1. ACE
Accounts & Tax
mini
guide
The really easy miniguide
to running a limited company.
Thisisyourhandyintroto ACEaccounts & Tax andthethingsyouneedto
know about limited company tax, admin and law. We’ve kept it short and
sweet.
Anything else? Just ask.
2. Contents
1 Introduction: working
with ACE accounts
2 Company formation
Company name
Registered officeaddress
Company directors
Accounting year end
Company shares
3 Share capital structure
Share capital
Shareholder/s
Settlements Legislation
4 Business bankaccount
5 Business insurances
for VAT? Factors HMRC consider
Professional indemnity
How do I register thecompany
for VAT?
Public liability VATschemes 13 Remuneration – ways to
Employers liability
11 Business expenses
withdraw funds
Expenses
Salary
6 Responsibilities&dutiesof
alimitedcompanydirector
Whatexpenses canbeclaimed?
Legitimate businessexpenses
Salary to a partner or spouse
Dividend
7 Money laundering regulations
Making an expenseclaim
24-month rule
40% rule
Business travel
Subsistence
Accommodation
Overnight incidentals allowance
14 Financial planning
Pensions
Income protection
Critical illness cover
Personal accident cover
Mortgages
Use of home asoffice
Company cars 15 Closing your company
8 Statutory filing
requirements & deadlines
PAYE and NICs
VAT
Corporation tax
Statutory accounts
Companies House annual return
Directors personal tax return
P11D & dispensation
9 Statutory record-keeping
10 Value Added Tax (VAT) 12 IR35
How does VAT work? What is IR35?
Do I need to register the company Inside or outside IR35?
4. 1
Introduction:
working with
ACEaccounts &
Tax
Nowthatyou’rechoosingtostepinto
theworldofindependencewithyour
own limited company, you’ll want
supportthat makesitalleasy–that’s
whatwe’reheretodo.
The whole point of contracting is
freedom.Soyoudon’twanttobetied
up with admin. Yes, you’re the boss, but
we’reheretolookafteryou.
Just some of the many services you get:
• super-fastset-up–lessthan24hours
• expert advice on tap – Personal
Qualified Accountant and support team
• toptech–accountancysoftware,
secure bank data-feed, 24:7personal
portal
• core admin –VAT,tax and year-end
returns done for you
• real-timeupdates–forfinancial
insightandcontrol
• director’s payroll and self-assessment
5. 2
Company
formation
When you decide to form your own
limitedcompany,therearesome
keyareasyou’llneedtoconsider
with your business objectives
in mind...
What happens once the
company is formed?
Yourcontact atACE accounts canform
thecompanyforyouwithinamatterof
hours.Thefollowingdocumentswillthen
bemadeavailabletoyouonyourclient
portal,whichyoumayneedtoprovideto
anypartythatwishestodobusinesswith
yourcompany–e.g.a recruitment
agency, aclient,abankforyourbusiness
banking, insurance companies and so
on...
Company name
It’sbesttohaveafewnamestochoose
from, as your first choice may already
beinuseoritmaybeverysimilartoan
existingcompany–inwhichcaseyou’ll
needtoseektheirpermissionfirst. Your
contact at ACE accounts will be able to
check which names are available.
Registered office address
You will decide where you want your
company to be legally registered. You can
choose ACE accounts to act as your
registered office, or your home address,or
anyotheraddressyouwishaslongasyou
canrunabusinessfromit.
Company directors
You must legally appoint at least one
director, which is usually yourself. There
is no longer a requirement for small
Companies to appoint a company secretary.
Accounting year end
We’ll help you choose the appropriate
accountingyearend.Thisisthedatewhich
yourannualaccountsaremadeuptoand
is normally one year after the date of
incorporation.
Company shares
Whenyouformyourcompany,youwill
beabletoissueshares.Thisentitlesthe
shareholder/s to receive dividends in
proportion to their shareholdings.
