the association.As business manager of the company, they need to be comfortable that they are acting within the scope of the powers conferred by the article and following the processes and procedures or other reasonably well laid out there. It`s for the board to review the articles on a regular basis. As the company and its circumstances change, some existing provisions may no longer be useful or new regulations may be desirable. By reviewing and, where appropriate, update the articles of association the company can achieve the most appropriate balance between the needs of the directors and shareholders, the rights and powers of the former company executives while protecting the interests of its members.If you are looking to form a new company Your Virtual Office London can help. We have formed many thousands of companies and are experts in our field. Please call us today and we will be happy to discuss your individual requirements. We also provide other services for new Limited companies such as registered office address, mail forwarding service and directors service address.

It could be said that the audit report is the most important aspect of the entire work process. You may have selected the correct area, evaluated the results effectively, analysed in depth the controls and recorded results elegantly in referenced work; but if the report does not reflect this excellence, you will not get the desired success. The internal audit report is perhaps the only tangible product that management can see in the work of this department.If you want to significantly improve the quality of your reports, apply the following tips:

1: Be Brief

The Brevity is probably the main key factor or characteristic of an excellent report. Brevity is not only about the number of pages to include in the report, but also to present only those aspects that are crucial for the user using the fewest words possible.

2: Highlight the Main Message

Readers prefer that the main message is placed first, and then read the reviews, details and explanations that support the main message. Studies on comprehensive reading support the basic principle of placing the main message first. These studies show that users absorb more information and better remember the details when the key message leads writing. The structure of the report should be developed intentionally and openly to push the main message forward.

3: Divide the Report Sections

Many users do not read the full report. They jump and fly to certain sections of the report, seeking the information they need. The high-level users read the opinion (or conclusion) and stop there. Depending on the severity of the issues, the manager`s responsible for the area under review, the opinion, observation posts and recommendations - but could not read the comments completely.Readers are selective, so we should not view the reports as a continuous text, but as a series of layers or sections. Each section allows the reader to delve into more details and explanations, depending on your needs. A high-level message must lead each section. Then continue the supportive comments, summary`s and details.

4: Present a Clear Conclusion

This is essential. You need to ensure that the reader clearly understands what you think about the effectiveness and efficiency of the area under review. The need to develop a statement of opinion and being concise is the best way to achieve this goal.The findings may relate to the whole area of work or only certain aspects. They may cover issues such as determining whether the goals and objectives of programs and operations are consistent with those of the organisation. The opinion may include an overall assessment of controls or may be limited to certain controls or aspects evaluated during the internal audit work. For more expert advice on this, you can speak to an accountant today, Your Virtual Office London work with experienced and qualified accountants who are able to help with such important matters.

5: Effective following up on corrective actions

A draft internal audit does not end until the recommendations are implemented.The internal audit activity can be monitored effectively by receiving and evaluating:

• The management responses and the proposed observations and recommendations during the engagement or within a reasonable time after communication of the results. The answers are more useful if they include sufficient information to evaluate the adequacy and timeliness of the proposed actions.
• Periodic updates from management in order to evaluate their efforts to correct the observations and implement the recommendations.
• Information from other organisational units that are assigned responsibility for monitoring or corrective action.

Yes, annual return and company tax return are two obligations bestowed upon companies which are a legal requirement. In this article we will look meticulously as what is needed and when you need to act upon this.

I have a limited company do I need to be aware of an annual return?

If you run a Limited company you will need to understand the legal requirements that are necessary in order for your company to run legally. An annual return is a legal requirement, this is snap shot of your companies` information, this is required at least once every 12 months and needs to be updated if major changes have taken place. The annual return is a publicly available record and provides Companies House and the public with key information.

Key features of an Annual Return

• Provides a comprehensive view of how the company is set out
• Substantiates who runs the company in the form of directors and shareholders details
• It confirms the registered office address of the company
• It will confirm the secretaries` details if there is one allocated
• Compulsory every 12 months, and are due 28 days from the anniversary of the company incorporation

Do I need to complete a tax return?

