July 28th, 2011
If you work at or from home, the part of the property used for work may be liable for business rates.
If the Valuation Office Agency (VOA) has given a rateable value to a part of your home then you will have to pay business rates on that part.
The remainder of the property will still be liable for council tax.
How is the assessment made?
There are a number of factors that the VOA will consider when they are deciding whether or not the part of your property used for work is liable for business rates. These include:
- the extent and frequency that the room (or rooms) is used for work
- if any modifications have been made to the building to accommodate work use
Each case is considered on its own merits, and the VOA will normally ask to visit your property to check the facts before an assessment is made.
Your local authority will use the rateable value to calculate the business rates bill and send it out annually.
There are several rate relief schemes available which may reduce your bill. Your local authority will administer these.
What is a composite property?
The Valuation Office Agency use the term ‘composite’, or ‘comp’, to indicate whether a property is mixed use. This means it contains both domestic and business/non-domestic areas, and these areas are used by the same occupiers.
Examples of composite properties include:
- a guest house with living accommodation for the owner
- a hotel with staff quarters
- a house that contains an area used exclusively for working from home
The domestic area of a composite property will be liable for council tax. The business or non-domestic area will be liable for business rates. You will not pay both taxes on the same part of the property.
Use of home as an office
Many small businesses use their home as the principle place of business. Where part of the house is used solely for business purposes there is a genuine risk that Business Rates will apply.
A balance needs to be made between maximizing the claim for tax relief for use of home as office and the extra cost of business rates compared with domestic council tax.
Generally those small businesses that merely set aside part of a room or use a study as a workplace, but also use the same room for domestic purposes are not especially at risk.
However where a person builds a loft or garage conversion, or builds a “summer house” in the garden for business use should consider themselves likely to be caught out as a composite property.
Posted in busines rates, business expenses, Business Tax, Business Types, Corporation Tax, Directors, expenses, Guidance notes, homeworking, tax, use of home, working from home, Xebox | | Comments:
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July 28th, 2011
Use of home as an office
Many people find themselves working from home, either as an employee dividing their working life between their employer’s office and working from home or the self employed using their home as the principle place of business.
In either case working at home ultimately increases some of the household costs and it’s not unreasonable to consider that the increase is largely the result of the employment or the business.
HMRC recognize the legitimacy of making such a claim and provided that you have set aside a fixed area in the house for work based activities then you will be able to claim a tax deduction to reflect these additional costs.
You do not need to dedicate an entire room for business, but there ought to be at least some fixed area within one room that is set aside for business or work based activities.
There is a general principle that tax deductible expenses should only occur because of the business itself, the term wholly and exclusively for the purpose of the business is often quoted, but in practice this is often very difficult when looking at household expenditure.
HM Revenue and Customs also recognize this difficulty and have introduced a flat £3 per week (£156 per annum) that can be claimed; this is often a practical solution to apply in a majority of cases.
But, if you are running a business and your home in the principle place of business, then the additional costs can be much higher.
For example you may have set aside an entire room as an office, even built a room in the loft or use the garage to store materials.
HMRC don’t offer a higher flat rate to reflect these circumstances but do permit a more specific calculation based on the proportion of the home used for business purposes.
The calculation is not difficult but can be time consuming.
The starting point is to add up the variable costs incurred in the year, this would include gas, electricity, heating oil, mortgage interest or rent, council tax and buildings insurance.
If you identify any costs that are specifically business they should be claimed in full and therefore excluded from the calculation, as should any costs that are specifically domestic.
It is worth explaining that some costs are of a capital nature and you must be careful when trying to include capital costs such as loft conversions, building an office extension or converting the garage in the claim for tax relief.
Remember that normally any gain in the value of your main home is tax free; and you may jeopardize that exemption if you start including capital costs. You may also create a taxable benefit in kind if your employer (or own company) pays for the capital cost.
One other factor you may wish to consider – your local authority may consider your property partly as business premises where large areas are specifically set aside and assess the property partially to business rates – note that business rates are much higher than council tax!
Once you have established the costs to be included the next stage is to calculate the proportion of the house that is used for business purposes. The most obvious way to do this is calculate the total floor area and divide that by the floor area used by the business to establish a proportion for business use.
Once you have calculated the proportion it only needs to be reassessed when circumstances change.
Apply the proportion to the variable costs established above and add any specific business costs to determine the Use of Home.
