new to being self employed
Discussion
These are going to sound like painfully obvious questions and a bit of "please hold my hand"...
Last year I left work to follow a dream to run my own company. In doing so I registered my business with companies house but have not yet started trading.
I have been in training to get to a level where I am confident to start my business but that training has not been in business management. Hence the thread.
1.) I have bought several thousands of pounds worth of equipment, is it possible to claim the vat value back for this? If so, obviously an accountant should be able to work this out for me?
2.) my aims for the first year of trading is fairly modest indeed. In fact my turn aim is for around the £12k mark. This would work out to give me a good enough level of income whilst being a definitely achievable target. I have no mortgage or debt so the income will be a nice one to me. The question relates to working tax credits, I believe even as self employed you can claim them. Is this only possible after you have posted your first years profits or is it possible to claim now?
3.) can someone point me to somewhere or advise me on what I can actually claim as business expenses? I know a good accountant will be able to help me but the more information I have first, the better that meeting should go.
4.) Is it worth opening a business banking account with the charges that will attract or would I be better to just have the money paid into/out from my current account? Any recommendations on banks to do business with if I have to? Currently with the Halifax.
5.) If there is absolutely anything you think I should know, consider or research I would really like to hear it!
6.) Is there any benefit in making my car a company car? If so what are they and how do I go about it?
7.) What do I do about paying myself? Do I just pay a minimum wage then pay dividends? How does this actually work? What if one month I need a bit more cash how do I access it?
I think that is all for now. Cheers for any guidance
Mike
Last year I left work to follow a dream to run my own company. In doing so I registered my business with companies house but have not yet started trading.
I have been in training to get to a level where I am confident to start my business but that training has not been in business management. Hence the thread.
1.) I have bought several thousands of pounds worth of equipment, is it possible to claim the vat value back for this? If so, obviously an accountant should be able to work this out for me?
2.) my aims for the first year of trading is fairly modest indeed. In fact my turn aim is for around the £12k mark. This would work out to give me a good enough level of income whilst being a definitely achievable target. I have no mortgage or debt so the income will be a nice one to me. The question relates to working tax credits, I believe even as self employed you can claim them. Is this only possible after you have posted your first years profits or is it possible to claim now?
3.) can someone point me to somewhere or advise me on what I can actually claim as business expenses? I know a good accountant will be able to help me but the more information I have first, the better that meeting should go.
4.) Is it worth opening a business banking account with the charges that will attract or would I be better to just have the money paid into/out from my current account? Any recommendations on banks to do business with if I have to? Currently with the Halifax.
5.) If there is absolutely anything you think I should know, consider or research I would really like to hear it!
6.) Is there any benefit in making my car a company car? If so what are they and how do I go about it?
7.) What do I do about paying myself? Do I just pay a minimum wage then pay dividends? How does this actually work? What if one month I need a bit more cash how do I access it?
I think that is all for now. Cheers for any guidance
Mike
Stigmundfreud said:
These are going to sound like painfully obvious questions and a bit of "please hold my hand"...
Last year I left work to follow a dream to run my own company. In doing so I registered my business with companies house but have not yet started trading.
I have been in training to get to a level where I am confident to start my business but that training has not been in business management. Hence the thread.
1.) I have bought several thousands of pounds worth of equipment, is it possible to claim the vat value back for this? If so, obviously an accountant should be able to work this out for me?
2.) my aims for the first year of trading is fairly modest indeed. In fact my turn aim is for around the £12k mark. This would work out to give me a good enough level of income whilst being a definitely achievable target. I have no mortgage or debt so the income will be a nice one to me. The question relates to working tax credits, I believe even as self employed you can claim them. Is this only possible after you have posted your first years profits or is it possible to claim now?
3.) can someone point me to somewhere or advise me on what I can actually claim as business expenses? I know a good accountant will be able to help me but the more information I have first, the better that meeting should go.
4.) Is it worth opening a business banking account with the charges that will attract or would I be better to just have the money paid into/out from my current account? Any recommendations on banks to do business with if I have to? Currently with the Halifax.
5.) If there is absolutely anything you think I should know, consider or research I would really like to hear it!
6.) Is there any benefit in making my car a company car? If so what are they and how do I go about it?
7.) What do I do about paying myself? Do I just pay a minimum wage then pay dividends? How does this actually work? What if one month I need a bit more cash how do I access it?
I think that is all for now. Cheers for any guidance
Mike
Last year I left work to follow a dream to run my own company. In doing so I registered my business with companies house but have not yet started trading.
I have been in training to get to a level where I am confident to start my business but that training has not been in business management. Hence the thread.
1.) I have bought several thousands of pounds worth of equipment, is it possible to claim the vat value back for this? If so, obviously an accountant should be able to work this out for me?
