Getting started

Tablet-friendly – Carlisle accountants David Porthouse and Co are small company specialists. This website is designed for use with tablet computers and mobile phones and QR codes, but you can look at it on an ordinary desktop computer as well.

We offer some basic advice for new companies in order to avoid common pitfalls. If you have set up a new company, then there are a number of issues you need to deal with. This page deals with these issues in the order in which you are likely to encounter them as a small private company. You should see some accountants if you have any problems, or if you are a public company. You may jump between sections on this page using the small coloured buttons:

 

Extracting Profit

If your company’s income is in the form of cheques or bank transfers, then in the first instance it should pass through your company bank account and not a personal bank account. Any cash you receive is company property and should be recorded at once and held separately. If you are making a profit, then you will soon need to think about how you will take out the profit in a tax-efficient manner. You cannot just help yourself to company cash, but instead you need to go through a number of formalities:

A Basic Salary

Many company directors pay themselves a basic salary such as £680 per month so they do not have to pay any national insurance or income tax straight away. Each salary payment needs to be reported online to HM Revenue & Customs using the Real Time Information system (RTI). We can assist you with doing this. You don’t have to physically pay the salary, but can just leave it as a credit on a director’s current account which you maintain with the company. We can assist with this.

Should you fail to report a basic salary through the RTI system, then there is a risk that you will pay extra tax. This is a good argument for seeing some accountants sooner rather than later. Accountants work for fees, but they are often able to save you taxes well in excess of the fees.

Directors of companies with other employees may be able to pay themselves £958 per month and claim Employment Allowance.

The £680 per month figure has applied since 6th April 2017.

Dividends

Additional profits can be taken out of the company using dividends. This requires paperwork in the form of minutes and tax vouchers, which we can assist you with. Again the dividend can be just a credit on your director’s current account, and we will encourage you to consider declaring a dividend every year to make best use of your basic rate tax band even if you don’t actually take it all out as cash. Just leave the difference as a credit on the director’s current account for a future year. Someday, you may be glad you did this.

In order to pay a valid dividend, the shares do need to be paid for. Usually this is done through a director paying for the company to be set up and then re-charging this to the company. Giving the company a computer or a motor vehicle is another common way to pay for the shares.

From April 6th 2017 onwards, dividends may be subject to a dividend tax starting at 7.5%, but the first £5,000 of dividend does not incur any tax charge. Obviously you should declare a dividend of at least £5,000 per year. Beyond this, you might choose to take the hit on the 7.5% dividend tax depending upon how much profit you wish to distribute. This is something to discuss with your accountants who will help you to look ahead and think about your requirements for cash in the next few years.

The Director’s Current Account

It is advisable to have a resolution of the shareholders to make it clear that the director or directors are to be paid a regular salary only, and any additional payments go to the director’s current account where they may be offset against dividend declarations. We can assist with drawing up any minutes required.

Some thought may be given to charging interest on any overdrawn director’s current to simplify P11D reporting requirements. We have the technology to enable interest at the current official rate to be charged daily. If there is any prospect of you having an overdrawn director’s current account, then you should see us at once!

Employees

Once you have a payroll scheme set up to pay the directors, you can also use it to pay employees. If you take on employees, then you will need to pay them at least the National Minimum Wage. The minimum hourly rates you must pay them are:

£7.50 an hour for employees aged over 25

£7.05 an hour for employees aged 21 to 24

£5.60 an hour for employees aged 18 to 20

£4.05 an hour for employees aged under 18 but above compulsory school leaving age

£3.50 an hour for apprentices aged under 19

£3.50 an hour for apprentices aged 19 and over in the first year of their apprenticeship

These rates have been in force since April 1st 2017.

Every payment you make needs to be reported on the Internet via the Real Time Information system. We suggest that you get your accountants, bookkeeper or payroll bureau to do this because you may be fined if you miss a payment. We can do everything by e-mail and we won’t miss anything because we have a few payrolls to do and we keep a diary.

 

The Confirmation Statement

Previously known as the Annual Return

About a year after setting up a new company, you will be sent a request for a Confirmation Statement. You will need to list shareholders and directors and similar details, and send it back to Companies House with a small payment. There will be an annual Confirmation Statement to do in each subsequent year and things are made easy for you if there have been no changes to the company details during the year. Online confirmation will cost £13, but postal confirmation costs £40. Your accountant can do this for you if you forward the fee of £13.

When you set up a new company, Companies House will send you a Company Authentication Code through the post. Do not lose this document! You can use it to file the Confirmation Statement yourself on the Internet, which many people do. Your accountant will always ask for it at some point.

The annual Confirmation Statement should not be confused with the annual accounts or corporation tax return, and the recent change of name should help. It is just like an annual health check to see if you still want the company to keep going. It is not unknown for a company to be set up and then forgotten about, and if you fail to make the annual Confirmation Statement then the company is likely to be struck off. In particular, new companies which do not file their first Statement after a year are peculiarly vulnerable to being struck off because Companies House will assume that setting up the company was just a passing fancy. Don’t leave this to the last minute!

Many new companies start with 100 shares worth £1 each. You could make this 120 shares if you are thinking of bringing in other shareholders later, since there are more ways to divide up 120 shares into equal portions.