If you run a limited company then you are legally required to complete a tax return. It`s a legal requisite from HMRC that facilitates a tax calculation to be performed on the financial figures produced from the companies trading. The director of the company is normally responsible for ensuring the statutory tax return is completed, if this is overlooked the company will amass fines and will ultimately be struck off if the notices are ignored.

How to find out when my tax return date is

You can find out when your tax return date is by using the Web Check system for companies house, this is a free online service and it provides insightful information about any Limited Company including your own. This is different to an annual return; the tax return provides more detailed financial information regarding your company`s financial trading. It is used to determine how much corporation tax is owed. An annual return is required by Companies House; a tax return is required by HMRC and then is submitted to Companies House so that they can list this on the company register for public access.You will need to either type your company name or company number in the search field. You will then be presented with a list of companies, select your company. On the next screen you will see the snap shot information including the accounts due date.

Key features of an Annual Return

• Legal requirement normally every 12 months,
• Your accounts due date can be found online via the Web Check service
• The tax return is for HMRC, need for tax computation to establish if any tax is due

If you found this blog helpful you can read more insightful articles on accountants and taxation here. Your Virtual Office London is a leader in virtual office, accounting and company formations.

A director of a company has different options when it comes to pay. Each option has different tax benefits. It is very important to be clear on what method you will chose as your accountant will need to know this.

Dividends

A dividend is rewarded to shareholders. An owner of a Limited Company is a shareholder and they will be able to pay themselves in the form of a dividend.An advantage of a dividend is that you do not pay any national insurance on the payment. You will need to pay income which does depend on the level of your earnings.A dividend will need to be paid to all shareholders of the company, this will need to be declared in the minutes of the meeting you will hold with the other directors.Legally a dividend voucher must be created which would show some important information such as the date is was issued, the company details i.e name and number, the shareholders details and the amount the dividend is.

PAYE

Pay As You Earn (real time). PAYE is a HMRC scheme to collect National insurance and income tax for employees of a company, including staff and directors. You will need to register for this scheme, if you`re the owner of a Limited Company you will be classes as an employer and employee.When you pay yourself a monthly salary, you will need to send a PAYE return to HMRC which will show the amount you have paid, including tax and deductions. Again the amount of National Insurance and income tax will depend on the tax code and your tax status.If you need help with your companies accounts please speak to us today. We offer free and impartial advice, our business accountant can help with PAYE registration and can help explain your current tax status and how best to optimise your current situation.If you liked this accounting blog post, you can read more from Your Virtual Office London blog.

We would recommend that the best way to reserve a limited company name through a dormant company. A dormant company is a business that is not trading and has not significant transactions during. When significant is used we would normally suggest no more then £1000 per accounting period. If there are larger transactions the company would be classed as active. A dormant company is inactive and thus a reserving a company name is best used under the dormant method.

What is the purpose of forming a dormant company?

Again this would be for reserving a company name for future reference. An business owner may wish to secure the name for future use if they intend to start trading soon under a new brand. A sole trader may wish to secure the name if they would want to prevent someone else using the Limited Company name. A sole trader may wish to go Limited sometime in the future and the company name runs risk of being taken if it`s not secure.

How long can the company remain dormant?

A company can remain dormant for an indefinite time period, the company does not have to trade, however they company owner would be required to make sure all responsibilities are undertaken.

What if any responsibilities do I have for my dormant company?

A dormant company is required to file a set of a required annual return and file a set of dormant accounts to companies` house every year. You will also need to inform HMRC that the company is dormant and not trading and that is not planning to trade any time soon. If you do start to trade, you will need to inform HMRC, Companies House will know through the filing of annual returns and accounts.Your Virtual Office London provide a wide range of Company services and virtual office solutions. If you are looking to reserve a company name please do give us a call we will be happy to setup a dormant company for a very reasonable price. If you found this blog useful please do read more here.