2.) my aims for the first year of trading is fairly modest indeed. In fact my turn aim is for around the £12k mark. This would work out to give me a good enough level of income whilst being a definitely achievable target. I have no mortgage or debt so the income will be a nice one to me. The question relates to working tax credits, I believe even as self employed you can claim them. Is this only possible after you have posted your first years profits or is it possible to claim now?
3.) can someone point me to somewhere or advise me on what I can actually claim as business expenses? I know a good accountant will be able to help me but the more information I have first, the better that meeting should go.
4.) Is it worth opening a business banking account with the charges that will attract or would I be better to just have the money paid into/out from my current account? Any recommendations on banks to do business with if I have to? Currently with the Halifax.
5.) If there is absolutely anything you think I should know, consider or research I would really like to hear it!
6.) Is there any benefit in making my car a company car? If so what are they and how do I go about it?
7.) What do I do about paying myself? Do I just pay a minimum wage then pay dividends? How does this actually work? What if one month I need a bit more cash how do I access it?
I think that is all for now. Cheers for any guidance
Mike
I am sure the experts will be along shortly, but a couple of things struck me:
Was there a reason that you incorporated? It brings additional pain and cost to do PAYE, NI, Corporation Tax, annual returns to compoanies house, higher accountancy fees and to lodge accounts with Companies House. On small turnovers it is often sensible to stay as a sole trader to avoid these costs until you need to incorporate.
Are you registered for VAT? You can't reclaimthe VAT unless you are, but wil then have to charge VAT on sales, and if the clients are individuals that might not be a good thing as they can't recalim it as a corporate usually can. I recall you can claim capital allowances/costs for a couple of years against set up costs even before you start trading but not sure about VAT.
Do you not have a business bank account? If you are a Limited Company i think you need one as they are a separate legal entity to you as a person and shouldn't hare a shared personal bank account. Most banks will offer 1 or 2 years free banking for start ups and if you don't handle much hard cash and don't write too many cheques there are plenty that will continue with free business banking.
If you are a limited company you are an employee and can draw a salary, but will have to deal with the PAYE/NI etc for that as an employer (of yourself!). What you earn will be added to any wages you receive elsewhere for tax purposes and there may be NI to pay. Someone will be along I am sure to detail the share dividend option (there are loads of posts on that in particular). The company will have to pay corporation tax on the profits, so unless your salary eats up all of the profits you have to allow the 21% for CT. There is no lonmger a much lower (10%) rate for small profits as I recall.
Company cars are a whole new ball game and there are lots of posts on that too. The additional PAYE company car tax burden has made me give up the company car in exchange for a simple mileage allowance for use of my own car on business (40p a mile). It is a complex business, and purchasing/leasing on a turnover of £12k might induce cashflow problems.#
I am no expert, as you will shortly see, but perhaps incorporation wasn't the greatest idea on such a small enterprise unless you realy fear the personal liability issue? It brings extra costs and responsibilities which you may not need (or be complying with!).
i) VAT Reclaim - are you VAT Registered? You cannot claim back VAT on any costs incurred until your business is VAT Registered.. Once you become VAT registered, you can claim back VAT on items purchased (such as Stock and Equipment) BEFORE you were VAT registered as long as the stock or equipment is still in the posession of the company at the date of VAT registration. There is also a three year time period from the date of purchase within which the VAT can be reclaimed. Working out the VAT to reclaim is fairly easy - just add up the VAT content of the invoices for which you want to reclaim the VAT.
ii) You keep referring to the fact that you are "self-employed". You are not. The business is a limited company. Therefore, from a personal tax point of view, you will pay Income Tax and (possibly) National Insurance) on the money you personally withdraw from the company. The type and aamount of tax and NI you pay will depend on whether you pay yourself by means of salary and/or dividends.
The company will pay its own tax(Corporation Tax) on its profits.
The calculation of Tax Credits you are eligible for will be based on the Salary and/or Dividends extracted by you from the company - not the company's actual profits.
Tax Credits are often claimed before the individual knows for sure what their income for the year is going to be. This is acceptable to HMRC, but you MUST inform them as soon as possible whenever you know for sure what your REAL income is. This allows them to increase or decrease the Tax Credit award appropriately. There are many, many stories now of people receiving too much in the way of Tax Credits because of the mis-match between their anticipated income for the year and theor actual income. Dealing with any repayments of Tax Credits can be an extremely painful and harrowing situation.
iii) the company is allowed claim any expenditure incurred "wholly and exclusively for the purpose of the trade". Being a company, it is better that the company itself picks up the costs i.e. that expense and purchase invoices are properly charged to the company (not you as an individual). These bills, invoices and expenses should, wherever possible, be paid out of the company's own resources - usually its own bank account and credit card (if it has one).
