New company set up
Discussion
Just setting up my company & going through all the Flat rate VAT and business bank account set up.
The question I have is that I will be paying corp tax & PAYE once a year so I will have to ensure I have these funds ready to pay. However do I need to hold this in the comp business bank account or business reserve account?
Or can I be a little more savy as in a few months time my mortgage will be coming off its fixed rate and the deals currently available are dire for me / indifferent really from the Std Var Rate which has no booking fees, so Im planning to go onto the SVR for a while and see how the market plays out.
However Im thinking that I could over pay/dump in the corp tax & PAYE tax into my mortgage as a short term overpayment thus reducing my mortgage interest (Bank busines account is paying 2.54% Gross... mortgage will be 7% Gross).
I am the director (sole director) and also the secretary.
So the question is is this allowed? Note - when the corp, vat, Paye is due it will be paid on time and in full with no issue Im purely trying to save some interest on my mortgage.
Advice thank for inadvance.
The question I have is that I will be paying corp tax & PAYE once a year so I will have to ensure I have these funds ready to pay. However do I need to hold this in the comp business bank account or business reserve account?
Or can I be a little more savy as in a few months time my mortgage will be coming off its fixed rate and the deals currently available are dire for me / indifferent really from the Std Var Rate which has no booking fees, so Im planning to go onto the SVR for a while and see how the market plays out.
However Im thinking that I could over pay/dump in the corp tax & PAYE tax into my mortgage as a short term overpayment thus reducing my mortgage interest (Bank busines account is paying 2.54% Gross... mortgage will be 7% Gross).
I am the director (sole director) and also the secretary.
So the question is is this allowed? Note - when the corp, vat, Paye is due it will be paid on time and in full with no issue Im purely trying to save some interest on my mortgage.
Advice thank for inadvance.
This type of activity would be looked on as the company lending its funds to its own directors and, strictly speaking, it's not allowed under Company Law and likely to create a penalty Corporation Tax charge under Section 419.
If the company is offering this loan "free" of any interest charges, it would also be looked upon as a "beneficial loan to a participator" and would result in a Benefit in Kind PAYE charge on the director - provided the balance of the loan to the director was over £5,000.
The key to all of this is that the situation at 5 April each year needs to be cleared in such a way that these "loan" balances don't exist. They should also not be in existence at the company's balance sheet date as the company is required by law to report the existence of such balances and transactions with the directors in the notes to the accounts filed at HM Revenue and Customs and Companies House.
PAYE is normally payable every month (or sometimes every quarter) - not once a year.
Have you sorted an accountant out yet?
It sounds like you need to be straightened out on a few fundamental points.
Why are you going down the VAT Flat Rate route?
Have you looked at all the implications of doing this?
If the company is offering this loan "free" of any interest charges, it would also be looked upon as a "beneficial loan to a participator" and would result in a Benefit in Kind PAYE charge on the director - provided the balance of the loan to the director was over £5,000.
The key to all of this is that the situation at 5 April each year needs to be cleared in such a way that these "loan" balances don't exist. They should also not be in existence at the company's balance sheet date as the company is required by law to report the existence of such balances and transactions with the directors in the notes to the accounts filed at HM Revenue and Customs and Companies House.
PAYE is normally payable every month (or sometimes every quarter) - not once a year.
Have you sorted an accountant out yet?
It sounds like you need to be straightened out on a few fundamental points.
Why are you going down the VAT Flat Rate route?
Have you looked at all the implications of doing this?
As a consultant the flat rate VAT structure fits well (so I have been informed).
Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
Welshbeef said:
As a consultant the flat rate VAT structure fits well (so I have been informed).
Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
Just be careful.Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
Make sure you REALLY are sure what the correct flat rate % is for your economic activity. Do you provide more than one kind of service? If you do more than one rate may need to be considered (there has already been one VAT Tribunal Case on this issue - which the taxpayer lost)
Many people are getting the fundamentals of chosing the coprrect Flat Rate wrong.
Be aware that the VAT returns are incorrectly worded for Flat Rate users. Following the instructions on the return will result in you submitting an incorrect return. Make sure you get professional hep when submitting the first few returns to ensure you are completing the boxes correctly.