Posted in Benefits, Benefits in kind, busines rates, business expenses, Business Types, Employment, expenses, Guidance notes, homeworking, P11D, P9D, Personal Tax, Starting in Business, use of home, working from home, Xebox | | Comments:
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July 28th, 2011
To put your business on a proper footing with HM Revenue & Customs (HMRC) and other authorities, you need to make sure that it has the right legal structure. It’s worth thinking carefully about which structure best suits the way that you do business, as this will affect the tax and National Insurance that you pay, the records and accounts that you have to keep and your financial liability if the business runs into trouble.
There are several structures to choose from, depending on your situation.
Self-employment
To be a sole trader, a partner, or a member of a limited liability partnership as an individual rather than a company, you must be self-employed – and registered as such with HM Revenue & Customs (HMRC).
This does not mean that you can’t also do other work as an employee, but the work you do for your own business must be done on a self-employed basis.
If you are not sure whether your work counts as self-employment, ask yourself these questions:
- Do you present your clients with invoices for the work that you do for them?
- Do you carry out work for a number of clients?
- Are you responsible for the losses of your business as well as taking the profits?
- Can you hire other people on your own terms to do the work that you have taken on?
- Do you have control over what work has to be done, how the work has to be done and the time and place where the work has to be done?
- Have you invested your own money in your business or partnership?
- Do you provide any major items of equipment which are a fundamental requirement of the work you carry out?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
If you can answer ‘yes’ to most of these questions then you are probably self-employed already, and should let HMRC know this immediately if you have not already done so.
You may be fined £100 if you fail to register within three months of becoming self-employed. There is no fee for registration.
If you answer ‘no’ to most of the questions above, you will normally be an employee.
Sole trader
Being a sole trader is the simplest way to run a business – it does not involve paying any registration fees, keeping records and accounts is straightforward, and you get to keep all the profits.
However, you are personally liable for any debts that your business runs up, which make this a risky option for businesses that need a lot of investment.
You need to register as self-employed with HM Revenue & Customs (HMRC) and will probably have to notify HMRC that you will have to submit Self Assessment Tax Returns
- As you are self-employed, your profits are taxed as income.
- You also need to pay fixed-rate Class 2 and Class 4 National Insurance contributions on your profits.
Class 2 is normally paid by direct debit and is a fixed weekly amount. Class 4 is variable and a percentage based on profits.
Partnership
In a partnership, two or more people share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.
Unlike a limited company, a partnership has no legal existence distinct from the partners themselves. If one of the partners resigns, dies or goes bankrupt, the partnership must be dissolved – although the business can still continue.
A partnership is a relatively simple and flexible way for two or more people to own and run a business together. However, partners do not enjoy any protection if the business fails.
Each partner needs to register as self-employed and will be responsible for compiling Self Assessment Tax Return.
The partnership itself is also required to file a Self Assessment Tax return
It’s a good idea to draw up a written partnership agreement.
As partners are self-employed, they are taxed on their share of the profits. Each partner also needs to pay Class 2 and Class 4 National Insurance contributions.
Creditors can claim a partner’s personal assets to pay off any debts – even those debts caused by other partners. In England, Wales and Northern Ireland, partners are jointly liable for debts owed by the partnership and so are equally responsible for paying off the whole debt. They are not severally liable, which would mean each partner is responsible for paying off the entire debt.
Partners in Scotland are both jointly and severally liable.
However, if a partner leaves the partnership, the remaining partners may be liable for the entire debt of the partnership. Also, a creditor may choose to pursue any of the partners for the full debt owed in the case of insolvency.
Limited liability partnership
A limited liability partnership (LLP) is similar to an ordinary partnership – in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.
The difference is that liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. This means that members have some protection if the business runs into trouble.
Each member needs to register as self-employed
There must be a minimum of two designated members – the law places extra responsibilities on them. If the LLP reduces in number and there are fewer than two designated members then every member is deemed to be a designated member.
LLPs must register at Companies House.
It’s a good idea to draw up a written agreement between the members.
The LLP itself and each individual member must make annual self-assessment returns to HM Revenue & Customs (HMRC).
All LLPs must file accounts with Companies House.
Members of a partnership pay tax and National Insurance contributions on their share of the profits.
The profits of a member of an LLP are taxable as profits of a trade, profession or vocation and members remain self-employed and subject to Class 2 and Class 4 National Insurance contributions.
Limited liability companies
Limited companies exist in their own right. This means the company’s finances are separate from the personal finances of their owners.
Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees – for example, a bank loan. However, they may lose the money they have invested in the company if it fails.
Must be registered (incorporated) at Companies House.
Must have at least one director (two if it’s a plc) who may also be shareholders. Directors must be at least 16 years of age. At least one director must be an individual, rather than a company.