6. 3
Share capital
structure
Thesharecapitalinaprivatelimitedcompanyistheamountof
moneyinvestedbyitsownersinexchangeforsharesofownership.
How many shares a company can issue and when they can be issued
issetdowninthecompany’sArticlesofAssociation–essentially,
the company’s rule book.
Share capital
Whenformingacompany,thedirector
(you)canallotsharestoshareholder/s
–uptoanynumberofsharesassetout
in the Articles of Association.
Each share will have a fixed nominalvalue.
Mostfreelancerschoosetoown100%of
the company by issuing themselves all
of the share capital, e.g. 10 ordinary
£1 shares,totalingavalueof£10.
More shares can be issued later.Your
personal qualifiedaccountantwillbe
abletohelp youwiththis.
Shareholder/s
Shareholder/s is the term used to
describetheowner/softhesharesina
company.
Eachshareapersonbuyswillgivethem
somerightsindecidinghowthecompany
isrun,thegreaterthepercentageof
thesharestheyown,themorecontrol
theyhave.Italsogivesthemarighttoa
proportionate percentage of any dividends
issued by thecompany.
Settlements Legislation
The purpose of the Settlements
Legislation, commonly known as
Section660,istocontrolwhopaystax
onthedividendincomederivedfrom
shares allocated to a family member.
Thereisacommonmisconceptionthat
whenyousetupyourlimitedcompany
youcangivesharestofamilymembers
inordertopaylesstaxbymakinguse
oftheirtax-freeallowances.Butthe
legislation, which targets arrangements
putinplacetoavoidtax,meansthatyou
may remain assessable for tax on the
dividends you pay to them.
7. 4
Businessbankaccount
Onceyourcompanyhasbeenincorporated,oneofthe
most important first steps to take is to set up your
company’s business bank account. Your limited company
isitsownlegalentityseparatefromyourselfandso
you cannot use your own personal bank account.
With strict money laundering regulations,
openingabankaccountcanbealengthy
process. So we strongly recommend that
youmakeabankapplicationassoonas
possibletoavoidanydelaysinreceiving
monies or being able to make payments.
Yourclientsshouldpayallmoniesowed
to the company into this account. All
fundsinthisaccountdonotbelongtoyou
personallyuntilthecompanyformally
paysyou.
It’s totally up to you which bank you
choose for your business banking.You may
wishtoliaisewiththebankyoualready
bankwithpersonally,oryoucanlook
forotherbanksofferingusefulservices
such as internet banking facilities,
downloadable statements, free banking
period offers, good interest rates…
It’sgoodpracticeifyouchoosetoruntwo
accounts:acurrentaccountforeveryday
banking transactions and a deposit
accounttosetasidefundsforfuturetax
andVAT liabilities.
If you’re unsure, ACE accounts can
arrange for the Barclays Business Banking
Teamtocontactyouwithin24hoursof
your company being incorporated. They’ll
provideafast-trackserviceandbookyou
anappointmentwithaBusinessManager
who can establish projected turnover,
international requirements and growth
aspirations to tailor your business banking
requirements.
8. 5
Business insurances
When you run your own business, certain insurances may be needed.
Eachoneisdesignedtoprotectyourbusinessagainstclaimsfrom
differentparties.Also,checkyourcontractstoseeifthey stipulate
insurance requirements, and the levels of cover required.
We can put you in touch with specialist
business insurance providers Kingsbridge
Contractor Insurance. They can talk you
through your options, so you choose the
insurance package that’s right for you. They
offer very competitive prices. And we’ve
negotiated the market’s highest discount for
our clients.
Insurance certificates will be held
securelyonyouronlineportal,available
whenever you need them.
Professional Indemnity
PIprovidesyouwithprotectionagainst
claimsmadeagainstyourcompanyas
aresult of allegations of professional
negligence.
Mosthirersrequirethisinsuranceaspart
ofyourcontractwiththem.