Do you plan on buying equipment? Do you plan on reclaiming VAT on such new equipment?
Do you plan on buying dedicated computer accounting software? If so, you will find that trdaitional bookeeping and accounting and the VAT Flat Rate scheme do not match up very well.
Welshbeef said:
Also from a BIK perspective Im not gaining any interest (yes im saving interest but you do not tax on interest saved).
Yes yyou do. If you receive an interest free or below bank base rate loan by dint of your emplyment/directorship, there is a BIK charge arising.Failure to disclose and account for such a BIK on the return form (P11d) can result in fines and penalties and interest on underpaid tax.
Welshbeef said:
As a consultant the flat rate VAT structure fits well (so I have been informed).
Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
Nope. You need to check, or get your accountant to check that the correct rate is being applied. There is a 1% "bonus" for the firs year of a newly VAT registered company.Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
VAT is charged on gross, flat VAT is against NET, so it's not as big a gain as you think.
Example
Normal VAT method.
VAT Exclusive value of Invoice Raised - £1,000.00
VAT at 17.5% £175.00
Total collectable from customer - £1,175.00
Payable to VAT man - £175.00 less any VAT being reclaimed on business costs.
Flat Rate VAT system on a flat rate of (say) 12%
VAT Exclusive value of Invoice Raised - £1,000.00
VAT at 17.5% £175.00
Total collectable from customer - £1,175.00
Flat Rate VAT at 12% (£1,175.00 x 12%) - £141.00 payable to VAT man
No reclaim of VAT on costs allowed.
As you can see, the savings may not be that enormous.
Normal VAT method.
VAT Exclusive value of Invoice Raised - £1,000.00
VAT at 17.5% £175.00
Total collectable from customer - £1,175.00
Payable to VAT man - £175.00 less any VAT being reclaimed on business costs.
Flat Rate VAT system on a flat rate of (say) 12%
VAT Exclusive value of Invoice Raised - £1,000.00
VAT at 17.5% £175.00
Total collectable from customer - £1,175.00
Flat Rate VAT at 12% (£1,175.00 x 12%) - £141.00 payable to VAT man
No reclaim of VAT on costs allowed.
As you can see, the savings may not be that enormous.
Edited by Eric Mc on Thursday 28th August 14:40
Eric Mc said:
I always wonder why HMRC think that the Flat Rate scheme is "Revenue Neutral".
How can it be when small traders are saving so much money when they use it? Or is it because people aren't applying the scheme correctly?
Have you had an accountant check your figures yet?
Not yet, although I am an accountant myself but not a tax specialist and not in a practice set up.How can it be when small traders are saving so much money when they use it? Or is it because people aren't applying the scheme correctly?
Have you had an accountant check your figures yet?
In fact, you don't need a company secretary at all now.
Obviously, if teh company was set up before April 2008 there would have been a requirement to have a secretary. New companies set up under the new rules will automatically not have any mention of a secretary - unless the people setting up the company specifically want to have one.
Obviously, if teh company was set up before April 2008 there would have been a requirement to have a secretary. New companies set up under the new rules will automatically not have any mention of a secretary - unless the people setting up the company specifically want to have one.
Welshbeef said:
The question I have is that I will be paying corp tax & PAYE once a year so I will have to ensure I have these funds ready to pay. However do I need to hold this in the comp business bank account or business reserve account?
Or can I be a little more savy as in a few months time my mortgage will be coming off its fixed rate and the deals currently available are dire for me / indifferent really from the Std Var Rate which has no booking fees, so Im planning to go onto the SVR for a while and see how the market plays out.
However Im thinking that I could over pay/dump in the corp tax & PAYE tax into my mortgage as a short term overpayment thus reducing my mortgage interest (Bank busines account is paying 2.54% Gross... mortgage will be 7% Gross).
I am the director (sole director) and also the secretary.
So the question is is this allowed? Note - when the corp, vat, Paye is due it will be paid on time and in full with no issue Im purely trying to save some interest on my mortgage.
You are missing the fundamental issue that the funds are not yours, they belong to the company. As Eric has pointed out, if the company loans you this money then there is a taxable benefit.Or can I be a little more savy as in a few months time my mortgage will be coming off its fixed rate and the deals currently available are dire for me / indifferent really from the Std Var Rate which has no booking fees, so Im planning to go onto the SVR for a while and see how the market plays out.