Private companies are not obliged to appoint a company secretary but if one is appointed this must be notified to Companies House. Plcs must have a qualified company secretary.
A director or board of directors make the management decisions.
Accounts must be filed with Companies House before the filing deadline to avoid a late filing penalty.
Accounts must be audited each year unless the company is exempt.
When you file your annual return for the first time a letter will be issued to the Registered Office containing the company’s authentication code and instructions for use of Companies House web filing services. You should follow the instructions in the letter.
Directors are responsible for notifying Companies House of changes in the structure and management of the business.
If a company has any taxable income or profits, it must tell HM Revenue & Customs (HMRC) that it exists and is liable to corporation tax.
Companies liable to corporation tax must make an annual return to HMRC.
Company directors are an office holder of the company and therefore regarded as an employed earner for National Insurance. As such, company directors must pay both income tax and Class 1 National Insurance contributions on their director’s earnings. However, while regular employees’ Class 1 NICs are calculated on their monthly or weekly earnings separately, directors’ NICs are calculated on an annual cumulative basis.
Shareholders are not personally responsible for the company’s debts, but directors may be asked to give personal guarantees of loans to the company.
Overview of legal structures
Sole trader
Advantages
independence, ease of set up and running, and all the profits go to you.
Disadvantages
lack of support, unlimited liability and you are personally responsible for any debts your business runs up.
Partnership
Advantages
ease of set up and running, and the range of skills and experience different partners can bring to the business.
Disadvantages
problems can occur when there are disagreements between partners, unlimited liability and you are personally responsible for any debts that the business runs up.
Limited liability partnership (LLP)
Advantages
retain the flexibility of a partnership, personal liability is limited. At least two members must be ‘designated members’ – the law places extra responsibilities on them.
Disadvantages
the formation is more complex and costly and problems can occur when there are disagreements between the members. If the number of partners is reduced, and there are fewer than two designated members, then every member is deemed to be a designated member.
Limited liability company
Advantages
your personal financial risk is restricted by how much you invest and any guarantees you give in order to obtain financing.
Disadvantages
this type of company brings a range of extra legal duties, including the maintenance of the company’s public records, eg for the purpose of the filing of accounts.
Posted in Business Planning, Business Types, company, Guidance notes, Legal, Limited Companies, Limited Liability Partnership, LLP, Partnership, Self employment, Sole Trader, Starting in Business, tax, types of business, Xebox | | Comments:
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July 28th, 2011
Work related training:
If an employer pays for staff training, or reimburses an employee training costs, any benefit to the employee is not subject to tax.
An employee is generally unable to claim training costs as deduction for their own tax if the employer does not reimburse his costs.
Recent case law indicates that training costs will be deductible in the employee’s hands if training is part and parcel of the employee’s job specification.
The term “work-related” is defined very widely; it can include anything from a first aid course to a motivational team building activity course.
Other (non work related) training costs:
Training not related to the employees’ duties are taxable as benefits in kind for higher paid employees or taxable as earnings if employer reimburses employee (all employees).
Posted in Benefits, Benefits in kind, business expenses, Business start up, Business Tax, company, Corporation Tax, Employment, expenses, Guidance notes, PAYE, Personal Tax, tax, Xebox | | Comments:
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July 28th, 2011
Shares in a company represent ownership. When an individual buys shares in a company, they become one of the owners of the business. This entitles them to a share of the profits of the company – the dividends.
What are shares and why are they issued?
When an individual buys shares in your company, they become one of its owners.
Small companies issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.
These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don’t have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.
How are shares issued?
When you set up a company with share capital, you can decide on the level of share capital and the number of shares of a fixed nominal value.
A statement of capital and initial shareholdings must be delivered to Companies House as part of the incorporation of the company and this will set out:
The founders of the company must sign form IN01 and the memorandum of association and state the number of shares they want. These are then issued upon incorporation and are called subscriber shares.
Family or friends
You may choose to issue shares to family or friends in return for making investment in your business, rather than accepting the offer of a loan from them. That way you’re not obliged to make repayments.
It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future.
Employees
Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff.
They also provide an incentive or reward for performance and can help recruitment.
Issued capital
A company need not issue all its capital at once. Issued capital is the nominal – rather than actual – value of the part of the share capital that has been issued to shareholders.
For example, a company that issues 500 shares at £1 each has an issued share capital of £500.
A Private limited company only needs to issue one share of any value, but Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).
Further shares can be issued in the company by the directors, subject to the rules set out in the Articles of Association, but typically by being authorised to do so by ordinary resolution of the company’s existing members.
