Many director/shareholders borrow money from their Companies but, as long as they pay it back within 9 months of the following accounting year end date, there are no great tax implications.
If it is not paid back by that deadline, a law called s.455, says the Company must pay 32.5% of the outstanding loan to HMRC – who then hold this money until the loan has been repaid to the Company.
What you cannot do is pay it back by the deadline and then re-borrow it soon afterwards - unless it is a loan under £15,000, which can be re-borrowed if more than 30 days later. If you re-borrow an amount over £15,000 - even after more than 30 days later - HMRC can, and will, treat such loans as NOT repaid if they believe it was always intended that the loan would be re-borrowed, once repaid.
So, in practice you can borrow money from your Company – but be aware of the rules.
If you are Not UK resident for tax purposes, then you don’t need to pay UK income tax on your overseas earnings. But the rules for deciding whether or not you are UK resident are rather complicated: You must consider, in order: also see HMRC Guidance notes
- the 183 day rule. If you spend more than 183 days in the UK in a tax year then you are definitely UK resident. If not, you consider the Automatic Overseas tests;
- the Automatic Overseas tests. If you pass one of these three tests, you are definitely Not UK resident for the tax year. One of the tests broadly says if you worked overseas all year, and spent less than 91 days in the UK, and worked in the UK for less than 31 days, then you are Not UK resident. If you don’t pass one of the three tests, you must consider the Automatic UK tests;
- the 2nd and 3rd Automatic UK tests. These are complicated rules related to having a home in the UK; and working in the UK. If you pass one of these, you are UK resident. If not, you must consider your ties to the UK;
- the sufficient ties test. Finally, if none of the above give clear-cut answers, you must consider the days spent in the UK and your ties to the UK (home; family; job) and your resident status in previous years. This will then dictate your resident status.
When an employee or director travels to a temporary place of employment, from their permanent place of employment (usually the home address for Personal Service Companies), then they can claim tax relief on relating travel & subsistence expenses. However, if/when a temporary place becomes (for tax purposes) a permanent place of employment, then travel & subsistence expenses are no longer tax deductible.
The rule that decides on when this change happens is called ‘the 24 month rule’. It states that when the director/employee is, or even expects to be, at that site for 24 months or more AND spends 40% or more of their work time at that site, this site is then treated as their ‘permanent place of employment’.
This law is extremely relevant to freelance contractors.
We are often asked; what if I go to a different client on the same site? Or what if I take a break for a few months and go back? Or what if I go to a different, but nearby site? Can I reset the 24 month clock? And the answer is often NO. There are only two things that restart the 24 month rule clock. One is to change employer (which might mean leaving employment and starting one’s own company). The other is to go to a significantly different site – which has a significant effect in distance or time taken to get there. HMRC has some examples in its booklet 490 which is online and worth looking at.
The advantages and disadvantages in setting up a business partnership including the importance of having a legal agreement.
Many people are nervous about becoming a director because of the legalities involved but they also keep you safe!
I want to set up a Limited Company but I’m nervous about being a Director.
Becoming a Directordoes include legal responsibilities. For example, Directors must act in the best interests of their Company, and not allow it to trade if they believe it will be unable to pay its debts. They must also ensure that it complies with employment laws, health and safety regulations and keep proper accounting records.
All Limited Companies must appoint at least one Director. No Director should be ‘barred’, bankrupt, or under 16. See Gov.UK Running a Limited Company for the rules. Also see our video on the Tax Advantages of a Limited Company
So long as you are sensible, the advantages of a Limited Company – such as tax savings and limited liability - are very often worth the extra legal responsibility. I suggest you speak to an accountant for further advice
If you have net rental income on which you'll have tax to pay, (rent minus expenses) then you must register for a Self- Assessment tax return and keep a record of your rental income and ‘allowable’ expenses (you can find out what they are here www.gov.uk/renting-out-a-property/paying-tax).
If the rent is lower than the personal allowance of £11,850 -2018/19, (and you have no other income), you will not pay income tax. But if the gross rental income exceeds £10,000, or the net rental income exceeds £2,500, then HMRC will still require a tax return.
If you make a loss on the rental, it is still a good idea to complete a Tax Return so that you can record the loss, carry it forward, and maybe reduce your tax in a later year.
My business partner spent all the profits from our business – does this mean I will have to pay the bills?
Sadly it could. If your business is a Partnership, not a Limited Company or a Limited Liability Partnership (LLP), all partners are “jointly and severally liable” for the debts of the Partnership. So if there are no Partnership funds for the Partnership bills, the creditors can chase you personally for these debts – even though your partner took it out of the business.
If your business is a Limited Company or an LLP, you are not personally liable for the debts of the business. The monies at stake (and other assets) are limited to those owned by the business itself. Exceptions would be if you had personally guaranteed a loan (sometimes banks seek such a guarantee); or if you have traded fraudulently, or while insolvent.
Cash accounting schemes – advantages for small/simple businesses:
- You only account for VAT on sales in the VAT quarter in which you are paid (rather than the VAT quarter you are invoiced) – because you pay your VAT to HMRC a bit later;
- If you have simple bookkeeping records and cash expenses it is easy to extract the figures for your VAT returns without needing to keep separate sales/purchase ledger records.
- If a customer fails to pay, you don’t have to pay VAT on the sale to HMRC (on an invoice basis you have to pay VAT on sales - even if you never get paid – and recover the VAT from HMRC only once the debt is over 6 months late).
Invoice based VAT accounting - advantages for this accounting method:
- If your customers pay you quickly, but you are given credit by your suppliers, then there can be a cash flow advantage to using the invoice basis for VAT.
- If you already run a Sales Ledger and a Purchase Ledger through your bookkeeping system, then it is not really an extra complication to calculate VAT on the invoice basis.
The consequences of issuing shares; and how to cancel excessive shares.