There are always plenty of valid reasons behind needing to closing a limited company. Whatever the reason for closing down your limited company, there are certain processes that you need to follow to complete this:

Dormant Company

Rather than closing your company completely, you may want to keep your company open and registered but physically stop trading for a period of time. If this is the case then making your Limited Company dormant instead of closing it down completely would be your best option.Making your company Dormant can also be more cost effective when compared to closing a company down completely. You can make a company Dormant for around £100, so if you simply want to take some time out and pause your trading activity for any length of time, then this could be your better option. Contact us if you need help. We will be happy to give you some free advice.Dormant Company info: https://www.companieshouse.gov.uk/about/pdf/gba10.pdfOf course when you make a company Dormant it is important to make your clients and trade partners fully aware of your situation and ensure that any existing agreements you have with your clients or customers are properly finished before you pause your trading activities.There are also tax implications involved with making your company dormant. You will need an accountant to help prepare your final accounts to ensure all tax owed, including corporation tax, is fully paid up. You will also need to close any bank accounts that are linked to the dormant company.

Limited Company Liquidation

If you don't want to make your company dormant and are sure that you want to close you Limited Company down completely, then you will need to be aware of any debts outstanding and clear them if you can. If there are any debts still outstanding the liquidation process can take a lot longer and can be more involved. We would highly recommend speaking with us or to a professional accountant to ensure that you are fully aware of your responsibilities and obligations. If there are unpaid debts outstanding the company will be forced to go into Liquidation. You can read more information on Insolvency here.

What next?

If you are in a good financial position where your Limited Company has no debts outstanding, or can meet its obligations, then the closing procedure is fairly simple and straightforward. You will need to choose a date for when the company should stop trading. On this date it is important that no more transactions are carried out and that any creditors have been fully paid.HMRC will also need to be notified of your closure and be given a final set of accounts including all the transactions up to the closure point. Also you must remember to cancel your VAT registration if your company is VAT registered.A final payroll will need to be completed and P45`s issued for your staff and yourself. A P35 Employer Annual Return will also have to be filled with HMRC.Once your company has ceased trading for three months, you can make an application to Companies House to get your company dissolved via the DS01 form.If there are no objections to your Limited Company being closed, it will be formally given the go ahead and will be removed from the register of companies that is held on record at Companies House. Your Virtual Office London provides leading Company Formation services including advice on trading, closing down companies and company accounting. We also provide leading supplementary services such as mail forwarding in London and Registered Office address for your Company. If you need help or advice don't hesitate to get in touch with us today.

Not sure what to do? Registering as a Limited Company can be more beneficial with tax advantages when compared to being a Sole TraderUpdated July 2016.Over the years, many of our clients have come to us and asked if they should change from being a sole trader into becoming a fully-fledged Limited Company. Our advice in these circumstances is that it all depends on the type of business you run, how much you are turning over and whether you plan to grow and expand business further. These questions are vitally important to help answer that all important question.There are a lot of differences between being a sole trader and a Limited Company. Let's take a look at how tax is affected under each circumstance.

What are the tax differences between a Limited Company and a Sole Trader?

Sole Trader

If you are self employed, and trading as a sole trader, your business profits and personal income are lumped together under the same roof. This means your income is taxed via the annual self-assessment process. You will not be able to defer profits to other years, so if you have a good year with a high turnover followed by a slower year with less profit, you cannot carry over any profit from the previous (good) year to see you through a lean year (share dividends can be held back). In addition to personal income tax you are required to pay National Insurance Contributions (NIC) on all your profits.

Limited Company

If you run a Limited Company and are a shareholder, the company is liable for Corporation Tax on the business profits. The advantages of a Limited Company is that you will be able to hold back profits and then distribute them as dividends in future years. This means you can maximise the tax efficiency and utilise all the tax breaks afforded to Limited Companies. Simply put, you are likely to pay less personal tax than being a sole trader.

