Benefits of Limited Company
Until a few years ago the additional cost and complexity of limited companies meant they were unsuitable for all but a few small business. Now that the formation and administrative processes have been simplified, an increasing number of small businesses are choosing this route, either from the start or after a period as a sole trader.
One of the big incentives for operating as a limited company status is the potential for tax saving. A business with single owner-director and a pre-tax profit of £25,000 can save around £1,400 in tax. By the time the profit reaches £50,000, the saving has risen to £4,600. Changes in the tax rules in April 2016 will reduce the benefit slightly but the saving are still worth pursuing.
Small businesses operating as sole traders may choose to prepare their own accounts and tax returns rather than using an accountant. They figure, rightly or wrongly, that the accountant’s fees outweigh the benefits.
Although limited companies can do the same, this is not a good idea. Accounting and taxation for a company are much more complex. Rules change frequently. The time required to keep abreast of these is too great for someone preparing just a single set of accounts each year.
A properly qualified accountant will take the stress out of compliance. This frees the owners to focus on running and expanding their businesses.
An accountant will do much more than just processing the figures into the final accounts and returns. They can advise on methods of (legally) saving tax and other costs. They will schedule the work to ensure all requirements are met on time, avoiding penalty charges. A good accountant will be available to offer advice throughout the year. Above all, knowing you have a specialist on your side can remove the worry and uncertainty of dealing with HMRC.
Aston Black will tailor its services to meet the needs of small companies.
Company Accounts and Corporation Tax Returns
A company is required to prepare and submit accounts and a corporation tax each year. The normal deadlines for a small company are:
- File accounts at Companies House and pay corporation tax – 9 months after year end
- File accounts and corporation tax return at HMRC – 12 months after year end
Although there are different deadlines, companies usually file with Companies House and HMRC at the same time. There is no benefit in waiting until the deadline. It is better to start the process within a couple of months of the year end. This avoids the risk of mislaying records and ending up with a last minute rush.
The accounts submitted to Companies House are freely available for inspection by members of the public but can show much less detail than the full set required by HMRC. Companies is usual to take advantage of this to avoid revealing too much information that could help competitors. A good accountant will not charge extra for preparing the 2 different versions.
There are different formats and accounting standards for companies, depending on their size and structure. We will advise on the most appropriate format for your company to ensure they meet requirements.
Companies must submit an annual return, called the AR01, to Companies House just after the anniversary of formation. This is not an accounting document but many companies us to do this. As with the accounts, the time and effort needed to understand the return and gather the information easily justifies our fee.
Company Formations and Registered Offices
We provide a company formation service. This can take as little as 24 hours, after which the company can commence trading immediately.
We can use our address as the registered office for clients who work from home but do not want their private address published.
A company must keep accurate records of their financial transactions. A small company with few transactions will normally do this themselves. A more complex business may need the services of a bookkeeper. However, the benefits of a bookkeeper may not be as great as they appear at first sight:
- You will still need to retain and sort the record
- Your bookkeeper will need some explanations of the records; it can take as long to explain this as it would to do the bookkeeping yourself
- Unless you have a large volume of transactions, it is likely that the bookkeeping is completed quarterly (if VAT registered) or annually. This increases the risk of mislaying documents and can be too late to address irregularities or spiralling costs
- Once you have a set up your bookkeeping systems and familiarised yourself with the processes, it does not take as long as you might expect
We will assist clients who want to do their own bookkeeping with setting up their systems. We can review their initial data input to make sure this is correct or advise on any changes required. We have a number of clients who originally had no intention of keeping their own books; they are now doing this very successfully and painlessly.
Records can be kept on paper, excel spreadsheets or accounting systems. For more guidance we have a comprehensive guide. This includes a link to a high quality, free bookkeeping system suitable for small businesses.
Tax management or avoidance has received a lot of bad press recently. Celebrities and big companies have engaged in aggressive techniques to pay little or no tax. There are similar schemes available for small businesses, including for one man companies. We do not offer these, nor condone their use. However, there is a marked difference between these and sensible, above board tax management.
We can assess a taxpayer’s overall position covering both their company’s and personal income to identify a legitimate approach to tax management. For example, an owner director can take money out of the company by a salary or as dividends; the right balance between the two can give savings of thousands of pounds.
We can support companies with their VAT. We can
- Submit the VAT registration
- Provide advice on the most appropriate scheme (there is a choice of methods of accounting for VAT)
- Create and submit the VAT returns
- Assist with setting up VAT processes for clients that maintain their own books
We can provide a comprehensive payroll service for companies, including compliance with auto-enrolment pensions.