An exception to this is that the directors of a private company incorporated under the Companies Act 2006, which will only have one class of shares, do not need any prior authorisation from the company to allot shares.
The directors set the price of these shares.
Limited companies must notify Companies House of any new shares issued.
Types of shares
A company may have many different types of shares that come with different conditions and rights.
There are four main types of shares:
-
Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.
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Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business’ profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.
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Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has distributable profits.
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Redeemable shares come with an agreement that the company can buy them back at a future date – this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares.
Transfer of shares
In a private company, shares are usually transferred by private agreement between the seller and buyer, subject to the company’s rules and approval of the directors.
Certain taxes apply when you transfer or sell shares:
-
If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limit
-
Any gains you have made on selling shares may be subject to Capital Gains Tax.
When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.
Paying dividends and paying tax
A dividend is a part of the company’s profits that is given to shareholders.
Small companies often pay dividends after the annual accounts are prepared, or often where directors are also shareholders at regular times during the year.
The dividend is calculated per share, so the more shares you own, the more money you get.
Dividends attract income tax, but not National Insurance charges.
When paying dividends, the company must send a dividend voucher to the shareholder . This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder’s behalf. Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases
Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.
Making changes to share capital
Companies can alter their share capital through a number of routes.
Since 1 October 2008 private companies have been able to reduce share capital by means of a special resolution and a statement by the directors confirming the solvency of the company. The procedure is subject to any provision in the company’s articles prohibiting or restricting the reduction of capital. There is a fee of £10 for this procedure.
Issuing shares to a new shareholder
A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution.
Allotment creates a right to be issued with the shares.
Changing the shares
A company can consolidate or subdivide its share capital if authorized to do so by the articles.
Consolidation is when the shares are put together and then divided into shares of larger amounts, e.g. 200 shares of £1 are consolidated to create 100 shares of £2.
Subdivision is when shares are divided into smaller amounts.
To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.
Posted in Accounting and Bookkeeping, companies, company owners, Directors, Guidance notes, Legal, Limited Companies, owning a company, shareholding, shares, Starting in Business, Xebox | | Comments:
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July 28th, 2011
Directors owe a duty of care to the company’s creditors. If a company continues to trade when it is insolvent, its directors can be held personally accountable if their actions cause financial loss to any of the company’s creditors.
You will also be liable under any personal guarantees.
What do I do if my company is in financial difficulty?
Directors must use their judgement and known facts to establish whether the company is, or is about to become or is insolvent
They must establish whether or not a problem is only on a short-term basis and will be rectified by trading on, or means terminal failure, or something in the middle ground. Directors must be cautious, they should not do anything (writing cheques, committing the company to any action, paying creditors, taking deposits etc) without seeking professional advice.
In many situations one of the direct or indirect causes of insolvency is management failure. This may be accompanied by a lack of control, poor record keeping and a lack of accurate financial information.
Accurate and up-to-date accounts are vital in determining a company’s solvency.
How do I tell if my company is insolvent?
A company is insolvent on a cash-flow basis if it is unable to pay its debts as they fall due, or fails to satisfy a judgment debt. There is a second balance sheet test for solvency which asks.
The cash-flow test
Many companies will fail the cash-flow test on a short-term basis at some time in their existence. Temporary cash flow problems may be caused by
- The failure of a customer to settle a debt on time.
- Overtrading (having too much cash tied up in stock and debtors).
- As a course of a delay in refinancing.
- Not making the required sales to break even.
- Having to make unscheduled payments.
Short-term cash flow problems can be corrected by trading on or after rearranging overdrafts or loan finance.
The balance-sheet test
Very simply do the business liabilities exceed the business assets, taking into account the value of assets with the company in a distressed financial position and providing for all contingent costs, losses and provisions.
If a company does fail its balance sheet test, the directors must act to protect the interests of its creditors to avoid any allegations being made of wrongful trading under the Insolvency Act.
If the company is insolvent directors should take the following steps:
- Obtain and document professional advice and their actions and responses.
- Ensure that the company’s accounts are up to date with a full list of assets, debtors and creditors
- Consider whether any part of the company is worth saving.
- Discuss whether it will be possible to make a formal or informal arrangement with creditors.
- If the company cannot be saved the directors should put it into liquidation.
The accounts should be prepared on a break-up basis which means the fixed and current assets are valued to their net-realisable value.
To avoid personal liability for their actions when a company is in financial difficulties its directors should be careful not to:
- Dispose of company assets at undervalue.
- Show one creditor preference to the detriment of another.
- Accept customer deposits or payments on account if completion is uncertain.
