You’re now a
limited company.
What happens next?
Now let’s get you up and
running
Congratulations! You are now a director of your very own limited company.
Exciting isn’t it? We’re sure you have lots of questions and you may be
wondering what happens next.
Well, your Danbro team is with you every step of the way, to help, encourage
and answer any questions.
First, you’ll need to spend some time reading this brochure, which contains
a lot of essential information. Then there are also some steps you need to
take over the next few days.
So let’s get started.
Things you need to know
•
A limited company is a separate
legal entity, which exists in its
own right, and is subject to rules
and regulations under company
law.
•
For tax purposes, each year a
company will pay corporation tax
on its profit.
•
The profit of a company is the
total amount of sales income
earned less any business expenses
incurred; usually calculated on a
yearly basis.
•
All the cash held in the company
bank account legally belongs to
the company.
•
You as director (and employee) of
the company, are responsible for
managing the company affairs.
The company will pay you a
salary for acting in this capacity.
•
As a director of a UK limited
company you will be legally
obliged to complete a personal
tax return each year. Danbro
can assist you with this return.
In calculating your personal tax
liability, you may have to pay
additional income tax on your
dividend income.
•
•
•
Under company law, as a director
you are responsible for ensuring
that the company maintains
accurate accounting records to
enable preparation of financial
statements, as well as other
returns for HMRC. Danbro will
assist you with the preparation of
these, but this assistance does not
relieve you of the responsibilities
as we are seen to be acting upon
your instructions.
You as the owner (shareholder) of
the company will receive dividend
income from the company’s
taxed profits. The frequency and
amount of this dividend income
is decided by the company’s
director(s).
For tax purposes, the salary you
receive will be subject to income
tax and national insurance
contributions.
The
dividend
income you receive will not be
subject to national insurance
contributions. Income tax will
be payable on dividend income
earned above the dividend
allowance.
Your welcome pack
is on its way
You will shortly receive confirmation that your secure online account has been
created, together with your unique login details. It’s important to keep your login
details somewhere safe. You can access your account on the Danbro website via the
‘Client Login’ area.
Your secure online account will contain
your Danbro Welcome Pack. Please read
all of the documents carefully and return
the Acceptance Confirmation Letter as
soon as possible.
Important.
We will not be able to commence acting
for your company until we have received
your Acceptance Confirmation Letter,
nor will we proceed with any HMRC
registrations on your behalf.
HMRC - New Company Details Form
(Corporation Tax)
Companies House will automatically
inform HMRC that your new company has
been incorporated and HMRC will send
a letter “Corporation Tax - Information
for New Companies” to your company’s
registered office. To ensure that we receive
this document and process it on your
behalf, we will have specified our office
address as your company’s registered
office upon incorporation.
Important.
If you have specifically requested a
registered address other than Danbro’s,
please forward this letter onto us
immediately.
Immediate Steps
We know it probably seems like there’s a lot to take in, so we’ve tried to make
everything as simple as possible. We’ve broken down the priorities and even
provided a checklist at the end of this guide so that you know exactly what
you’ve done and when.
1. Arrange a new business contract
You need to arrange a new business to business
contract to be drawn up in the name of your new
limited company. Simply send your certificate of
incorporation to your contact at your agency or
client, confirming that you are the director You may
be asked to supply details of your new company
bank account and VAT registration certificate,
but these will not be available until applied for.
Before signing the new contract, on behalf of your
company, it’s a good idea to have it reviewed in
relation to IR35. Your Personal Accountant can do
this for you.
2. Open a company business bank account
As a priority, you must arrange for a new business
bank account to be set up in the name of your
company. Any delays will also delay the receipt of
your first payment.
3. Start keeping company records
To ensure that you fulfill your director’s
responsibility of maintaining proper accounting
records, you must keep receipts for all business
expenses, requesting a VAT invoice whenever
appropriate. HMRC can request receipts at any
time and it’s your responsibility to ensure your
accounting records are done.
If you travel on business in a private car, please
keep a mileage log and reason for each journey. For
a detailed list of business expenses, please refer to
the Danbro expenses guide.
4. Get more from your relationship with Danbro
Danbro Financial Services offers specialist
independent financial advice to Danbro contractors
and limited company directors.
Whether you want to protect your family or
business, start a new pension or review your current
retirement plans, save for a rainy day, invest a lump
sum or you need a mortgage, Danbro Financial
Services is here to help.
5. Arrange business insurance
Many agencies insist on professional indemnity
insurance, public liability insurance and
employers’liability insurance.
Professional indemnity insurance
Provides essential financial protection for your
company in the event that your client suffers a
loss as a result of an alleged negligent act, error or
omission arising from the provision of professional
services.
Professional indemnity insurance will meet the
cost of defending claims and any damages payable.