Directors can pay for company costs out of their own pocket but there is a whole bureaucracy surrounding the disclosure of such activity to the Revenue. However, it is not unusual and most companies just grin and bear the necessary paperwork.
Obviously, the purchase of items for reasle (stock) is an allowable cost as are expenditure on the overheads incurred by the business -
Directors' Salaries
Employee's Salaries
Light and Heat Costs
Postage and Sationery
Advertising
Legal Fees (subject to certain resrtrictions)
Travel and Subsistence
Motor expenses
Repairs and Maintenance costs
Within thes headings many isues can arise as to whether some or all of the costs are relevant - but the above are typical business expenditure headings.
Large Capital Costs - such as Office Equipment, Computers, Vehicles etc are NOT directly deducted against income. They are allocated to the company's balance sheet and an annual depreciation charge (based on a reasonable percentage) will be allocated to the profit and loss account and this will serve to gradually reduce the value of the assets over a period of time - usually over three to five years.
Depreciation is an "accounting" technique which is generally disallowed by the Revenue. They have an alternative method of dealing with Fixed Assets called "Capital Allowances". It broadly follows the principles used by accountants when calculating depreciation but is is very different in some areas. With some assets, the Revenue allow higher rates of claim and with others, lower rates of claim - and in some incidents, none at all.
iv) as a limited company you MUST open a business account. You will not be able to conduct any business properly without the limited company having a bank account in its own name. You MUST remember that a limited company is a separate legal "person" to you as an individual. That is the fundamental difference bewteen a limited company and an individual who operates as a "sole-trader" (i.e. self-employed).
Once you operate a limited company, it is imperative that you get hold of an accountant at the earliest possible opportunity - especially if you are now considering the commencement of the company trading.
Companies have to prepare accounts which comply with the strict requirements of the Companies Act and which comply with accounting regulations set out by the accounting institutes. They are MUCH more complicated than a similar sized sole-trader.
Company accounts have to be submitted to both Companies House AND HM Revenue and Customs within strict time limits There are penalties for missing these deadlines.
The company also ghs to submit an Annual Return to Companies House (relatively easy) and an annual Corporation Tax return and tax computations to HMRC (not easy). Acounts should be submiited to both government agencies WHETHER THE COMPANY TRADED OR NOT.
Once a company starts trading and once monies start being drawn for the benefit of the director(s) or employees, it is imperative that the company registers for PAYE. Money paid to directors or employees is subject to PAYE and National Insurance and this must be accounted fopr and paid over ergularly (usually monthly) to the Revenue. Once registered for PAYE, the company also has to complete an Employer's Annual Return - for which there are late filing penalties too (surprise, surprise).
vi) - Company Cars - another compliacted are and one that can result in expensive tax and NI liabilities. Company Cars are taxed as a "Benefit in Kind" and creates another layer of reporting beaurocracy.
vii) as mentioned earlier, directors/shareholder can pay themselves by means of salary and/or dividends - ofetn a combination of both. The technique you mentioned is not an ususual scenario and can be very tax effective from a personal point of view. Generally, dividends are attractive because a) income tax arising on a dividend is lower than salary and b) no NIC is calculated on dividends.
The downside of dividends is that they are not considered business "expenses" (they are a distribution of "profits"
and therefore are not an allowable cost for calculating the business' taxable profits. Salaries ARE allowable costs.
It's all a massive minefield and one which is very difficult to neotiate successfully without the assistance of a competent accountant.
ii) You keep referring to the fact that you are "self-employed". You are not. The business is a limited company. Therefore, from a personal tax point of view, you will pay Income Tax and (possibly) National Insurance) on the money you personally withdraw from the company. The type and aamount of tax and NI you pay will depend on whether you pay yourself by means of salary and/or dividends.
The company will pay its own tax(Corporation Tax) on its profits.
The calculation of Tax Credits you are eligible for will be based on the Salary and/or Dividends extracted by you from the company - not the company's actual profits.
Tax Credits are often claimed before the individual knows for sure what their income for the year is going to be. This is acceptable to HMRC, but you MUST inform them as soon as possible whenever you know for sure what your REAL income is. This allows them to increase or decrease the Tax Credit award appropriately. There are many, many stories now of people receiving too much in the way of Tax Credits because of the mis-match between their anticipated income for the year and theor actual income. Dealing with any repayments of Tax Credits can be an extremely painful and harrowing situation.
iii) the company is allowed claim any expenditure incurred "wholly and exclusively for the purpose of the trade". Being a company, it is better that the company itself picks up the costs i.e. that expense and purchase invoices are properly charged to the company (not you as an individual). These bills, invoices and expenses should, wherever possible, be paid out of the company's own resources - usually its own bank account and credit card (if it has one).
Directors can pay for company costs out of their own pocket but there is a whole bureaucracy surrounding the disclosure of such activity to the Revenue. However, it is not unusual and most companies just grin and bear the necessary paperwork.