Public Liability
PL provides protection against
claimsforlegalliabilityinrespectof
accidental bodily injury to third parties,
or damage to third party property
arising in the course of your business
activities.
Althoughthehirermaynotrequireyouto
holdthisinsurance,it’susuallyadvisable
tohaveit.
Employers Liability
EL provides protection against claims
fromemployeesofyourcompanyfor
legalliabilityinrespectofinjuryor
diseasewhichariseinthecourse
oftheirwork and for which you are
responsible.
Althoughthehirermaynotrequireyouto
holdthisinsurance,itisusuallyadvisable
to have it and it’s compulsory if you
employ any additional staff.
9. 6
Responsibilities & duties of
a limited company director
Asacompanydirector,youareultimately
responsible for the running of your
companyonaday-to-daybasisandhave
legalresponsibilitiesanddutiestouphold
undercompanylaw.You’reresponsible
forensuringthatthecompanymaintains
accurate accounting records toenable
the preparation of the statutory accounts
and returns.
WhilstACE accountswillassistyou
withthepreparationofthesereturns,
wewillbeactinguponyourinstructions,
soourworkdoesnotrelieveyouofyour
responsibilities as director.
7
Moneylaundering
regulations
To comply with the Money Laundering
Regulations,ACE accountswillrequest
identityandproofofaddressdocuments
fromyouonceyouagreetoappointusas
your accountant. The process is quick and
easy and you can securely upload your
documents onto your client portal.
10. 8
Statutory filing requirements & deadlines
Everylimitedcompanymustfilecertain
statutory documents by their deadlines.
PayAsYouEarn(PAYE)
& National Insurance
Contributions (NICs)
PAYEisthescheme usedtocollectincome
tax and NICs from the gross pay of any
employee. If your company ispaying
youoranotheremployeeasalary,you
willneedaPAYEschemewithHMRCand
submit returns under their Real Time
Information (RTI) system.
Deductions your company makes for
PAYE and NICs are paid to HMRC by the
19thofeachmonth.Theexceptiontothis
monthlyrulewouldbeifyourongoing
average monthly payments were to be
lessthan£1,500–thenyoucouldsubmit
yourpaymentsonaquarterlybasis.With
your instruction, ACE accounts will
establishandadministereitheramonthly
or quarterly scheme for you.
Value Added Tax (VAT)
If your company is VAT registered (through
choiceorobligation),quarterlyreturnsare
submittedtoHMRCattheendofthemonth
followingthequarterend.So,forexample,
ifyourVATquarteris1stJanuaryto31st
March,theformaldeadlinewillbe7thMay,
butit’sgoodpracticetoensurethatthey’re
submittedbytheendofApril.
WecanprepareyourVATreturnsforyou.
Corporation Tax
UK limited companies pay corporation
tax(CT)ontheirprofits.Therateoftax
dependsuponthelevelofprofitsearned.
Profitsarecalculatedontheincome(net
ofanyVAT)lessthebusinesscostsofthe
companysuchassalariesanddaytoday
running costs.
The deadline for receiving theCorporation
Tax Return (CT600), detailing the
company’s annual tax liability, is 12
monthsaftertheyearendbutthetaxis
usuallypaid9monthsafterthecompany
yearend.Interestisapplicableonlate
payments. Earlier dates may apply within
the first year of trading. Your ACE
accounts online portal willremind you
of these important dates.
At ACE accounts we will prepare and
file your Corporation Tax Return for you.
Statutory accounts
The Companies House deadline for
receiving abbreviated annual accounts is 9
months after the company’s year-end.
We can help you prepare the annual
statutory accounts.
Companies House Annual
Return (AR01)
Within 28 days of each annual anniversary
of your company’s incorporation date,
Companies House requires the submission
of an annual return. This details the
directors, registered office, share capital
andtheshareholders.Thereare nofinancial
penaltiesforlatefiling,butCompanies
Housemaystrikeoffyourcompanyfrom
theirregisterifthereturnislate.