Any person who gives advice, designs, or offers
similar services in a professional capacity is seen by
clients as an expert In these times of high consumer
awareness, clients will not hesitate to pursue a
claim if they feel that they have suffered a financial
loss resulting from your negligence. The need for
professional indemnity insurance has therefore
never been greater.
Public liability Insurance
Provides valuable protection against any costs and
compensation awards you are legally liable to pay,
resulting from accidental injury or disease to any
member of the public or business, or any accidental
loss or damage to their property.
Employers’ liability insurance
Provides valuable protection against its legal
liability for loss, damage, injury or disease caused to
an employee when they are at work.
Danbro can provide these insurance policies for
just £24 per month (inclusive of IPT).
Danbro Accounting Ltd is an Appointed Representative of Jelf Manson, part of Jelf Insurance Brokers Ltd. Kabel House. 15 Quay Street. Manchester. M3 3HN TeL 0161 228 044, Fax. 0161 236 9228 tor General Insurance Business Jelf Insurance Brokers Ltd (Reg
No. 0837227) is part of Jelf Group Plc (Reg No. 2975376), both registered in England and Wales at Hillside Court, Bowling Hill. Chipping Sodbury Bristol, BS37 6JX Registered and authorised by the Financial Conduct Authority (FCA), Reference No 302751 http://
ww.fsa.gov.uk/register/home.do or by calling on 0800 111 6768 Not all products and services are regulated by the FCA
Danbro Financial Services is a Trading Style of Palm Financial Care Limited which is Authorised and Regulated by the Financial Conduct Authority.
VAT registration,
the next steps...
Secondary Steps...VAT registration
Defining a temporary workplace
If your company has taxable sales in excess of the current
registration threshold in any 12 month period, VAT
registration is compulsory. If your annual sales are less
than this, then you may still register for VAT on a voluntary
basis.
Registering for VAT gives the following advantages:
•
•
•
We will be in touch with regard to
registering for VAT.
•
If you wish to register, we will do so on
your behalf.
•
It will take HMRC between 3 and 12
weeks to process your application.
•
Once your registration is approved
HMRC will post a VAT certificate to your
home address.
•
Please send a copy of this certificate to
Danbro and your agency immediately.
•
It is important that we receive your
certificate immediately in order to:
Potential disadvantages are:
•
•
If you were supplying your services to the public or non
VAT registered businesses, then your fees are higher to
them as they cannot reclaim this VAT. However, if you
are supplying your services via an agency, they will be
VAT registered and this will not be an issue.
You would need to keep VAT records. This however
would be dealt with by Danbro.
Financial benefit of being able to reclaim VAT included
in expenses.
•
Makes your business appear more established and
professional.
In most cases we recommend registering for VAT because
the advantages outweigh the disadvantages.
Potential financial benefit of joining the flat rate VAT
scheme (see next section).
•
You may be selected for a VAT inspection. By appointing
Danbro to prepare your VAT records and returns, this
would not be a concern.
- Confirm the date of your first VAT return and payment.
- Make an application for you to join the flat rate VAT scheme if you require it.
- Authorise your company to make online VAT returns.
•
You must make VAT payments and
returns every 3 months.
•
We will remind you to send us the
relevant information so we can calculate
the amount of VAT payable.
The flat rate VAT scheme
If you’re going to register for VAT then the flat rate VAT scheme could offer you potential financial benefits.
•
•
•
The scheme is open to all VAT registered businesses
with an annual turnover (excluding VAT) of £150,000
or less.
•
The percentage that you use in calculating the amount
of VAT you have to pay to HMRC is decided according to
the trade sector in which your business operates e.g. IT
Consultants (14.5%), Engineering Consultants (14.5%),
and Management Consultants (14%).
•
You calculate the amount of VAT payable as a flat rate
percentage of your VAT inclusive turnover.
•
In your first year of VAT registration you would
be entitled to a 1% discount on your normal sector
percentage making the benefit greater in your first
year (e.g. IT Consultants would only use 13.5% rather
than 14.5%).
You are unable to reclaim any VAT that you may be
charged on business expenses e.g. accountancy fees,
stationery.
You are able to reclaim input VAT on purchases of items
of a capital nature greater than £2,000 on an ongoing
basis.
Should I join?
In most cases we would say yes. First
we need to consider your business
sector, annual turnover and the
amount of VAT incurred on business
expenses.
You would need to charge 20% VAT
on top of your fees for each sales
invoice. The amount you pay HMRC is
calculated on your VAT inclusive fees
multiplied by your sector percentage.
Let’s see how it works with the
following example of an IT consultant
with a sector percentage of 13.5%
operating in his first year of VAT
registration.
