Melot Accounting Limited
Bristol Business Mums
Start Up Workshop!Accountancy and Taxes
Overview❖ Business set up choices.!
❖ Who to tell you’re in business.!
❖ What taxes will you need to pay?!
❖ Do I need a separate business bank account?!
❖ How will I be paid - salary etc?!
❖ What records should I keep and for how long?!
❖ Expenses - what can I claim?!
❖ Do I need an accountant? What would they do for me? Cost?
Business Set Options
❖ There are two choices of how to set up your business:!
1. Self Employed / Sole Trader!
2. Limited Company!
!
❖ Which set up you suits you best depends on your own circumstances…
Pros & Cons
❖ Simplest set up if just testing the water.!
❖ Business profits are personal money which can be taken at any time.!
❖ The individual and the business are one and the same.!
❖ Only one return to file with HMRC each year.!
❖ Accountancy is much cheaper.
❖ Most tax efficiency and flexibility for profits withdrawal.!
❖ Can provide a more professional appearance to clients.!
❖ Some degree of protection as an individual - company is a legal entity.!
❖ More onerous in terms of returns and filing, and less easy to shut down.!
❖ Accountancy is more expensive.
Self Employed Limited Company
Who Should You Tell
❖ Companies House!
• If you want to incorporate a Ltd company.!
❖ HMRC !
• Both self employed / sole trader, and Ltd once company is incorporated with Companies House.!
• To register for VAT if you want /need to.!
• To register as an employer if you need to as a Ltd employing yourself, or as sole trader who will need to employ somebody else.!
• To register for CIS if working within the construction industry.
What Taxes Will I Need To Pay?
❖ VAT if registered.!
❖ PAYE tax & Classes 1 and 1A NI if employing staff (see Ltd co).!
❖ Income Tax on profits over £9,440 at rate of £20%. Higher rate on profits over £41,450 at 40%.!
❖ Class 2 National Insurance if profits are likely to be over £5,725 of £2.70 per week.!
❖ Class 4 contributions on profits over £7,605 at 9%. Reduced rate on profits over £41,450 of 2%.!
❖ Note that you may have to pay 50% upfront for the following year’s tax!!!
❖ VAT if registered.!
❖ PAYE tax if registered as an employer on salaries over threshold of £9,440 at 20%.!
❖ Class 1 National Insurance Contributions on salaries over threshold of £7,748 at 12%. Then at 2% over £41,444.!
❖ Class 1A National Insurance on salaries over £7,696 at 13.8%.!
❖ Corporation tax on profits of company at 20% (small co rate profits less than £300K).!
❖ Income Tax and Class 4 NI on Director’s income (see Self Employed).
Self Employed Limited Company
Business Bank Account❖ Limited Company MUST have a separate bank account!!
• The company is its own legal entity and will have to have a business bank account set up in its name for incoming and outgoing cash.!
❖ Self Employed / Sole Trader:!
• No legal requirement to have a separate business bank account but this is highly advisable to maintain clear boundaries between business and personal money.!
• Can set up a second current account in the interim to keep things simple. Usually this is very simple and can be done almost instantly with online banking.!
• Business banking is better for established businesses as there will be specialist managers to assist with business needs.
How Do I Get Paid? (v.v.v important!)❖ Limited Company:!
• Salary if registered as an employer, once payroll RTI reports filed each month. Advisable to keep up National Insurance years in employment, but not a requirement.!
• Note that all employers will need to be providing staff with registered pensions and contributing to these over the next couple of years!!
• Dividends on post tax profits of the company.!
• Restrictions on what can be taken in dividends at any given time.!
❖ Self Employed / Sole Trader:!
• Drawings. !
• Taken whenever required. !
• No restriction on what can be taken other than having the cash available to withdraw.
What Records Should I Keep?❖ Sales Invoices.!
❖ Receipts from purchases and expenses.!
❖ Till rolls.!
❖ Payroll records if registered employer.!
❖ P60s and P45s as an employee.!
❖ Records for VAT Returns.!
❖ Banking Records.!
❖ Keep all records for 6 years!
How To Keep Records - Bookkeeping❖ Excel Spreadsheets.!
❖ iPhone App for simple income & expense records: Earnest etc.!
❖ Cloud bookkeeping packages: FreeAgent, Xero, Kashflow etc.!
❖ Desktop bookkeeping packages: Sage, Quickbooks etc.!
❖ Hire a Bookkeeper.!
❖ If Ltd Company it’s a requirement to keep financial records up to date - HMRC could ask to review at any time!!
❖ Advisable to keep good records in any case - up to date knowledge of business’ financial health, reduced stress, and less cost in the long run.
What Costs / Expenses Can I Claim?❖ Ltd Company = ‘wholly & exclusively’ rule.!
❖ Self Employed/Sole Trader = business % rule.!
❖ Expenses can be claimed for pre-trade costs as far back as 7 years.!
❖ Things to consider are:!
• mileage for business travel to unusual locations or meetings: car 45p per mile, bicycle 20p per mile, motorcycle 24p per mile.!
• Proportion of car running costs and petrol calculated on % business miles / total miles (self employed only).!
• All car or van costs if owed by the business itself (less personal use % for self employed). Ltd would need to restrict any personal use to insignificant in order to avoid company car benefit tax.!
• Mobile phone costs (treatment differs for SE and LTD).!
• Household costs: mortgage interest, rent, council tax (only SE), gas & electricity, cost of calls only for home telephone.!
• Insurance - PI, PL, Employer/ Business possessions or premises insurance in its entirety. !
• Household insurance - only SE can claim a % of this.!
• Simple rates options for home use: £4 per week for Directors of Ltd, for SE/ST calculated on hours worked per week.!
• Business equipment such as computer, printer, software etc.
Do I Need An Accountant?❖ Bookkeeper - personal choice whether to use this service.!
❖ PAYE RTI Returns - HMRC RTI or use bookkeeper/accountant/payroll service. !
❖ VAT Returns - HMRC online or use bookkeeper/accountant.!
❖ Self Employed / Sole Trader - Self Assessment Return - HMRC online service, or can use an accountant if preferred.!
❖ Limited Company Incorporation - can do online via Companies House, other online services (for a charge) or get an accountant to do it for you along with HMRC Registration.!
❖ Limited Company - Statutory and Abbreviated Accounts, Corporation Tax Return - accountancy is strongly advised. Can use the HMRC joint filing service if doing yourself.!
❖ Company Annual Return with Companies House - can do yourself online for £13.!
❖ Costs will vary but can expect to pay around £8 - £15 per hour for bookkeeping, £120 - £250 for Self Assessment Returns, and £500 - £1,000 for Ltd Company Returns.
Questions
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