Wecanassistyouwithfilingthisannual
returnalongwithasetofabbreviated
accounts.
Personaltaxreturnof
directors
As a director of the company, you’ll
complete an annual self-assessment tax
return detailing your income from all
sources. The self-assessment process will
calculate any additional tax due which
might include tax on benefits you have
received, if they have not been taxed under
PAYE, or higher rate tax on dividends.
Ifyou’readirectorshareholder,youmay
receive part of your remuneration package
as a dividend. Dividends are treated as
paidbythecompanyafterdeductionoftax
at10%.This10%‘taxcredit’coversthe
basic rate income tax liability when paid
toyou.Furthertaxwillbedueat25%,if
you’reahigherratetaxpayer,or36.1%if
you’reanadditionalratetaxpayer,ofthe
netdividendyoureceived. Thisadditional
tax will be collected through your self-
assessment.
Wecanassistyouwithcompletingand
filingyourself-assessmenttaxreturn.
P11D and dispensation
AP11Disanannualformthatreports
thecashvalueofanybenefits-in-kindor
expense payments received by directors
and employees during the courseof
thetaxyear.ThisformallowsHMRCto
calculatewhatadditionalpersonaltaxmay
bedue.Ifyouhaveappliedforandbeen
givenadispensationfromHMRCthenthis
formisnotrequiredforthoseexpenses
listedinthedispensation.
At ACE accounts, we can help you
completeandfiletheP11D.Shouldyou
wishtoapplyforadispensation,wecan
applyandobtainthisfromHMRCfor
yourcompany.
11. 9
Statutory
Record-keeping
The company is responsible for
maintaining and keeping accounting
andbusinessrecordsforupto6years.
Withthesoftwarethatweprovide,
togetherwithourhelp,wemakethis
verysimpleforyou.
12. 10
Value Added Tax
VATisataxthatisleviedonmostgoods
and services sold in the UK and unlike
othertaxes,VATisonethatiscollectedby
businessesonbehalfofHMRC.Thecurrent
standard VAT rate for 2015/16 is 20%.
What VAT schemes are
available?
How does VAT work?
Once your company registers for VAT,you
willchargeVATonallyoursalesinvoices.
The good news is that you can reclaim VAT
on your business purchases made from
other VAT-registered businesses.
Attheendofeverythreemonthsyour
company will submit aVATreturn to HMRC
(ACE accounts canpreparethisforyou)
whichdetailshowmuchVATyouhave
charged and how much you are reclaiming
forthatperiod.Youthenpayorreclaimthe
differencewithHMRC.
DoIneedtoregisterthe
company for VAT?
You’llneedtoregisterforVATifyour
company turnover exceeds the current
2015/16VATthresholdof£82,000atany
given point in a rolling 12 months, or
expectstodosointhenext30days.This
isn’tafixedperiodlikethetaxyear orthe
calendaryear–itcouldbeanyperiod,eg
thestartofJunetotheendofMay.
What if I want toregister
for VATeven though I am
undertheVATthreshold?
If you haven’t exceeded the VAT threshold,
you can still register for VAT voluntarily if
itmakessensetodoso.Thereareseveral
reasonswhyyoumightchoosetotakethis
course of action:
• theclientswhouseyourservices
requireyoutobeVAT-registered
• to make your business look more
professional
• the service you supply incurs lots
ofexpenses whereinputVATcanbe
claimed from HMRC.
HowdoIregisterthe
company for VAT?
We can register your company for VAT.
JustspeaktotheACE accountsteam.
HMRC try to complete 70% of applications
within10workingdays,butsometimesit
maytakelonger.Onceregistered,youwill
receiveaVATcertificatefrom HMRC which
wecanholdsecurelyonyourclientportal.