Obviously, the purchase of items for reasle (stock) is an allowable cost as are expenditure on the overheads incurred by the business -
Directors' Salaries
Employee's Salaries
Light and Heat Costs
Postage and Sationery
Advertising
Legal Fees (subject to certain resrtrictions)
Travel and Subsistence
Motor expenses
Repairs and Maintenance costs
Within thes headings many isues can arise as to whether some or all of the costs are relevant - but the above are typical business expenditure headings.
Large Capital Costs - such as Office Equipment, Computers, Vehicles etc are NOT directly deducted against income. They are allocated to the company's balance sheet and an annual depreciation charge (based on a reasonable percentage) will be allocated to the profit and loss account and this will serve to gradually reduce the value of the assets over a period of time - usually over three to five years.
Depreciation is an "accounting" technique which is generally disallowed by the Revenue. They have an alternative method of dealing with Fixed Assets called "Capital Allowances". It broadly follows the principles used by accountants when calculating depreciation but is is very different in some areas. With some assets, the Revenue allow higher rates of claim and with others, lower rates of claim - and in some incidents, none at all.
iv) as a limited company you MUST open a business account. You will not be able to conduct any business properly without the limited company having a bank account in its own name. You MUST remember that a limited company is a separate legal "person" to you as an individual. That is the fundamental difference bewteen a limited company and an individual who operates as a "sole-trader" (i.e. self-employed).
Once you operate a limited company, it is imperative that you get hold of an accountant at the earliest possible opportunity - especially if you are now considering the commencement of the company trading.
Companies have to prepare accounts which comply with the strict requirements of the Companies Act and which comply with accounting regulations set out by the accounting institutes. They are MUCH more complicated than a similar sized sole-trader.
Company accounts have to be submitted to both Companies House AND HM Revenue and Customs within strict time limits There are penalties for missing these deadlines.
The company also ghs to submit an Annual Return to Companies House (relatively easy) and an annual Corporation Tax return and tax computations to HMRC (not easy). Acounts should be submiited to both government agencies WHETHER THE COMPANY TRADED OR NOT.
Once a company starts trading and once monies start being drawn for the benefit of the director(s) or employees, it is imperative that the company registers for PAYE. Money paid to directors or employees is subject to PAYE and National Insurance and this must be accounted fopr and paid over ergularly (usually monthly) to the Revenue. Once registered for PAYE, the company also has to complete an Employer's Annual Return - for which there are late filing penalties too (surprise, surprise).
vi) - Company Cars - another compliacted are and one that can result in expensive tax and NI liabilities. Company Cars are taxed as a "Benefit in Kind" and creates another layer of reporting beaurocracy.
vii) as mentioned earlier, directors/shareholder can pay themselves by means of salary and/or dividends - ofetn a combination of both. The technique you mentioned is not an ususual scenario and can be very tax effective from a personal point of view. Generally, dividends are attractive because a) income tax arising on a dividend is lower than salary and b) no NIC is calculated on dividends.
The downside of dividends is that they are not considered business "expenses" (they are a distribution of "profits"
and therefore are not an allowable cost for calculating the business' taxable profits. Salaries ARE allowable costs. It's all a massive minefield and one which is very difficult to neotiate successfully without the assistance of a competent accountant.
Edited by Eric Mc on Tuesday 17th April 08:39
Edited by Eric Mc on Tuesday 17th April 08:51
its ok I am not grammar police
thanks for the input. Luckily I had sent a letter last year to state I wasnt trading so no tax questions have been sent.
From what you are saying it sounds better if I disband the company and act as a sole trader for quite a few reasons? The reason I formed the company was to protect my trading name more than anything but also, as I am ex IT, it was incase I wanted to contract but to be honest I do not want to go into IT ever again.
So my best bet is to be a sole trader? Here is a plea for more help! What exactly does that entail?
thanks for the input. Luckily I had sent a letter last year to state I wasnt trading so no tax questions have been sent.
From what you are saying it sounds better if I disband the company and act as a sole trader for quite a few reasons? The reason I formed the company was to protect my trading name more than anything but also, as I am ex IT, it was incase I wanted to contract but to be honest I do not want to go into IT ever again.
So my best bet is to be a sole trader? Here is a plea for more help! What exactly does that entail?
definitely going to but have had a look into things and running as limited may pose some problems. The work will be sporadic so income per month isnt possible to estimate, at all, though I was going to aim for 1k. If I am a limited company, pay myself paye but the income isnt as stable as it could be, I could potentially be in trouble if I put the company at risk?
I really do feel sole trader would be my better option from what I can gather now. The question is without even trading is it possible to disband a company without it messing up my credit record??
I really do feel sole trader would be my better option from what I can gather now. The question is without even trading is it possible to disband a company without it messing up my credit record??
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