August 2nd, 2011
Many expenses and benefits must be reported to the Taxman on forms P11D and P9D at the end of the tax year which is the 5 April.
It’s important to choose correctly between forms P11D and P9D for each employee. The form to use depends on the employee’s earnings and on whether they’re a director of your company.
Employees earning £8,500 or more a year – form P11D
Use form P11D to report expenses and benefits provided to an employee earning £8,500 or more per year; but see below for what to include when looking at the £8,500 threshold.
Employees earning less than £8,500 – form P9D
Use form P9D to report expenses and benefits provided to employees earning at a rate of less than £8,500 per year again see below for what to include when looking at the £8,500 threshold.
What the £8,500 threshold includes
The £8,500 threshold doesn’t only include wages or salary that you pay the employee. You must also include the value of the expenses and benefits they receive from you. You will need to work out what benefits would have to be included if their earnings were above £8,500, then add this notional amount to see if the threshold is exceeded.
The £8,500 operates on a pro rata basis if the employee only works for part of the year. For example, if an employee only works for six months of the year then you’ll need to use a form P11D if their earnings in that period are £4,250 or more.
Company directors – usually form P11D
Use form P11D for almost all company directors. Only use form P9D if all of the following apply:
1. they earn at a rate of less than £8,500 per year, and
2. they do NOT own or can control more than five per cent of its ordinary share capital and
3. they are a full-time working director
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.
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.
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.
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.
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.
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.
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.
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
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:
shareholders and the shares they own, ie a register of shareholders
directors and secretaries, ie a register of directors and secretaries
the usual residential addresses of the directors
directors’ other commercial interests
loans or other obligations that affect the company’s financial health
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:
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.
No one may inspect the register of directors’ usual residential addresses – unless under a court order.
Anyone can ask to inspect your company’s register of directors and its register of company charges, ie mortgages, if any.
Members of your company are entitled to inspect and have copies of the minutes of the general meetings.
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:
you have changed your accounting reference date
you have appointed a new officer
an officer has departed
an officer’s personal details have changed
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