Annual net fees £100,000
VAT @ 20% £20,000
Gross invoice amount £120,000
Under normal VAT arrangements
the VAT payable to HMRC would be
£20,000
Under the flat rate scheme the
amount payable would be;
Gross invoiced amount x Sector
percentage (with 1% first year
discount) £120,000 x 13.5% = £16,200
This means that you would therefore
retain £3,800 of your sales VAT in the
business as profit. As you are unable
to reclaim any VAT that you may be
charged on business expenses, this
will reduce the amount of profit.
If you would normally have a small
amount of input VAT to reclaim
then the flat rate scheme should be
a benefit to your company and we
would recommend that you join this
scheme.
PAYE registration
Taking a director’s fee, or paying an employee a salary, means the
company must register for PAYE (Pay As You Earn). Don’t worry, we will
register the company for PAYE on your behalf.
The PAYE tax year runs from 6th April every year to 5th April the
following year. Of all the administrative responsibilities that come with
running your own company, this is the most involved.
Don’t worry, we will handle all the paperwork, the returns, the tax
calculations and the National Insurance due for payment. We’ll also
remind you when deadlines are close or payment is due.
PAYE checklist
•
All new employees must submit a
P45 or Starter Checklist to HMRC to
join the company payroll.
•
Real Time Information (RTI) returns
must be submitted online to HMRC
on or before every payroll date.
•
Tax and NI must be paid every 3
months on all fees/salaries paid in
those months.
•
Payment must reach HMRC before
19th of April, July, October and
January.
•
You must give each employee an
End of Year Certificate (P60) stating
their salary for the year, tax and NI
deductions.
•
Each tax year end, employees
must be given a copy of their Piid
(expenses and benefits) and file a
copy with HMRC before July 6th.
The form will include any expenses
the company has reimbursed them
for e.g. travel and any taxable
benefits the company provides
them with e.g. private healthcare .
Note: Please discuss any taxable benefits
you are considering e.g. company car, with
your Personal Accountant as they may not
be a tax efficient option for you.
•
Some benefits on the Piid are
subject to Employer National
Insurance and any liability due
must be paid to HMRC before July
19th.
•
When an employee leaves the
company you must provide a P45.
Deciding what to pay yourself
Before you decide what to pay yourself, you should definitely consider the following:
Is your current contract caught by the IR35 tax
legislation?
•
If it is, then the amount of salary you declare is
based on the level of contract income received
less certain expenses as determined by HMRC
guidelines.
•
For more information about declaring a
salary under IR35 please contact your Personal
Accountant
•
If you are uncertain as to the IR35 status of
your contract, we would advise you to have a
contract review. Please contact your Personal
Accountant who can arrange this for you.
Where your contract is outside IR35, you are free to
choose your level of salary, after considering the
following...
•
Do you contribute to a personal pension plan?
If you do, to obtain the maximum tax relief
available, you will need to set your salary
accordingly.
•
Are you working in the UK under a Highly
Skilled Migrant Programme (HSMP) Visa? If so,
there are minimum salary requirements that
you would need to take into consideration in
order to demonstrate your earnings capability.
•
Do you need to apply the legislation of the
National Minimum Wage Act?
About the National Minimum Wage
•
Workers with contracts are entitled to at least
the National Minimum Wage.
•
The minimum wage does not apply to company
directors unless they have a contract of
employment.
•
Provided that there is no written employment
contract, HMRC will not assume that there is an
unwritten or implied contract.
Paying a spouse
or partner
For many people, employing your spouse or partner
in the business to help with administrative duties,
can have real tax advantages especially if your
spouse/partner has an unused personal allowance
or pays tax at the basic rate.
•
The salary level must be justifiable and reflect
the market rate for their responsibilities and
the hours worked.
•
A salary must be paid to your spouse so it must
be affordable.
•
We recommend up to £400 a month, depending
on the responsibilities.
•
Appendix 1: Week One Checklist
Week 1
Action required/communication received
Responsible
Expected communication
Danbro Welcome Pack.
Danbro
Immediate action required
New company details form sent by HMRC to your company’s
registered office.
HMRC
Return all documents to Danbro (Acceptance Confirmation Letter).
Director
Arrange for a contract to be drawn up in your new company name.
Director
Consider having a professional IR35 review of the contract.
Director
Open a new business bank account.
Director
Keep all business expense receipts.
Director
Begin recording a business mileage log.
Director
Consider if you need any financial advice e.g pension planning.
Director
Consider membership of The Association of ,
Independent Professionals and the Self Employed (IPSE).
Director
Arrange for any business insurance cover if required.
Director
Register for VAT.
Danbro
Register for PAYE.
Danbro
Decide upon salary level.
Director
You need to record the hours and type of work
done.
Secondary steps
Done
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For every colleague or friend you recommend
to us you could enjoy the benefits of money off
your fees*
*Terms & conditions apply
www.danbro.co.uk
Head Office: 01253 600140
Jubilee House
East Beach
Lytham St Annes, FY8 5FT
MANAGEMENT
SYSTEMS
08/1832