Most important of all if a company is insolvent directors need a licensed insolvency practitioner
Posted in bankruptcy, companies, company, Corporation Tax, Directors, Employment, Guidance notes, insolvency, Legal, Limited Companies, owning a company, Personal Tax, receivership, shareholding, shares, Xebox | | Comments:
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July 28th, 2011
All limited companies and limited liability partnerships (LLPs) must file copies of their financial accounts at Companies House. Every company and LLP has an accounting reference date, which determines the date that its financial year ends. This is also the date that determines when accounts are due for delivery to Companies House.
All limited companies and LLPs must also provide copies of their audited accounts to Companies House, within a specified period of time – the filing deadline – following the end of its financial year, also known as the accounting reference date.
This requirement to file annual accounts applies to all companies and LLPs, including small companies such as flat management companies.
This guide explains how a late filing penalty is imposed on a business if its accounts are not filed in time, how you can avoid these penalties, what happens when a penalty has been imposed and how to appeal.
Late filing penalties explained
All limited companies – public and private – and limited liability partnerships (LLPs) must file their annual accounts and reports on time. If they fail to do so, they face an automatic fine. The time allowed for filing depends on whether the accounts are the first or subsequent ones and whether it is a private limited or public limited company.
Filing first accounts
For private companies and LLPs, if the first accounts cover more than 12 months, they must be delivered to Companies House within 21 months of the date of incorporation, or three months from the end of the accounting reference period, whichever comes later. If the accounts are for 12 months or less, they must be delivered within nine months of the end of the accounting reference period.
For public limited companies, if the first accounts cover more than 12 months, they must be delivered to Companies House within 18 months of the date of incorporation.
Subsequent accounts
In subsequent years, private companies and LLPs have nine months from the end of the accounting reference period to file the accounts, and public limited companies have six months. If the accounting reference period is changed, the filing time may be reduced.
Late filing penalties
The amount of penalty charged depends on when the accounts are filed.
| Length of delay (from the date the accounts are due) |
Penalty for LTD and LLPs |
Penalty for PLC’s |
| Not more than one month |
£150 |
£750 |
| More than one month and less than three months |
£375 |
£1,500 |
| More than three months and less than six months |
£750 |
£3,000 |
| More than six months |
£1,500 |
£7,500 |
The penalties are doubled for late filing in two successive financial years beginning on or after 6 April 2008 (for companies) or 1 October 2008 (for LLPs).
Fines on directors and designated members of LLPs
Failure to file accounts is a criminal offence which can result in directors, companies or designated members of LLPs being fined personally. The Registrar may also strike the company or LLP off the public record. If a late filing penalty is not paid, it can result in enforcement proceedings.
How to avoid a late filing penalty
It’s important to allow enough time for your accounts to reach Companies House within the period allowed. If the filing deadline expires on a Sunday or bank holiday, you need to take this into account. To help you file on time:
- make a diary note of the filing deadline to remind you in good time
- read the filing reminders Companies House send to your registered office
- tell your accountants and remind them as appropriate to prepare and deliver your accounts on time
First-class post does not guarantee next-day delivery, so it is worth thinking about using guaranteed delivery methods such as couriers. The most secure and cost-efficient way of filing company documents is to use the Companies House WebFiling service.
If there is a special reason why your accounts may be filed late, you can apply to extend the period allowed, but an extension will only be granted if the reasons are exceptional.
What happens when a penalty has been imposed?
If you deliver accounts for a company or limited liability partnership (LLP) late, Companies House automatically issue a penalty notice to the registered office address. This gives details of the penalty, including the last date for filing, the date of filing of the accounts and the amount of the penalty. It also includes information about how to pay the penalty.
If you don’t pay the penalty, Companies House will ask debt collectors to take action. If you still fail to pay, they will take action in the County Court or Sheriff Court, where you will be given the chance to file a defence. You may want to avoid legal action, because Companies House will seek to recover their legal costs if the court finds against you.
Restoring a company or LLP to the register
If you restore a company or LLP to the register after it has been struck off and dissolved it will not have to pay penalties for the period it was dissolved. However, you will still need to pay any penalties:
- outstanding on accounts from before it was dissolved
- for accounts delivered on restoration if they were overdue at the date the business was dissolved
Late filing penalty appeals
You can always appeal against a penalty, but it will only be successful if you can show that the circumstances are exceptional, because the Registrar has very limited discretion on collecting a penalty. An example of exceptional circumstances could be a fire destroying the financial records of the company or limited liability partnership (LLP) a few days before the filing deadline.
