- Identifying when you pass and fail the IR35 Rule
- The difference between a Contract for Services and a Contract of Service
- The importance of Control
- Mutuality of Obligation
Firstly, you should consult a Financial Advisor when deciding to set up a pension scheme.
Currently, if the Company pays for the contributions, you and your wife will effectively share the tax relief. Whereas, if you make the contributions from your own income after taxes, you receive all of the tax relief. So, if one of you is a Higher Rate taxpayer (income over £45,000) then it may be worth trying to set the tax relief against that person
However, since April 2016, the new dividend tax has made company pension contributions much more advantageous than personal pension payments paid from dividends.
The biggest danger a small business faces is the risk of having to cease trading instantly.
When a client sets up a new business – one of the questions they ask is ‘What types of insurance should we get?’
We talk about the need for Public Liability Insurance, Employer’s Liability Insurance and Professional Indemnity Insurance – because these are statutory, contractual or just good business requirements.
However, there is a whole area that is often ignored – and that’s the area of personal insurance – specifically, life insurance and critical illness insurance.
This is partly because it doesn’t seem relevant to a business, and often, for start-ups in particular, money is tight and - such insurances seem an unaffordable luxury rather than a necessity. Then, as the business takes off, there is often little time to think about such ‘personal’ matters – and it gets overlooked.
However, I think accountants and clients need to reassess how they think about life insurance and critical illness insurance.
The biggest danger a small business faces is the risk of having to cease trading instantly if the business owner dies or is out-of-action with an injury or illness for any length of time. A relevant insurance policy means that the right sort of expertise can be hired in an emergency – which may enable the business to survive until the business owner recovers or another solution can be worked out. On the other hand, the lack of the right insurance policy can have a devastating effect on the business owner and their family.
On top of that, ‘relevant’ life insurance is a type of insurance which, when applying to a key company director, is a tax deductible expense in a company’s accounts (and not a taxable benefit in kind) so, effectively, it is discounted compared to normal life insurance policies.
At the moment, I don’t believe there is an equivalent ‘relevant’ critical illness policy that HMRC accept as a tax deductible expense and not a taxable benefit in kind.
So, on starting a business, it’s worth talking to a financial advisor about these matters, as well as to your accountant.
- Self-Assessment Tax Return Payments on Account are based on previous tax bills
- When Payments on Account are due
- The difficulties of dealing with Payments on Account as a new business
- How Payments on Account are calculated
Yes they can. It has always been true to an extent but, since April 2015, HMRC can collect outstanding income tax via your tax code - meaning your employer must pay it to HMRC without you having a say. This can put a massive strain on people’s finances while HMRC gets paid before the mortgage etc. If you earn less than £30,000 p.a., HMRC will not collect more than £3,000 of unpaid tax per year – above this there is a graduated scale (up to a maximum of £17,000 per year). Also, the tax collected under PAYE cannot be more than 50% of gross wages or salary.
Previously you could negotiate a payment plan with HMRC’s debt management team; sadly this may no longer be possible.
- Different scenarios for completing a VAT Return for overseas purchases
- For goods – from a supplier outside the EU
- For goods – from a supplier inside the EU
I have seen small Companies with a share capital of £40,000 upwards, which can create a debt owed to the Company for unpaid shares, and effectively removes virtually all the benefits of limited liability.
Example: With a share capital of £100, if the Company goes into liquidation, the shareholders can lose the value of their shares. This means they might have to pay £100 personally to the creditors. With share capital of £40,000, the risk becomes £40,000!
In order to cancel shares issued in error, the Directors must:
1. Draft a Special Resolution cancelling the shares which must be approved by the shareholders
2. Draw up a statement of solvency confirming that the Company can pay its debts and will be able to do so for the following 12 months
3. Confirm that the solvency statement was made not more than 15 days before the resolution was passed – and provided to the shareholders.
4. Complete a form SH19 and send to Companies House – with the other three documents.
Then, the shares will be cancelled and monies can be repaid to the appropriate shareholders – or the value of the cancelled shares can be used to clear/reduce the amounts owed for unpaid share capital – which brings the share capital down to a more practical, and safer, level.
Yes, business owners can claim the expense of using their home as an office, (as a business expense), based on the portion of rent, mortgage interest, council tax, water, fuel etc. used while working on the business at home, rather complicated!
There are 2 ways to calculate this:
Weekly Claim: Business owners spending small amounts of time, say, invoicing or doing minimal work relating to the business can claim £4 per week without calculating the actual home expenses used.
Actual Expenses: If the owner spends, say, a few hours each day at home running the business, they can claim a proportion of actual home expenses. (Rent, rates etc. as above)
If you use the 2nd method; HMRC provide examples online – but they are complex. I recommend that you ask your accountant to do the calculation.
If your Company has paid off its creditors and has less than £25,000 cash in the business, you could save liquidator fees of £3,000 or so by:
By applying to Companies House, you can elect for it to be dissolved using form DS01.
Paying out the funds as a Final Dividend or as a Capital distribution, whichever is more tax efficient for you. N.B. Dividends attract Income Tax and dividend tax, while Capital attracts Capital Gains Tax and is only applied to annual gains (i.e. pay outs) in excess of £11,100. (It is important to take advice from your accountant to see if Entrepreneur’s relief is available.).
If funds exceed £25,000 - take advice from your accountant before distributing any part of the amount as Capital.