While you’re waiting for your VAT number,
you can enter “VATnumber pending” in the
VATnumber section of your invoices.
There are two main schemes available:
Standard accounting v. cash accounting:
Under the standard accounting scheme,
VAT is paid based on the date invoices are
raised or received, regardless of whether
they have been paid. Small businesses
can alternatively use the cash accounting
scheme where VAT is paid at the end
of the quarter in which the invoice was
paid. Cash accounting is preferred for its
positive effect on cash flow.
Flat Rate Scheme (FRS):
Thisschemeisforsmallbusinesseswith
anestimatedannualturnoverofless
than £150,000 excluding VAT.Under this
scheme, you do not havetocalculateVAT
on each and every transaction. Instead, it’s
simplycalculatedasaflat-ratepercentage
of the gross sales. The flat-rate percentage
islessthanthestandardVATratebecause
itaccountsforthefactthatyouwon’tbe
reclaiming VAT on your purchases. The
percentage depends on which industry you
operatein.Asanincentive,HMRCoffera
1%discountontherateinthefirstyear
ofregistration.Forfreelancersoperating
a small business, the FRS is generally the
most advantageous VAT scheme.
13. 11
Business expenses
Whatexpensescanbe
claimed?
When it comes to claiming business
expenses as a director of a limited
company, it can be challenging to figure
outwhatyoucanandcannotclaim.Whilst
in theory you can put almost anything
through your business, in reality the
companywillnotgettaxreliefonanything
which is not a legitimate business
expense. What’s more, you are likely to
end up paying more personal tax on the
‘benefit’ you receive from thecompany.
Toknowwhichcostsareallowablefortax
relief,HMRCusetheexpression“wholly,
exclusively and necessarily incurred
intheperformanceofyourduties”and
they willdisallowanyexpensesthatdo
not fulfil this criteria.
It’sessentialtoobtainandretainreceipts
forallexpensesincurredinordertobe
abletojustifytheexpenseifquestionedby
HMRC.Thisshouldbeapropertillreceipt
orinvoice,notjustacreditcardslip.
Receipts should be kept for 6 years.
Legitimate business
expenses
Legitimatebusiness expenses areuniqueto
every business and they should contribute
towards the company’s future revenue
generation. They’re likely to include:
• accountancyfees
• business travel and accommodation
• subsistence
• postage, stationery and printing costs
• business telephone calls (if claiming
thecostofthelinerental,thenthe
contract should be taken out in your
limited company’s name and payment
forthelineshouldbemadefromthe
business bank account)
• contributionsto executivepension plan
• computer equipment and software
• technical books and business
journals
• training course fees (as long as the
skillsarerelevanttoyourbusiness)
• businessinsurances
• certainprofessionalsubscriptions–
mustbeaprofessionalbodyonHMRC’s
approved list: https://www.gov.uk/
government/publications/professional-
bodies-approved-for-tax-relief-list-3/
approved-professional-organizations-
and-learned-societies
• useofhomeasoffice(aflat£4perweek
without receipts is allowed by HMRC)
• costofadvertisingandmarketing
your business
• company bank charges andinterest
• eyetestsifyouregularlyusea
computerincourseofyourwork
• business entertainment
• annualChristmaspartyevent
allowance of £150 per employee.
HMRC do not allow...
...any expenses deemed to be personal/
non-business related. These can include:
• ordinary commuting
• itemsforpersonalusesuchas
cameras and televisions
• rent,mortgageorcounciltaxofyour
main residence
• privateclubsubscriptionssuchas
gymorgolfclubmembership
• clothing(exceptsafetyclothing) such
as business suits
• trainingcoursesnotrelatedtoyour
business
• glasses–unlessusedsolelyfor
VDUuse.
How is an expense claim
made?
Youclaimviatheaccountancysoftware
provided by ACE accounts on your
onlineportalandthenreimbursethetotal
expensesvaluetoyourselfmonthlyfrom
the funds held in your business bank
account.
