Taking money out of a limited company

Posted by admin on June 03, 2017 in Limited Companies

When you are a majority shareholder and Sole director of a limited company in the United Kingdom, there are a number of legitimate routes to extracting the profits from the company. You may also wish to retrieve monies you have put into the company.

Usually, what happens is that directors draw out money from the comapany bank account continously. Then at the end of the financial year there is often a large directors loan account to  deal with. The otion chosen will depend on the circumstances at the time.

Always take professional advice before taking money out of a limited company. A company is a legal entity and has a separate legal identity from its managers and shareholders. All the monies or assets taken out of a company have to be accounted for.

Repayment of directors loans: Where the director has put money into the company over and above the share capital. The director is entitled to a repayment of these monies without tax being deducted. However, if the director charges the company interest, the interest would be a chargeable expense to the company, and taxable income in the hands of the director.

Taking a Salary: The director can take a salary and this salary would be an expense to the company. The salary would be taxable income in the hands of the director and might require setting up a PAYE scheme.

Take dividends: The company can declare a dividend if it has distributable reserves. So a company making losses, which has no historical profits brought forward should not be declaring profits per Companys Act. Dividends may be taxable inthe hands of the director.

Distributable reserves: Generally, this means the cumulative profits of the company. If a comapny has no cumulative profits, then it should not declare a profit. Directors should bear in mind that distributable profits are after all taxes and cumulative losses have been accounted for. A cummulative loss means there is no distributable profit.

All the options considered in this articles do require some work and the right choice will depend on the circumstances. Companies house lays out formalities that should be followed in running a company including the resolutions you should have on file related to these matters. In a multi director multi share holder environment, you  may need the documented consent of the other directors and shareholders.  It is good practice to document your actions and retain these documents. You must also retain records identifying the monies taken by directors and shareholders.

Please note that this article is not intended to be taken as business advice and you should consult your retained advicers.

Limited company tax

Posted by admin on October 22, 2014 in Limited Companies

A limited company pays tax on its taxable profits for the year and the tax paid by limited companies is known as corporation  tax.

Taxable profit: This is obtained by taking the company’s accounting profit and adding back expenses that are not permitted by tax law and then deducting allowances given to companies in the tax law.

Most income received by a company will be subject to corporation tax.  So a company can receive income from a trade, for example, the company could be a retail shop supplying plumbing supplies. A company could receive income from supplying professional services to clients , such as a legal , accountancy or IT services.

If a company sell assets which it uses to pursue its business such as an office block, it can make a capital gain or loss however, its assessed for tax for the gain on the corporation tax regime.  A company whose business is selling property would probably treat its profits on selling the property as trade income.

Other income received by companies include rental income and interest income received on loans made by the company or deposits held in bank accounts. All income from the sources described thus far are generally subject to corporation tax and are a limited company tax,  directors must be familiar with.

Where a company receives investment income, some of the investment income may not be subject to corporation tax. Some income from overseas sources may also be outside corporation tax. Each situation must be assessed against the extant Income tax law at the time.

Other taxes remitted to HMRC by companies include PAYE which is paid by employees on their income  and collected by their employer to be paid over to HMRC.

Another Limited company tax is VAT for VAT registered companies. VAT is an indirect tax which is levied on the price of goods and services sold by VAT businesses. For businesses with turnovers above the prevailing VAT threshold, VAT must be collected on the some of the goods or services they supply depending on the VAT rate applicable to their output. However, many items are exempt from VAT

One more common limited company tax are CIS deductions. The construction Industry Scheme requires that some firms withhold a given percentage from the amounts paid to independent sub contractors. The amount withheld must then be remitted to HMRC.

Its imperative that directors of small businesses familiarise themselves with limited company tax in order to make sure that their businesses comply with the law and they are able to prosper without undue problems with the state.

 

Directors loan account

Posted by admin on August 06, 2014 in Limited Companies

In the accounts of a limited Company in the UK, a directors loan account is an account recording the transactions between the company and its director or directors. The transactions recorded are those that can be assigned a monetary value. So money put in the bank by the director will be posted to the directors loan account.  On the other hand, the hours of intellectual work that directors pour into the company, conceptualising, incorporating, getting loans, designing that product, cannot be posted to the directors loan account unless income is recognised for the Director.

Its important to maintain individual loan accounts for each director, when there are multiple directors, at all times.In the event of disputes, or a request for interest charges, this becomes particularly important.

Most small limited companies start of with only the directors funds. These directors pour a lot of their financial , material , intellectual, emotional and time resources into getting their business of the ground. it is a good thing to record all these contributions as accurately as possible. A lot of this is handled in the directors loan account

It is common for directors not to draw their salary and leave it as a loan to the company, particularly where the directors are also the main share holders. Conversely, some directors take out more money than their salary, which can lead to a debit balance on the directors loan account.

Once dividends are declared, the directors can either draw  the cash from the company’s accounts or leave part or all of their dividend in the company by way of a credit posting to the directors loan account.