The main benefits of forming a Limited Company when compared to a sole trader:

1. An obvious benefit is that the Limited Company is a separate legal entity from you in the eyes of the law and protects you and your personal assets from legal disputes. You are not liable personally, so if the worst should happen and you have to cease trading and close your business, you will not have to pay off any company debts with your own personal money, unless something like fraud or money laundering has taken place. However, a sole trader will be responsible for any outstanding debts left behind, and if they find themselves in a legal battle will be susceptible to losing personal assets if found guilty.
2. Limited Companies can be more tax efficient as a dividend has a lower flat rate of tax when compared to higher income tax bands. So a Limited Company owner can pay themselves in dividends, and ultimately pay less tax when compared to a high earning sole trader who could find themselves paying upward of 40% income tax on earnings.
3. If you expect your business to earn very little, a sole trader would be easier to manage, a Limited Company can often require the help of an accountant to ensure the correct workings of the company tax liabilities.

Professional Business Image

Many companies are only happy doing business with a registered company. Being a limited company can give you a more professional image and encourage more businesses to trust you and do business with you.Your trading name will also be protected as a limited company. When you go through the formation process, your company name will be filed with Companies House and no one else will be allowed to trade under your business name. This can be a great bonus while you are still growing your business and crafting a strong reputation for your company. You wouldn't want all your hard work and effort to build your company branding and credibility to go to waste through someone else stealing your trading name.If you are unsure what you require or what is the best option is for you, please contact us so we can talk through the best options for you and the future success of your business.Your Virtual Office London - the professional choice since 1971.

When you form a new Limited company you will receive a letter from HMRC, this will contain a Form CT41G Corporation Tax information for new companies. This should be received within several days by post at your registered office address; once the company has been registered with Companies House. On the odd occasion you don't receive the form, you will need to inform HMRC within three months from the date your company has started trading (is active). You can do this via HMRCs online service, or simply contact our accountant and we can help you achieve this.HMRC will consider your company to be ‘active’ for Corporation Tax purposes when you are actually trading. For example, while carrying out your business activities, trading and receiving income.Dormant companies: HMRC would not consider your company active for Corporation Tax if your company is ‘dormant’. So for example, if you have set up your company but you are not yet active or not trading and bringing in any income, then you wouldn't be liable to pay Corporation Tax.

Corporation Tax is paid before the company tax return is filed.

Corporation tax is due before the deadline of filing your company tax return. The deadline for your payment will depend on your taxable profits. This is very different from Self-Assessment and VAT as the date of filing returns for Self-Assessment and VAT are usually the same. A lot of business owners can find this confusing so if you are unsure please do make sure you consult with us today, where we can talk through your tax dates. You can contact us here for some advice.

Corporation Tax Dates & Deadlines

The deadline for paying corporation tax is referred to the normal due date. The deadlines will vary dependent on factors such as the profit your company makes, so one company may have a completely different due date to another. HMRC expects all owed tax payments to be submitted electronically. More information about this can be found out on the HMRC website.

Dates for companies with £1.5 million or less taxable profits:

If your company has a profit of £1.5 million per year or less, the Corporation tax is normally nine months and one day after the end of your Corporation Tax accounting period.

Date for companies with more than £1.5 million taxable profits:

If your company has a larger profit over the £1.5 million mark, you will be expected to pay your Corporation tax in installments. More information about paying on installments can be found here.

I am unable to pay Corporation tax on time what can I do?

If you are unable to pay your Corporation tax on time, HMRC will charge you interest on what is owed to them. You may also be fined for not paying enough on your installments or you go out of your way to stall or fail to pay your regular installments.Any penalty charges will be applied once you have submitted your Company Tax Return and HMRC have had time to determine your case. Find out more information about penalty charges here.

What is the deadline for filing my Company Tax Return?

This is referred to as the statutory filing date. You are expected to file the companies Tax Return with 12 months of the end of the company's tax accounting period. If you file the accounts late HMRC will charge your company an automatic penalty.The rules and regulations around tax can be a little overwhelming. If you are struggling to work out what you should be paying and when, then do not hesitate to contact us for some guidance.