24-month rule
Some expenses, such as travel to and from
home, subsistence and accommodation
can only be claimed where your workplace
is ‘temporary’. A workplace is a ‘temporary’
workplaceiftheassignmentwilllast,or
youexpectittolast,lessthan24months.
40% rule
Oneexceptiontothe24-monthruleis
whereyouspend40%orlessofyourtime
atasite.Thenallexpensestravellingto
andfromthatsiteareallowed.
14. Business travel
Allowable business travel can include the
following costs:
• reasonable public transport
• personal car usage reimbursed at up to
45ppermileforthefirst10,000 miles
inthetaxyear;andupto25ppermile
thereafter
• personal motorbike usage reimbursed
atupto24ppermile
• personal bicycle usage reimbursed at
upto20ppermile
• parkingandtolls–finesarenot
permitted
Costsformaintainingavehicle,such
asMOT,servicingandrepairsarenot
allowableastheHMRCapprovedrates
alreadyincorporateacostforthis.
Subsistence
Youcanclaimthereasonableactual
costofmealsthatyouarerequiredto
buywhilststayingawayfromhomeon
businessortravellingtoatemporary
workplace–thecostofalcoholisnot
permittednoristhepurchaseofgroceries
to assemble ameal.
Accommodation – hotels,
B&Bs, secondary rental
Ifit’snotpracticalforyoutotravelhome
overnight and you are required to stay
awayfromhomeovernightforbusiness
purposes,youcanclaimthereasonable
costofstayinginahotelorB&B.Where
youarerequiredtostayawayfrom
homeforalongerperiodoftime,you
canclaimthecostofrentingsecondary
accommodationtomeetyourpersonal
needs provided you are maintaining a
primary permanent residence elsewhere.
Overnight incidentals
allowance
Ifyou’restayingawayfromhomefor
businesspurposes,inadditiontoyour
subsistence expenses, to cover the
costofincidentalssuchaslaundryand
newspapers, you can claim a non-
receiptable overnight incidentals allowance
of £5 (UK) or £10 (abroad) per night.
Use of home as office
Ifthere’sadeskareainyourhomewhere
youcarryoutbusiness-relatedtasks,you
can claim an unreceipted allowance of a flat
£4 per week to cover your incidental costs.
Company cars
Asadirectorandemployeeofyourown
limited company, the business can provide
youwithacompanycar.Thecompanycan
payforalltherunningcostsincludingfuel,
servicing, maintenance andinsurance,
andthecarcanbeusedforbothbusiness
and personal journeys. This all sounds
fabulousbutthere’sacatch,andit’sa
verybigcatch!
Company car tax
Ifyourcompany provides youwith a caryou
will pay personal tax on the benefit. The
betterthecar,themoretaxyouwillpay,
whereas environmentally friendly cars(with
lower CO2
emissions) are slightly more tax-
efficient.Whichevercaryouchoose,thetax
islikelytobesubstantialandyouneedto
beawareofitbeforeyourcompanymakes
thedecisiontopurchasethecar.
What is a benefit-in-kind?
Abenefit-in-kindisanypaymentthatyour
businessmakesonyourbehalfoverand
above your salary payment. This could
include the reimbursement of company car
costs, travel and subsistence costs, health
insurance,gymmembership,theprovisionof
computerequipmentforpersonaluse,loans
toyou,oranyother‘benefits’evenwhere
thesearesolelyforbusinesspurposes.
What’s the alternative?
Companycarsarerarelytax-efficient,
however there is an alternative. You
areentitledtoclaimatax-freemileage
expense allowance for every business mile
that you drive in your personal car.
In the tax year 2015-16:
• forthefirst10,000businessmiles,
youcanclaim45ppermile
• after 10,000 business miles, you can
claim25ppermile.
Thisrateisintendedtoreimburseyounot
justforyour fuel butalsowear-and-tear
and all car-related expenses you incur.
