FAQs

As we motor towards the UK Government’s net zero target by 2050 we’ve seen various incentives to encourage limited companies to purchase fully electric vehicles.

Here is a broad outline of the main features:

Firstly, there are a number of tax advantages for limited companies that purchase electric cars. These include:

• 100% first-year allowance: If you purchase a brand new, fully electric car, you can claim a 100% first-year allowance against your corporation tax bill. This means that you can deduct the full cost of the car from your taxable profits in the year that you buy it.
• Lower benefit-in-kind (BIK) tax: If you use an electric car for business
  purposes, you will only be liable to pay BIK tax on 2% of the car’s value in the 2023/24 tax year. This is significantly lower than the BIK tax rates for petrol or diesel cars.
• No fuel benefit charge: Electric cars do not use fossil fuel, so you will not be liable to pay the fuel benefit charge, even when charging at the business premises.
• Tax relief on charging points: If you install charging points for electric cars at your business premises, you may be able to claim tax relief on the cost of the charging points.

The tax advantages available can change depending on whether the business owns or leases the car. For example, a business cannot claim a 100% first-year allowance against Corporation Tax when the car is leased because the lease company will have already claimed it. Benefit in kind tax will be the same regardless of ownership as it focuses on who uses the vehicle.

There are a few eligibility criteria that you need to meet in order to take advantage of these tax advantages. These include:

• The car must be fully electric, with CO2 emissions of 0g/km.
• The car cannot be in the employee’s name.
• The car must be used for business purposes. Despite these limitations, electric cars are becoming increasingly popular with businesses. The tax advantages available for electric cars can make them a very attractive option for businesses that are looking to reduce their carbon emissions.

Pension auto-enrolment is a crucial initiative in the UK designed to promote retirement savings among employees. However, as a business owner you may be wondering: Are directors exempt from this requirement? The answer is “it depends”, so let’s explore the key points.

In general, directors are not automatically exempt from pension auto-enrolment. The eligibility criteria primarily depend on an individual’s employment status, age, and earnings. If a director is also an employee and meets the eligibility criteria, they must be enrolled in the pension scheme.

Directors who hold an employment contract are typically considered employees for auto-enrolment purposes. This means that if their age is between 22 and State Pension age and their earnings exceed the minimum threshold, they must be auto-enrolled by their employer.

However, exemptions may apply in certain cases. Directors who do not have an employment contract, known as “office holders,” might not be eligible for auto-enrolment. Additionally, if a director’s earnings fall below the minimum earnings threshold, they might not be automatically enrolled. Nevertheless, even if exempt, directors have the option to voluntarily participate in the pension scheme.

Employer responsibilities play a vital role in ensuring compliance with auto-enrolment regulations. Employers are required to provide eligible employees, including directors, with access to a suitable pension scheme, contribute to their pension, and manage the auto-enrolment process. Failure to meet these obligations can result in penalties.

In conclusion, directors are generally subject to the same pension auto-enrolment rules as employees if they hold an employment contract. While exemptions based on employment status and earnings may apply, directors have the opportunity to proactively engage in pension planning by opting into the scheme voluntarily. It’s essential for directors and employers alike to understand their responsibilities and the implications of auto-enrolment, ensuring a secure financial future for all parties involved.

In the intricate web of corporate governance, two crucial roles stand out: the director and the company secretary. While both contribute to the smooth functioning of a company, they fulfil distinct responsibilities that are pivotal to its success.

Directors are the visionaries and decision-makers of a company. They are appointed by shareholders to steer the company towards its objectives. Directors craft strategies, make major decisions, and provide oversight to ensure the company’s growth and profitability. Their role extends beyond the boardroom, as they represent the company’s interests to stakeholders and the public. Directors bear a fiduciary duty to act in the company’s best interest, avoiding conflicts of interest and upholding ethical standards.