The following situations are outside the Registrar’s discretion and cannot be considered for an appeal:
- your company is dormant
- you cannot afford to pay
- your accountant was ill
- you relied on your accountant
- these are your first accounts
- you are not familiar with the filing requirements
- your company or its directors have financial difficulties (including bankruptcy)
- your accounts were delayed or lost in the post
- the directors live or were travelling overseas
- another director is responsible for preparing the accounts
If you still want to appeal, you must do so in writing to the address shown on the front page of the penalty notice. You will normally get a reply within ten working days, and any recovery action will be suspended while the appeal is considered.
If your appeal is rejected, you can write to the senior appeals manager in the Late Filing Penalties Department at the appropriate Companies House office (shown on the penalty notice). If the senior appeals manager upholds the penalty, you can ask for the Independent Adjudicators to review your case, but you should not contact them until you have heard from the senior appeals manager
Paying by instalments
If you have difficulty in paying the penalty in a lump sum, you can usually pay in four monthly instalments – in exceptional circumstances you can pay in up to ten instalments, depending on the amount you have to pay. You must ask in writing to pay in instalments, explaining the reasons why you can’t pay the penalty outright.
Posted in Business start up, companies, companies house, company, compliance, Guidance notes, late filing fees, Legal, Limited Companies, Limited Liability Partnership, LLP, non compliance, penalties, Xebox | | Comments:
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July 28th, 2011
Company administration: the basics
For all companies, there are regular administrative tasks that need to be completed to keep the information about your company held at Companies House up to date.
This guide considers who is legally responsible for getting the tasks done, what you must send to Companies House and where you may risk a penalty or other legal sanctions if you don’t do things in the right way (or on time).
Meetings and company records
There are various types of formal meeting that a company needs to consider, each with different notice periods and responsibilities.
Annual general meetings (AGMs) – under the Companies Act 2006, most private companies are no longer required to hold an AGM. Private companies can positively opt to do so if they wish. Shareholders can also demand an AGM if at least 5 per cent wish to hold one. In such circumstances, private companies will need to give 14 days’ notice.
However, all public companies and any private companies with traded shares are still required to hold an AGM. Under these circumstances the company must hold an AGM and give 21 days’ notice before the AGM is due to take place.
Companies are also no longer required to send out annual accounts prior to an AGM. Under new rules, they must now be sent to members by the time they are filed with the Registrar of Companies.
Other meetings – for most limited companies the notice period is 14 days. For unlimited companies, it is seven days. For limited companies with traded shares (public and private) the notice period is 21 days unless the company offers all shareholding members the opportunity to vote electronically and it has passed a resolution to reduce the period of notice to no less than 14 days.
When important decisions have been taken at meetings, Companies House has to be notified within 15 days.
Minutes must be kept of directors’ and general meetings.
These tasks are usually carried out by the company secretary; Private companies are not obliged to appoint or retain a company secretary, the onus then falls on the directors. However, public companies are required to appoint a company secretary.
Keeping official records for the company
Companies must keep official records of:
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shareholders and the shares they own, ie a register of shareholders
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directors and secretaries, ie a register of directors and secretaries
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the usual residential addresses of the directors
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directors’ other commercial interests
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loans or other obligations that affect the company’s financial health
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who, other than the registered owner, has an ‘interest’ in the shares – if it’s a public company
Making records accessible
Some people must be sent particular company records; others are entitled to look at them. The following is a brief summary of the key rules that you must follow:
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Anyone can ask to inspect your company’s register of members. However, since 1 October 2007, a company may ask the requester to provide their name and address, the purpose of the request and whether they intend to share the information with anyone else. If you think the request is not for a proper purpose, you have five days to go to a court to get permission not to allow the inspection.
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No one may inspect the register of directors’ usual residential addresses – unless under a court order.
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Anyone can ask to inspect your company’s register of directors and its register of company charges, ie mortgages, if any.
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Members of your company are entitled to inspect and have copies of the minutes of the general meetings.
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Only directors are entitled to see minutes of directors meetings – but others may ask for copies of a particular meeting.
Filing yearly accounts and the company’s annual return with Companies House
Directors are personally responsible for submitting yearly accounts and the company’s annual return to the Registrar of Companies.
A letter is issued to the company’s Registered Office each year just before your annual return is due. If you file, or would like to file, online via the Companies House website, the letter provides all the necessary information to enable you to do so.
However, if you want to file on paper, telephone the number provided on the letter and a paper form will be issued. It is a record of general information about your company, e.g. the address of your registered office, details of your directors, secretary, shareholders and share capital.
Companies House WebFiling service is quick and secure.
