Running a limited company - a five minute overview
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Crunch's Senior Accountant Laura gives a brief overview of how to run a limited company, including: - Your responsibilities as a director - Key tax dates and deadlines - Budgeting and cashflow - Invoicing and expenses
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Running a limited company - a five minute overview
- 1. Running a company - a five minute overview Presented by Laura Hughes ACCA
- 2. Aim for today • Statutory Responsibilities • Your Accounts • Year End Planning • Setting Budgets • Forecasting • Q & A
- 3. Statutory Responsibilities • A limited company is a legal entity in its own right • Company Affairs • Laws and Legislation • Duty of Care • Record Keeping
- 4. Your Accounts • Invoicing Clients • Collecting Payment • Recording Expenses • Reconciling your bank accounts
- 5. Year End Planning • Allowable Business Expenses • Income • Assets • Bank Reconciliation/Credit Card Statement
- 6. Key DatesBased on 31st December year end
- 7. Budgets • Why bother? • How to do it?
- 8. Budgets – Example Basic Income Statement (Profit and Loss) Income 50,000 Flex Expenses - 15,000 Flex Profit before tax 35,000 Step 4 Tax - 7,000 Step 3 Profit after tax 28,000 Step 2 Dividends - 25,000 Step 1 Retained Profit 3,000 Income – By client estimated Expenses broken down by type
- 9. Forecasting • Cash flow forecasting • Current Bank Balance • Money coming in/out • Closing balance • More information here •New business pipeline • % probability of new business being won
- 10. Summary • Statutory Responsibilities • Managing your Accounts • Year End Planning • Key Dates • Budgets • Forecasts
- 11. Thank you for your attention. Questions?
Editor's Notes
- It is important that you understand your responsibilities as company directors – I will be covering what is expected of you. What you need to do to keep on top of your accounts A bit about year end planning, what is required by you in order to make the process go as smoothly as possible and some key dates Setting budgets, how to keep to them and the benefits Look at forecasting, why you might want to do it and also the benefits.
- The Limited company is separate from you the director/shareholder you have to act in the best interest of the company. The company is responsible for its debts and the shareholders are protected from creditors pursing them directly for debts (unlike a sole trader where you are wholly responsible). Company Affairs You are responsible for your company’s affairs ensuring that adequate records are kept and they are up to date. but it is down to you how to run your business and to keep records backing up your transactions. You have a duty to report any changes to HMRC and Companies House for example, if you move house or your registered address changes. Plus, you wouldn’t want details about your company or you going to an old address. Laws and Legislation There are laws and legislation you have to follow as a company director these are set out by the Companies Act 2006. The Act sets out the framework on things like statutory reporting, annual returns, company responsibilities, director responsibilities. I wouldn’t expect you to read the Act from cover to cover but you need to be aware that it exists and that there are boundaries that you need to act within. Duty of Care As a company director, you hold a position of authority, you have a duty to exercise reasonable care, skill and diligence in that role. Your judgements must be made independently. To avoid accusations of bribery or outside influence in the company’s decisions, you must not accept any benefits from third parties. Record keeping You know the saying if the input is garbage, then the output will be garbage. Therefore, it is really important to keep good business records. These need to be honest and transparent in the recording of the business transactions. Good record keeping is the key to running a successful business as it helps with business planning, raising finance and keeps your company compliant with the authorities. It is also vital when drawing up the company’s affairs and for filing the statutory reports, if the records are poor or incomplete then this will cost you more time and money to have an accountant sort it out for you. As a director, you also need to ensure the company’s accounts represent a ‘true and fair view’ of the business finances. When you sign the annual accounts, this is what you are formally approving and that you have not concealing any part of your companies profits, this could lead to you personally and your company being prosecuted. When paying dividends, you need to have kept an accurate record of the profits at that time for the dividend to be lawful. You need to be able to demonstrate that there were sufficient profits after corporation tax for you to take a dividend. HMRC will have no qualms about re-classifying the dividend as a loan and charging your company according via additional Corporation tax, interest and National Insurance. Records need to be kept for 6 years plus the current accounting period, HMRC is happy if you store your data electronically but do make sure that it is backed up. Ultimately, your accountant or Crunch can offer support and advice, but you are responsible for your company’s affairs and making sure they are in order.