On the other hand, the company secretary plays a pivotal role in ensuring the company complies with legal and regulatory requirements. They act as the custodian of corporate records and facilitate communication between the board, management, and shareholders. Company secretaries organize board meetings, draft minutes, and ensure that corporate decisions are accurately documented. Additionally, they keep a vigilant eye on compliance matters, maintaining records that demonstrate adherence to laws and regulations. Company secretaries are instrumental in upholding transparency and accountability within the company.

While directors are at the forefront of strategic decision-making, company secretaries work behind the scenes to uphold procedural and legal integrity. Directors set the company’s direction, while company secretaries safeguard its reputation and legality.

In essence, the key distinction lies in their functions: directors lead and strategize, while company secretaries ensure compliance and transparency. Their collaboration is essential, as directors need accurate information and guidance from company secretaries to make informed decisions that align with legal and regulatory frameworks. However it’s worth noting that since 6 April 2008 a company is not required to appoint a Company Secretary, but must appoint at least one director.

In conclusion, the director and company secretary roles are distinct yet interdependent within a company’s governance structure. Directors shape the company’s path forward, while company secretaries maintain the foundation of legality and transparency. Together, they create a balance that fosters corporate success while upholding ethical standards and legal requirements.

In the UK, the current Value Added Tax (VAT) registration threshold is £90,000 of business turnover.

This has been unchanged for several years but the Government changed this threshold from £85,000 in March 2024. A business must register for VAT as soon as their taxable turnover goes over this threshold, or they expect their taxable turnover to exceed this in the next 30 days.

The VAT threshold test is based on a 12-month rolling period and must include all sales income that output VAT would have been charged on if the business was registered for VAT. This also includes sales that would be zero rated for VAT purposes, but not exempt sales. Some businesses voluntarily register for VAT even if their turnover is below this threshold in order to reclaim the VAT, and if your customers are VAT registered they can claim back the VAT on your invoices too.

The advantages and disadvantages of this are outlined below.

Advantages of voluntary VAT registration

• Pre-registration input VAT on purchases: Once registered a business can reclaim the input VAT on services consumed six months prior to the registration date and goods purchased four years prior to the registration date if the goods are still held or have been used to create other goods still held.
• Tax efficiency: If a business provides goods or services that are zero rated – for example the sale of books. The sales they make would not need to have output VAT added regardless of the turnover level, however they may pay input VAT on many expenses so voluntarily registering for VAT would mean they could reclaim this input VAT.
• Image to customers: Being VAT registered projects an image that the business is quite large and successful. Some customers also have a preference to only use VAT registered businesses.

Disadvantages of voluntary VAT registration

• Price increase: If the goods or services sold are subject to standard rated output VAT then this will need to be added to the current price. This can discourage customers who are not VAT registered.
• Additional administrative burden: VAT can be very complex, and it is important to understand the rules in this area. It creates additional work for the bookkeeping and must be kept up to date regularly to submit VAT returns when they are due.

Overall there are advantages and disadvantages of registering voluntarily for VAT so it is important to make the right decision for your business.

Self Assessment is the system H M Revenue and Customs (HMRC) use to collect income tax. Many individuals are taxed at source such as having PAYE being deducted off their employment income.

Other individuals have to complete a tax return summarising all their income, reliefs and any tax already deducted. Tax is then calculated at the relevant rates and paid to HMRC by the relevant deadlines.

The deadlines in relation to Self Assessment are:

• 5th October – the deadline to register for Self Assessment for the first time
• 31st October – paper return filing deadline
• 31st January – online filing of tax return deadline, tax payment deadline and first payment on account due towards the following tax year
• 31st July – second payment on account of tax due

The following tax rates apply to income tax:

• Personal allowance – 0% up to £12,570
• Basic rate – 20% from £12,571 to £50,270
• Higher rate – 40% from £50,271 to £125,140
• Additional rate – 45% over £125,140

Dividends have a slightly different rate of tax and are taxed at 8.75% at the basic rate, 33.75% at the higher rate and 39.35% at the additional rate.

An individual’s personal allowance can be increased for additional reliefs like marriage allowance or reduced if total income is over £100,000.

National insurance is also due on self-employed profits at the relevant rates for Class 2 and Class 4.