Also the cost of filing an annual return online is £14
Your company’s annual accounts must also be filed. If you do not submit accounts to Companies House on time you will be liable to a late filing penalty.
Protect your corporate identity
The Companies House PROOF (PROtected Online Filing) scheme provides additional security when delivering your directors’ details and registered office address electronically.
Company directors hold an important position in a company. They have power to make purchases and enter into credit arrangements on behalf of the company. Similarly, the registered office address is important because it is the address to which all official communications is sent.
Records held at Companies House are sometimes used to check the legitimacy of a company and its directors before credit or loans are made. Therefore, it is important that the records are correct. Companies are vulnerable to fraud if people fraudulently enter themselves on record as company directors or file a bogus registered office address.
To combat fraudsters posing as legitimate directors, Companies House offers companies a free, secure, online system for notifying changes to directors and the registered office address. If you opt to notify electronically, Companies House will not accept notices from your company in any other format.
You can register for the scheme using the company authentication code to access the WebFiling service. Before opting in, you must agree to the terms and conditions which state that any future changes will only be accepted by Companies House using the secure electronic method.
This service is voluntary, you may opt out at any time and Companies House will revert to accepting notices from your company delivered electronically or on paper forms.
Penalties for late returns and informing Companies House
About 150,000 companies are penalized each year because they file their accounts late. The penalties range from £150 to £1,500 for a private company and £750 to £7,500 for a public company. These penalties are doubled if accounts are filed late in two successive years.
Directors and secretaries may be prosecuted if the annual return is delivered late or not at all. A conviction would mean a criminal record, and usually a fine of up to £5,000.
If no return or accounts are filed at all, Companies House may also strike the company off the register.
Other events you have to tell Companies House about
Companies have to inform Companies House about changes to important company information. For example, you must notify Companies House if:
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you have changed your accounting reference date
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you have appointed a new officer
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an officer has departed
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an officer’s personal details have changed
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you have made a share issue
You should also inform Companies House if any important decisions are made at a company meeting or if the company incurs any financial charges that affect its assets.
If you want Companies House to change your registered office, you must file a request using form AD01
Posted in Accounting and Bookkeeping, companies, companies house, company, compliance, Directors, Guidance notes, Legal, Limited Companies, Limited Liability Partnership, non compliance, shareholding, shares | | Comments:
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July 28th, 2011
Value Added Tax: An Introduction
VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them.
The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules.
We highlight below some of the areas that you need to consider. It is however important for you to seek specific professional advice appropriate to your circumstances.
Scope
A transaction is within the scope of VAT if:
- there is a supply of goods or services
- made in the UK
- by a taxable person
- in the course or furtherance of business.
Inputs and outputs
Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.
The output VAT is being collected from the customer by the business on behalf of HMRC and must be regularly paid over to them.
However the input VAT suffered on the goods and services purchased can be deducted from the amount of output tax owed. Please note that certain categories of input tax can never be reclaimed, such as that in respect of third party UK business entertainment and for most business cars.
Supplies
Taxable supplies are mainly either standard rated (20%) or zero rated (0%). The standard rate was 17.5% prior to 4 January 2011.
There is in addition a reduced rate of 5% which applies to a small number of certain specific taxable supplies.
There are certain supplies that are not taxable and these are known as exempt supplies.
There is an important distinction between exempt and zero rated supplies.
If your business is making only exempt supplies you cannot register for VAT and therefore cannot recover any input tax.
If your business is making zero rated supplies you should register for VAT as your supplies are taxable (but at 0%) and recovery of input tax is allowed.
Registration – is it necessary?
You are required to register for VAT if the value of your taxable supplies exceeds a set annual figure (£73,000 from 1 April 2011).
If you are making taxable supplies below the limit you can apply for voluntary registration. This would allow you to reclaim input VAT, which could result in a repayment of VAT if your business was principally making zero rated supplies.
If you have not yet started to make taxable supplies but intend to do so, you can apply for registration. In this way input tax on start up expenses can be recovered.
Taxable person
A taxable person is anyone who makes or intends to make taxable supplies and is required to be registered.
For the purpose of VAT registration a person includes:
If any individual carries on two or more businesses all the supplies made in those businesses will be added together in determining whether or not the individual is required to register for VAT.
Administration
Once registered you must make a quarterly return to HMRC showing amounts of output tax to be accounted for and of deductible input tax together with other statistical information. For businesses whose turnover is more than £100,000 (excluding VAT) returns must be filed online. In addition, smaller businesses which registered for VAT on or after 1 April 2010 have to file online, regardless of turnover. By April 2012 all other businesses will have to file online.
