Owner Managed Business

  • Book-keeping
  • Cash Flow Statement
  • Invoicing
  • Budgeting
  • VAT returns
  • Company formation
  • Annual return with Company House
  • Filing with HMRC
  • Management Accounting
  • Payroll bureau
Tax efficient profit extraction?
How to extract profit from your company?

Salary:

  • You could take a salary of £9,100/year to preserve entitlement of state benefits/pension free of National Insurance.
  • No Employers National Insurance allowance of £5,000 is allowable for sole director companies.

Savings income:

You can have £1,000 or £500 of  interest free of tax in addition to the £5,000 with saving start band.

Rent:

Rent is Non Saving income and not subject to NIC. You could charge your company a licence fee for its use of your home. However, this is not tax efficient where your income tax rate is 20% on the rent whilst tax relief on the rent for company is only at 19%, 25% or 26.5%.

Dividend:

  • You have tax free dividend allowance £1,000.

You are taxed at 8.75% , 33.75% or 39.35% on the excess and no NIC is payable on the dividend although it’s not deductible for your company.

Pensions:

You can take  profit as pension for free of tax. Pension contribution by your company is tax exempt for you and your company can have a relief too.

You can take maximum annual contributions allowance (AA) of £60,000 per tax year and you can claim unused AA of 3 previous years providing a member of pension.

Tapered AA for High Income Individuals

Where your threshold income is more than 200K and adjusted income is over £260K, the AA is reduced by £1 for every £2 on the excess of £260K but reduced to minimum £10k.

Loans to directors in Close Company ( company which is controlled by 5 or less share holders)
  • Where you take out interest-free loan exceeding £10K throughout the year from your company, you are taxed on the taxable benefit.
  • Your company has to pay NIC 1A  at 13.8% on the taxable benefit to HMRC.
  • If the loan is not repaid within 9 months 1 day of the company’s year end, company has to pay for a penalty at 33.75% on lower of the outstanding loan at the year end and at 9 months 1 day of year end, together with corporation tax by 9 months 1 day of the year end.
P11D: reporting benefits and expenses

Employers have an annual obligation to complete forms P11D in respect of each employee in receipt of taxable employment benefits or expenses.

Deadline for the filing and payment of NIC 1A on the taxable benefits are by 6 and 19 July respectively.

Typical taxable benefits are private expenses paid by employer, medical insurance, loan, car/fuel, private use of company asset & excess of approved mileage allowance etc.

What’s the best option for the benefits for employees & company?
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Capital allowance

Annual Investment Allowance (AIA)/Writing Down Allowance (WDA):

The AIA gives a 100% allowance for investment in plant and machinery (excluding cars)  per 12 months of accounting period. Any excess to AIA is relieved by WDA at 18% on general pool or 6% on special pool.

The special rate pool is applicable to Long-life assets, Integral features and high emission Cars.

Structures & Buildings Allowance (SBA)

The allowance is increased to 3% from 2% from April 2020, with a straight-line basis.

  • It applies to eligible construction costs incurred on or after 29 October 2018.
  • There are no balancing adjustments on sale; the 33 or 50 year write off will continue as ownership changes.
  • The building or structure must be used:
    • In a trade, profession, vocation, UK or overseas property business that is an “ordinary” business (not a furnished holiday let business) or
    • In managing the investments of a company with investment business, within seven years of the expenditure.
  • Expenditure on renovations or conversions of existing commercial structures or buildings will qualify.
  • Expenditure on dwellings or buildings that function as dwellings will not qualify, including home offices which are an integral part of the home but hotels and care homes will qualify.
  • Land costs will not qualify.
  • Relief will not be available for structures or buildings where a contract for the physical construction works was entered into before 29 October 2018.
  • Allowances can be claimed once the structure or building comes into qualifying use.
  • For mixed use properties (used as a dwelling and commercially) at least 10% of the cost must meet the conditions for relief.
  • SBA expenditure will not qualify for the  Annual Investment Allowance. The claimant must have an interest in the land on which the asset is constructed (e.g. a freehold or leasehold).

Structures and buildings include:

  • Offices
  • Retail and wholesale premises
  • Walls, bridges and tunnels
  • Factories and warehouses.
Leases

Where the term is less than than 35 years, the allowance is with lessor.  Where leases exceed 35 years, and capital sum paid for a lease is two third or more of the sum of that capital amount and the value of the retained interest in the property, the relevant interest for the purpose of the SBA is transferred to the lessee.

Filing company accounts & Corporation Tax

Company Residence

UK Resident companies are incorporated in UK or place of central management and control is in the UK. They are taxed on their worldwide income.

Non-UK resident companies are chargeable to UK corporation tax only if they carry on a trade of dealing or they carry on a trade in the UK through a permanent establishment.

Corporation Tax is charged on any corporate body including limited/unlimited, unincorporated associations.

Notification of chargeability

You must notify HMRC within 3 months of the start of your company accounting period (AP).

Filing Corporation Tax Return (CT600)

You should submit the return and company account by later of 12 months of the end of AP or 3 months of receipt of filing notice (CT603).

Amending & correcting return

By 9 months from date of receipt, by HMRC and  by 12 months from filing due, by company.

Corporation Tax Payment

For SME companies, by 9 months 1 day from the end of AP and for large company by 4 instalments.

Corporation Tax Rate

From 1 April 2023

  • Taxable profit £50k or less: 19%
  • Taxable profit £250k or above: 25%
  • Taxable profit between 50K and £250k: marginal rate.

 

VAT & Making Tax Digital (MTD)

When you have an obligation to register VAT ?

Historic Test: If your taxable supplies in the last 12 months exceeds current threshold £85k, you need to register within 30 days from the end of the month and you have to charge VAT from the first day of the following month.

Future Test: If your taxable supplies in the next 30 days alone will exceed the threshold, then you need to notify HMRC and charge VAT immediately.

VAT Flat-Rate Scheme (FRS)

Where your turnover is not over £150k you can join this scheme paying flat rate of your business ie paying less than 20 % on your gross income to save VAT.  You can’t claim VAT on purchases except capital asset costing £2K or more VAT inclusive.

Limited Cost Trader for FRS

Where your cost is either less than 2 % of your turnover or over 2 % but less than £1K  per year then you need to use Flat Rate 16.5 % instead of your business sector rate.

MTD (Making Tax Digital)

From April 2019 businesses with taxable turnover above £85k are required to maintain VAT record digitally and submit VAT return to HMRC using functional compatible software for HMRC API (Application Program Interface).

From April 2022, all VAT registered businesses must follow these rules regardless of turnover for their first return on or after 1 April 2022.

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