However Im thinking that I could over pay/dump in the corp tax & PAYE tax into my mortgage as a short term overpayment thus reducing my mortgage interest (Bank busines account is paying 2.54% Gross... mortgage will be 7% Gross).
I am the director (sole director) and also the secretary.
So the question is is this allowed? Note - when the corp, vat, Paye is due it will be paid on time and in full with no issue Im purely trying to save some interest on my mortgage.
Incidentally, you can get a lot better than 2.54% too.
Welshbeef said:
Just done a little back of fag packet calcs and p.a. the VAT saving for me would be of the order of £5-5.5k which is an amount I'd take.
Based on fees billed of £150k (and not a penny more!) you'll save £5100 in your first year and £3337.50 in subsequent years, however you will miss out on being able to reclaim VAT on any products/services your company buys (other than capital assets over £2k), so deduct this from the potential saving (VAT on SJD's fees for a start!)I would expect that Flat Rate will still be the best approach for you, but you might want to consider trading for a few months on the normal scheme and then moving over if you are going to need to buy anything (laptops, phones etc etc).
Edited by UpTheIron on Friday 29th August 20:10
Eric Mc said:
This type of activity would be looked on as the company lending its funds to its own directors and, strictly speaking, it's not allowed under Company Law and likely to create a penalty Corporation Tax charge under Section 419.
If the company is offering this loan "free" of any interest charges, it would also be looked upon as a "beneficial loan to a participator" and would result in a Benefit in Kind PAYE charge on the director - provided the balance of the loan to the director was over £5,000.
The key to all of this is that the situation at 5 April each year needs to be cleared in such a way that these "loan" balances don't exist. They should also not be in existence at the company's balance sheet date as the company is required by law to report the existence of such balances and transactions with the directors in the notes to the accounts filed at HM Revenue and Customs and Companies House.
PAYE is normally payable every month (or sometimes every quarter) - not once a year.
Have you sorted an accountant out yet?
It sounds like you need to be straightened out on a few fundamental points.
Why are you going down the VAT Flat Rate route?
Have you looked at all the implications of doing this?
Eric - I'm sure we've talked about this before. Do you really mean April 5 absolute or the companies accounting year end date?If the company is offering this loan "free" of any interest charges, it would also be looked upon as a "beneficial loan to a participator" and would result in a Benefit in Kind PAYE charge on the director - provided the balance of the loan to the director was over £5,000.
The key to all of this is that the situation at 5 April each year needs to be cleared in such a way that these "loan" balances don't exist. They should also not be in existence at the company's balance sheet date as the company is required by law to report the existence of such balances and transactions with the directors in the notes to the accounts filed at HM Revenue and Customs and Companies House.
PAYE is normally payable every month (or sometimes every quarter) - not once a year.
Have you sorted an accountant out yet?
It sounds like you need to be straightened out on a few fundamental points.
Why are you going down the VAT Flat Rate route?
Have you looked at all the implications of doing this?
Section 419 Penalty Corporation Tax is based on the company's financial year end date.
Benefit in Kind disclosure details are based on the 5 April tax year.
Wherever possible, I try to encourage my client companies to select a 31 March year end as this means that all these issues can be addresed in one review rather than having to do everything twice.
Benefit in Kind disclosure details are based on the 5 April tax year.
Wherever possible, I try to encourage my client companies to select a 31 March year end as this means that all these issues can be addresed in one review rather than having to do everything twice.
Welshbeef said:
As a consultant the flat rate VAT structure fits well (so I have been informed).
Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
They do flat rate on a rolling 12 months too. I have tried to get on a few times when we have had a slack strat to the year and you can only apply once you have had 4 quarters giving under the limit.Turnover needs to be under £150k p.a. and its simplified so that its simply 12% first year then 13% every year following that.
So in a way your "making" 5% then 4% thereafter.
The SJD Accountancy - see them online - said that given my earnings it would be beneficial for me to do so & that the vast majoirty of IT Contractors do this unless their turnover is below a certain level where the effort isnt worth the additional pay/profit from the VAT
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