Returns must be completed within one month of the end of the period it covers, although generally an extra seven calendar days are allowed for online forms.
Electronic payment is also compulsory for those businesses filing online.
Businesses who make zero rated supplies and who receive repayments of VAT may find it beneficial to submit monthly returns.
Businesses with expected annual taxable supplies not exceeding £1,350,000 may apply to join the annual accounting scheme whereby they will make monthly or quarterly payments of VAT but will only have to complete one VAT return at the end of the year.
Record keeping
It is important that a VAT registered business maintains complete and up to date records. This includes details of all supplies, purchases and expenses.
In addition a VAT account should be maintained. This is a summary of output tax payable and input tax recoverable by the business. These records should be kept for six years.
Inspection of records
The maintenance of records and calculation of the liability is the responsibility of the registered person but HMRC will need to be able to check that the correct amount of VAT is being paid over. From time to time therefore a VAT officer may come and inspect the business records. This is known as a control visit.
The VAT officer will want to ensure that VAT is applied correctly and that the returns and other VAT records are properly written up.
However, you should not assume that in the absence of any errors being discovered, your business has been given a clean bill of health.
Offences and penalties
HMRC have wide powers to penalise businesses who ignore or incorrectly apply the VAT regulations. Penalties can be levied in respect of the following:
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late returns/payments
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late registration
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errors in returns.
Cash accounting scheme
If your annual turnover does not exceed £1,350,000 you can account for VAT on the basis of the cash you pay and receive rather than on the basis of invoice dates.
Retail schemes
There are special schemes for retailers as it is impractical for most retailers to maintain all the records required of a registered trader.
Flat rate scheme
This is a scheme allowing smaller businesses to pay VAT as a percentage of their total business income. Therefore no specific claims to recover input tax need to be made. The aim of the scheme is to simplify the way small businesses account for VAT, but for some businesses it can also result in a reduction in the amount of VAT that is payable.
Posted in Business Tax, companies, Guidance notes, Input tax, Limited Companies, Limited Liability Partnership, LLP, Output tax, Partnership, Partnerships, Self employment, Sole Trader, Starting in Business, types of business, Value Added Tax, VAT | | Comments:
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July 28th, 2011
HMRC have introduced a number of VAT schemes over the years designed to reduce the administrative burden on small businesses. One such scheme is the annual accounting scheme.
What is the Annual Accounting Scheme?
The annual accounting scheme helps small businesses by allowing them to submit only one VAT return annually rather than the normal four. During the year they pay instalments based on an estimated liability for the year with a balancing payment due with the return. The scheme is intended to help with budgeting and cash flow and reduce paperwork.
Joining the Scheme
A business can apply to join the scheme if it expects that taxable supplies in the next 12 months will not exceed £1,350,000.
Businesses must be up to date with their VAT returns and cannot register as a group of companies.
Application to join the scheme must be made on form 600(AA) which can be found at the back of VAT Notice 732. HMRC will advise the business in writing if the application is accepted.
Paying the VAT
Businesses that have been registered for 12 months or more will pay their VAT in nine monthly instalments of 10% of the previous year’s liability. The instalments are payable at the end of months 4-12 of the annual accounting period.
Alternatively such businesses may choose to pay their VAT in three quarterly instalments of 25% of the previous year’s liability falling due at the end of months 4, 7 and 10.
The balance of VAT for the year is then due together with the VAT return two months after the end of the annual accounting period.
Businesses that have not been registered for at least 12 months may still join the scheme but each instalment – whether monthly or quarterly – is based on an estimate of the VAT liability.
In all cases HMRC will advise the amount of the instalments to be paid.
The annual accounting period will usually begin at the start of the quarter in which the application is made. If the application is made late in a quarter it may begin at the start of the next quarter.
All businesses are able to apply to HMRC to change the level of the instalments if business has increased or decreased significantly.
Leaving the Scheme
Any business can leave the scheme voluntarily at any time by writing to HMRC.
A business can no longer be in the scheme once its annual taxable turnover exceeds £1,600,000.
Advantages of the Scheme
A reduction in the number of VAT returns needed each year from four to one.
Because the liability to be paid each month is known and certain, cash flow can be managed more easily.
There is an extra month to complete the VAT return and pay any outstanding tax.
It should help to simplify calculations where the business uses a retail scheme or is partially exempt.
Potential Disadvantages
Interim payments may be higher than needed because they are based on the previous year. However, they can be adjusted if the difference is significant.
A business is obliged to notify HMRC if the VAT liability is likely to be significantly higher or lower than in the previous year.
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