Soifyoudrive8,000milesinyourpersonal
car,you can claim £3,600 tax-free from your
companyinsteadofpayingtaxtoHMRC.
15. 12
IR35
What is IR35?
IR35isapieceoflegislationwhich
HMRC introduced in April 2000. It
dealsspecificallywithindividualswho
‘freelance’throughalimitedcompany
butworkasiftheyareanemployeeof
thehirer.TheinitialintentionofIR35was
tostopatraditionalemployeeleaving
his/her job one day, only to return to
workinthesameorsimilarroleshortly
afterwards,butworkingviaalimited
company structure to reduce the amount of
income tax (PAYE) and national insurance
contributions (NIC) that they pay.
IR35 attempts to determine the true
employment status of the freelancer by
examiningtherelationshipbetweenthem
andthehirertoestablishwhetheritisone
of ‘disguised’ employment or a genuine
business-to-business relationship.
Inside or outside IR35?
Underthelegislation,theonusisonthe
directorofthelimitedcompanytodecide
whether a specific contract or assignment
passes or failsIR35.
Iftherelationshipisassessedtobeone
ofemployment,youaresaidtobe‘inside’
IR35andassuchneedtopayPAYEandNIC
on 95% of the assignment income after
the deduction of any direct assignment
costs(whichwillincludegrosssalaries
and pension contributions paid by the
company during the year).
Ifyourcontractfalls‘outside’IR35,youcan
takethemoretax-advantageousrouteof
havingalowersalaryandhigherdividends
which is the preferred option of most
limited company directors.
The IR35 status of an individual is
determined on an assignment-by-
assignment basis by a combination of
boththecontractualtermsandtheactual
working practices.
Factors HMRC consider
HMRChaveasetofguidelinestohelp
themformtheiropinionofemployment
status.
The main three are:
• therighttosendasubstitutewhen
theprincipalworker(you)isnot
available
• whethertheworkercanbetoldwhat
todoandhowtodoit(thelevelof
control)
• whether there is any obligation
for the worker to offer or provide
ongoingservicestothehirer.
We strongly recommend that you get each
assignment you undertake professionally
reviewed so as to determine its IR35
contract status.
TheACE accountsteamcanputyouin
contactwithspecialist IR35advisors QDOS
whocantalkyouthroughyouroptions
andhelpyoudeterminewhetheryouare
insideoroutsideoftheIR35tests.We’ve
negotiatedamarket-leadingdiscountfor
theirservicesandyoucaninteractdirectly
withthemviayourgiantportal.
16. 13
Remuneration–ways
to withdraw funds
Expenses
Expensesarethecostswhichyouincur
personally on behalf of your business.
Your company can reimburse you for these
costs,howeverrulesapply.Takealookat
ourexpensesinformationinchapter11or
contacttheACE accountsteam.
Salary
Youcanpayyourselfasalaryat
whatever level you choose.
Althoughdirectorsarenotboundbythe
National Minimum Wage (NMW), the
majorityoffreelancerschoosetopaythe
equivalentofatleasttheNMWatahigher
level, as:
• it utilizes your personal tax-free
allowance
• it preserves your National Insurance
contributions record
• itmayberequiredforreferencesor
mortgage applications
• it shows HMRC that you are covering
yournormaloutgoingswithsalary.
Ifyourassignmentfalls‘inside’ofIR35,
youwillneedtopayyourselfthemajority
of your income as salary.
Salary to a partner or spouse
Some freelancers may choose to pay a
salarytoa partner or spouseinorder
to benefit from their partner’s tax
allowance.Tobenefitfromthis,the
partnerorspousemustbeinvolvedin
therunningofthebusinessandyou
can clearly demonstrate this.
Dividend
A dividend is a profit-share payment
made from the post-tax profits of a
company, to the shareholders (owners)
of the company.