Directors often draw out money from the company as they need it. Where the director has initially put the money in, by way of financing the company and a sufficient credit balance exists on the directors loan account, this is not a problem.

However, companies act prohibits directors from taking loans from the company they run, and they must pay back any overdrawn balance. There are tax implications, to begin with, if the overdrawn balance is outstanding 9 months after the year end, the company may have to pay tax on the loan. Further more, the loan may have to be reported as income in a tax return for the director

in the event that a company is to be wound up, the creditors of the company are entitled to claw back any overdrawn  directors loan account.Where the company is dissolved , a credit balance directors loan account ranks behind secured creditors, creditors,  and others, but ahead of the shareholders.

 

 

Starting a business

Posted by admin on April 30, 2014 in Limited Companies

Starting a business

In this article,we take a look at a few things to consider when starting a small business. Once you’ve decided that you want to go into a particular business, a good first step is to do some research on the industry you want to break into.The next thing you really should do is  draw up a well thought out business plan complete with figures based on your research and your best estimates of costs and revenue. The process of formalising your business idea in a plan gives it substance and structure, helps identify what you need, and gives a much needed direction of travel.

Business structure

Most people start out in business as sole traders. Quite simple , they start buying and selling items straight away. As long as they observe all relevant laws, rules and regulations, they should be ok.

Partnerships arise when two or more persons go into  business together. In addition to observing all relevant legislation, a partnership requires partnership document detailing profit share,

Limited company: You could decide to seek the benefits of trading through a company immediately, to this end you would immediately incorporate a company.

There are other business structures available,but these are the most popular.

 

Companies House

If you’ve chosen to go with a company, will need to get a company registered at companies house. This will mean providing the details of the director(s),possibly yourself,  shareholders details, desired capital structure, a UK address as registered office, the nature of the business. once the company is registered ,you should receive a certificate of incorporation and memorandum and articles of association. These are very important documents and should be kept securely.

 

 HMRC

if you’ve chosen to be self employed ,you should register as self employed with HMRC as soon as you can,HMRC automatically picks up all companies on incorporation.  However,companies are required to notify HMRC on the commencement of actual trading. In both cases,HMRC requires notification within 3 months.

 

Now run  your business

Now that the preliminary processes have been seen to, now run your business. Get finance for fund your activities. Acquired the assets you need. Commence book keeping as soon as you start, keeping receipts for everything.make sure you’re compliant with any applicable legislation. Public liability insurance and other business insurances are important and can be very affordable. If you want to employ people, you’ll need to register a payroll scheme.  Payroll is sensitive, you might consider getting external payroll services.

 

There is quite a bit more to starting and running a business and we intend to expand on these items in future articles

 

 

Running a Limited company

Posted by admin on April 26, 2014 in Limited Companies

This article is about companies registered in England and Wales by companies house as at April 2014. Covering the basics of running a limited company. Officers of a company should be well informed about what is required off them,particularly by the Law. At this time, April 2014, the premier law governing the conduct of Companies in England and Wales is Companies Act 2006. It is beyond the scope of this article to do any more than highlight a few points.

A Company is a Legal entity in its own right, an its affairs ,managed by its officers, Directors, are separate from the affairs of the directors and shareholders.

 

Shares & Shareholders

Incorporated limited companies offer their share holders limited liability. A company may have several classes of shares depending on its articles of association . For most companies, the standard articles provided by Companies house are adopted hence generally you see ordinary shares with equal voting and dividend rights. Its a good idea to check the articles of a company before acquiring its shares.It should be noted that only listed companies in the UK may make public share offerings.

The Shareholders liability for the companies debts are is to the value of their shareholding in the company. In the event that the company is wound up, they are the last to be paid out of the proceeds of the process.

 

Directors

All companies must have at least one human director. Corporate bodies can also be company directors where there is at least one human director. Directors have a fiduciary duty to their companies. This means that while running a limited company, the director willingly undertakes to act in the best interests of the company and therefore its shareholders, at all times while holding office.

Generally, a director is not personally liable for the company’s debts. However, there are circumstances where  a director might become liable for the company’s debts. These circumstances include,but are not limited to ,  where fraudulent conduct is proven,  Director owes money to the company, director has given personal Guarantees for the company’s debts.

 

Company Statutory filings

The directors running a limited company have  a duty to file the company’s accounts, in a format that meets Companies act demands, annually at companies house. Currently, the filing deadline is  nine months after the year end for unlisted companies.

Companies are also required to file an annual return listing the officers of the company, the shareholders,  the registered office of the companies and a few other details.

Maintaining the shareholder registry is clearly a critical function, and the location of where the shareholder registry is kept is one of the critical details on the annual return.

The directors of the company are required to file the company’s accounts, plus a completed corporation tax return with HMRC. This is usually annually, 12 months after the year end. Corporation tax if due, should be paid within 9 months of the year end

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