 

The Annual Accounts

The annual accounts of companies need to be submitted to Companies House. They are normally prepared by public accountants such as us. They are in a special format and there are many rules to comply with. Here we will just explain how the dates work.

Let’s say your new company is formed on 15th March 2016. It will need to prepare its first set of accounts to 31st March 2017, which is one year after the end of the month after the date of incorporation. These accounts will need to be submitted to Companies House twenty one months after incorporation, which is 15th December 2017. This deadline is near Christmas and the weather could be terrible, so it is easy to overlook. If you miss it then your company may be fined £150 if the accounts are submitted up to a month late (by 15th January 2018). After that there are heavier fines depending upon how much overdue the submission is. David Porthouse has often dealt with company accounts near or beyond the first deadline, and uses advanced technology to get things done quickly.

What happens in subsequent years is that the accounts need to be filed at Companies House nine months after the year end. For the accounts ended 31st March 2018 the deadline would be 31st December 2018.

You might ask why the first deadline is not 31st December 2017, which might avoid a nasty surprise? Well Companies House has a pedantic interpretation of the 2006 Companies Act and this is the way it is. They always insist literally on twenty one months after the date of incorporation and we just have to live with this. Of course we keep a diary and will note deadline dates in it.

Keep Everything!

Never throw anything away. Keep it in a file or box and hand it to your accountants to decide what’s important and what’s not, which they are used to doing. That means any P45 or P60 from your last job, anything you get from Companies House or the Revenue, all your bank and credit card statements, and anything else relevant to your company. If you lose anything, it is likely to end up costing you money. It will never save you money.

Leaving it to the Last Minute

If you do this, don’t be surprised if it ends in grief. Of course that postal strike wasn’t your fault. You did not cause all the bad weather. You weren’t responsible for mismanaging the flood defences. Just the same, someone will have to pay for it and it is likely to be you.

A Deadline Every Month

A company is free to choose its own year end, which means that accountants who specialise in small companies are likely to have to face a deadline every month and at other times in-between. David Porthouse & Co is very keen on developing new technology to deal with this, and we use computer vision and artificial intelligence. Since we expect to take fewer chargeable hours to do the accounts, our fees are also likely to be very affordable.

In the Public Domain

You should be aware that anybody can download and view the accounts which have been submitted to Companies House. We will assume that you want to disclose as little as possible unless you tell us otherwise. Publicity is the price to pay for limited liability, and if you want to avoid this publicity then we will mention that there is the possibility of setting up a company which is not limited. Its accounts will not be published, but they will still be seen by HM Revenue & Customs and still need to be circulated around shareholders.

 

Corporation Tax

When you set up a new company you will get a notice from the Revenue within a week or two on form CT603. No immediate action is necessary, but the form will give your company a Unique Taxpayer Reference which is a 13-digit number in a format like 123 45678 90123. Do not lose that number because your accountant will ask for it at some point!

Small companies need to pay corporation tax at the rate of 20% on their profits. Normally we would calculate your corporation tax liability at the same time as we prepare your accounts. We would then advise when and how to pay corporation tax, and prepare your corporation tax return. The corporation tax return needs to accompanied by a set of accounts in a special iXBRL format which is best left to accountants who use dedicated software.

If you pay yourself a salary, this is deducted from your profit on which you pay corporation tax. There is therefore a bit of choice on what tax you want to pay. It is common to take a basic salary to cover the personal allowance, so no income tax is payable, but there might be a little National Insurance. Corporation tax is then payable on remaining profits.

Value Added Tax

The VAT threshold is £85,000 and your company must register for VAT if you make taxable supplies of goods or services and your turnover exceeds this threshold. If you are anywhere near the the threshold, then you should check every month by looking back over twelve months. This “moving window” requirement is over the top, but it’s the law! Ask accountants such as us to help you. We have software which makes VAT monitoring quick and easy, and usually do this as a one-off free service if we suspect that you are somewhere near the limit.

In addition, if you anticipate that your company will exceed this threshold in the next month alone, perhaps by getting a very big order, then you must register for VAT at once.

After registering for VAT, your company will need to submit a VAT return every three months. We can do this for you, and will give you a 25% discount on the accounts fee if we do. Just ask us for a quotation.

VAT can be an unpleasant tax to deal with, and you should never register for VAT yourself before a discussion with an accountant. You really might be learning the hard way if you do that!

The VAT threshold has been £85,000 since 1st April 2017.

Many Different Taxes

A company may need to pay several different taxes, and its directors may also need to pay income tax as individuals. If we look after your tax affairs, then as each tax becomes due we will e-mail you a colour-coded notice giving the amount and the details for making an electronic payment. This notice will be customised or personalised just for you. We don’t want a large sum of money being sent to the wrong destination over the Internet. This is part of our commitment to being small company specialists.

If you ever get a letter from HM Revenue & Customs which mentions you having a tax advisor, they mean local accountants in Carlisle like us. We are said to be a tax agent when we deal with the Revenue on your behalf.

 

 

NOTICE

While every care has been taken in the preparation of this page, no liability will be accepted for any inaccuracies or incompleteness in the information presented. The intention of this page is to warn about common mistakes, and you should see an accountant the moment you have any concerns.