Dividendsaregenerallyamoretax
efficientmethodofwithdrawingmoney
fromyourcompany,astheyaretaxed
differentlytosalaryandarenotsubject
to National Insurance contributions.
17. 14
Financial planning
Pensions
Company pension contributionsrepresent
one of the most tax-efficient ways of
using business profits as it can save
National Insurance Contributions (NICs),
income tax and corporation tax.
You can choose to make pension
contributions personally, or your limited
company can make them for you (paid
from the company bank account).
Company Pension Contributions
The company can contribute up to
£40,000eachyearintoyourpension
pot.Thiscontributionwillreduceyour
corporation tax liabilities as it will be
treated as a business expense.
Personal Pension Contributions
Youmaychoosetocontributeintoa
pension personally if you’re a higher-
ratetax-payerandwouldliketoextend
yourbasictax-rateband.Thiswouldbe
beneficialifyouonlywantedtomake
smallpensioncontributionsandyou
would receive income tax and NICsrelief
onthis.
Income protection
As a freelancer operating your own
business, you do not have theprotection
ofsickpay,soit’sworthconsidering
incomeprotectioncover.Whenyou’re
reviewingpolicies,you’llwanttoensure
that both salary and dividends are
covered.
Critical illness cover
Ontopofincomeprotection,critical
illnesscovercanpayoutalumpsumor
monthlyallowanceintheeventofbeing
diagnosedwithacriticalillness.
Personal accident cover
Youmaywishtoprotectyourselfasa
resultofanaccidentthatleavesyou
unabletowork.Planstypicallypayout
aweeklyamountwhilstrecoveringfrom
aninjury,oralump-sumpaymentfor
death or permanent disablement. We’ve
negotiated the best market discounts
with specialist business insurance
providers Kingsbridge who can offer
advice and very competitive prices.
Mortgages
The challenge freelancers often face is
thatmainstreamlendersdon’talways
understand how freelancers work and
mayseethisasabarriertokeepingup
with mortgage repayments.
It’swellworthspeakingwithmortgage
brokers who specialize in the freelance
industry.Theyshouldbeabletosecure
youacompetitivemortgagewithmanyof
the mainstream lenders. We canintroduce
you to specialists.
18. 15
Closingyourcompany
Dormancy
Ifyouplantotakealongbreakfrom
freelancing, you may want to consider
making your company ‘dormant’. This
is a temporary suspension of some
services, but the company remains onthe
CompaniesHouseRegisterasatrading
company andallreturnsstillhave tobe
filed.
Theadvantageofputtingyourcompany
into dormancy is that the company
remainsthereandreadytousewhenyou
needit–noneedtore-registerforVAT–
and the company bank account isalready
upandrunning.Youmayneedtore-
registerforthePAYEscheme.TheACE
accountsteamcanhelpyouwiththis.
Winding up
If you don’t think you’ll need your
company again in the foreseeable
future(egifyoutakeonapermanent
role)youcanopttowinditup.Thisis
permanent closure. The company will
bede-registeredforVATandPAYE,so
there’susuallyjustonefinalsubmission
to make.
Final accounts are submitted to HMRC
and then you can apply to have the
company struck off the Companies House
register.
Ifthere’smoneyleftinyourcompany,you
haveoptionstodistributethefunds:
• make a company pension contribution,
which reduces your corporation tax bill
• paytheremainingfundsoutasa
dividend,whichmaybesubjectto
income tax
• distributefundsascapital,whichhas
apotentiallyloweroveralltaxcharge,
asthedistributionissubjecttocapital
gainstaxnotincometax,anditcan
also attract EntrepreneursRelief.
21. Questions then why not call in or call us
Technology House
151 Silbury Boulevard
Milton Keynes
MK9 1LH
Tel No: 01908 424365 Fax: 01908 424347
Web: www.aceaccountax.co.uk
Email: info@aceaccountax.co.uk