- Producing and sending out invoices to your clients is something that is often overlooked by small businesses as it can be a time consuming to do especially if you are invoicing time and materials. But without the income from these invoices it impacts on other areas of your business like your ability to pay creditors and yourself. After you have raised your invoices, credit control is very important as I speak from experience when I say many companies won’t settle a debt unless they get a chaser call/email or a statement of account. Therefore, my advice would be to you set aside 1 hour a month to be following up on any overdue invoices and following up on any queries. Recording expenses, depending on how often you are incurring expenses I would say 10 minutes per day should enable you to stay on top of this. Cloud software enables you to record invoice and expenses on the go and a software solution like crunch has a Snap App available which automatically records the expense for you and stores the receipt in the cloud so you don’t have to worry about looking after it. Additionally, in order to take dividends lawfully, you will need to have your bank reconciliation up to date before you make a withdrawal. So if you are wanting to take a dividend monthly, make a point of reconciling your bank account before you take the dividend. It will also help with staying on top of credit control as you may have overlooked a receipt into the bank. You will need to consider the tax implications of withdrawing money from your company that gives an overdrawn directors loan account (borrowing money from your company), HMRC don’t really like these beneficial loans and levy a 25% additional corporation tax bill if this is outstanding 9 months after your year end date. My advice would be is to set aside 15/20 minutes a per day in order to stay on top of your accounts and an additional hour a month for year end, it will save you a lot of time in the long run…..
- When I talk to clients about year end planning they aren’t often particularly keen if it means they have to do some work but when they understand the benefits of planning they are a little more interested. Ensuring that you claim for all of your business expenses is really important. It helps to reduce your corporation tax bill, there are some allowable business expenses that are often over looked by small business. Things like – Use of home premises if you are not renting some office space, subsistence and travel when working from a temporary place of work, pensions. Income – it is important that you invoice all of your clients up to date at year end, any invoices that are raised after the year end will only be moved back by your accountant if they relate to a prior period. (Accountants have to test for cut off so we will be looking for this). It will increase your corporation tax in the period but can’t be helped. Assets - If there are any business assets you’ve been thinking about buying, consider doing this before your year end. Your accountant can give you advice on qualifying business assets for Annual Investment Allowance, this will help reduce your corporation tax bill by 100% of the asset cost, a qualifying asset includes office equipment like computers and printers, furniture this excludes cars. If you use Crunch as an example, you are required to reconcile your bank accounts and send over a copy of your statement as at the last day of your accounting period. We can’t put your accounts into production unless this is done as we can’t be sure if you have finished processing otherwise. We will look at filing deadlines in this next slide
- So this is a timetable of filing dates based on a 31/12 year end, the three dates at the bottom for self assessment, P60 and P11d filing remain static as these are set by HMRC and will be for period of January to March as they are related to the tax year. The others will be moveable based on your incorporation date and year end date.
- So lets move on to budgets. Why bother? I believe it is worth setting targets for your coming year, it gives you something to aim for and this often starts with how much income via dividends or profit to reinvest you want to make in for that period and working backwards. You don’t need any fancy software to do this as this can be done in excel. This then gives you some clarity on what you need to achieve in order to get this amount. Having a budget for costs/expenses will potentially keep company spending under control.
- Here is an example of what your budget may look like…. These are whole numbers and tax doesn’t normally work out to be a straight 20% of profit because of expenses that needed to be added back to profit that are disallowed like depreciation and business entertaining. Dividends of £25,000 (or amount of profit to reinvest if that is what you decide to do) Income and expenses are flexible if your income is £60k in order to receive the same dividends your expenses can be higher. Expenses - £15,000 could be broken down in more detail like salary, rent, business rates, insurance, professional fees, travel, entertaining. You would know better then anyone what expenses you are likely to incur. Income (or turnover) – this is where the next slides become important. What should my budget for income be?
- This could be cash flow forecasting or income forecasting for Pipeline maintenance for new business. It can be a bit like looking into a crystal ball because when you are starting out you just don’t know that is what makes it exciting as it is a risk. Again this doesn’t have to be complex. For cash flow it can be as easy as starting with the current bank balance (from the statement) adding what you are expected to receive in payments this week less what you have to pay out – like creditors, payroll, Taxes. Closing balance if this is a negative and you don’t have an overdraft facility this is where decisions have to be made on creditors to pay. HMRC should take priority over all other creditors as they have fines and penalties for late payment. It should also give you the drive to do credit control to get your invoices paid. New Business Pipeline maintenance – In businesses I have worked for in the past this has been very effective having a % of closure based on how far along you are along the sale process. This can be managed in excel but will require manual updating, as your businesses growth, this is where a sales team would come in to play in winning the business and keeping the admin up to date.
- Allow time for Q & A