Payments on account are payments made in advance towards your self-assessment tax bill including income tax and class 4 NI if you are self-employed. These are due if your self-assessment bill was over £1,000 in the previous tax year. Each payment is half of the previous years tax bill, and one is due by 31 st July and one by 31 st January, both following the end of the tax year.

You can pay your self-assessment tax bill via the following methods:

• Cheque
• Online or telephone banking
• CHAPS
• BACS
• Direct debit
• Debit card online payment service
• At your bank or building society

(This information was correct for the 2023/24 tax year at the time of writing.)

There are different types of tax applicable to individuals and companies. An individual who meets the requirements to submit a Self Assessment Tax return must report all their taxable income on this report and pay income tax. A company reports its taxable income on a corporation tax return and pays corporation tax on the taxable profits. Sometimes a loss is made instead of a profit. There are different rules for losses made by companies and individuals which are outlined below:

• Trading losses on corporation tax returns: A company can make a claim for a loss to be carried back and offset against profits for the previous 12-month period. This loss can only be carried back against profits from the same trade. It is important if either the period the loss is made in or the period the loss is being carried back to is less than 12 months, that the profits are carried back and apportioned correctly and offset against the portion of the profit that falls within the 12 month period. If the loss is not able to be carried back, or after the carry back allocation there are losses remaining these can be carried forward to offset against future trading profits.
• Trading losses on income tax returns: An individual can carry back a loss to offset against income on their tax return to the previous 12 month period. There are additional rules that apply in the first four years of self-employment trading that a loss can be carried back against three years of income prior to this. Similarly, there are rules that offer an extended loss carry back period if the business ceases to trade and losses can be carried back for three years prior to the last accounting period. The loss can also be carried forward to offset against profits of the same trade. There is also an option to offset trading losses against other income in the tax year if an individual has multiple sources of income. This is called ‘sideways relief’.

A director is an individual who is responsible for managing the day-today decisions of a business and implementing its business strategy. At any point in time a director can have a balance owed to them by the company or from them to the company. This is called the directors loan account and is a record of all the transactions between the company and a director.

If the director is owed money by the company through day-to-day transactions such as expenses paid personally, or salary owed there are no tax implications. The company can pay the director the full or partial balance when funds are available. If a director lends the company money, they can charge the company interest. This will count as a business expense for the company and personal income for the director and must be reported on form CT61.

If the director owes the company money this is called an overdrawn director’s loan account, and the following implications may apply:

1. S455 tax: If you do not repay the loan within 9 months of the year end then corporation tax will be charged on the loan at 33.75% (32.5% if the loan was made before 6 April 2022) of the balance. This can be reclaimed via form L2P 9 months and 1 days after the accounting period in which the loan was repaid.
2. Benefit in kind (for loans over £10,000): If interest on this loan is charged at below the market rate, then the difference between this and the actual rate charged would be considered a benefit in kind. This ‘income’ would need to be included on the directors’ personal tax return.
3. Loan written off: If the loan is written off by the company or it is written off by default if the company goes into liquidation this is effectively untaxed income. The company will need to make Class 1 National Insurance deductions through the company payroll and the director will have to declare this amount on their personal tax return and pay income tax on it.

Shareholders and directors both have an important role in a company. It is possible for an individual to hold both positions, this is more common in smaller companies whereas in larger businesses there tends to be a separation of these roles. Unless it is stated in the articles of association a shareholder has no right to be a director and vice versa.

A shareholder can be an individual or an entity such as another limited company that owns the company by owning its shares. The ownership of these shares gives the shareholders the following rights:

• Entitlement to profits: Dividends are paid out of the company profits and the amount received will be in proportion with the percentage of ownership.
• Voting rights in decision making: This tends to be on important issues such as appointing and removing directors or issuing shares.
• Limited liability: This means their personal assets are not as risk as their liability is limited to their investment in the company.

A director is an individual appointed by the shareholders to manage the day-to-day affairs of the business and oversee business operations. They often carry out the following duties:

• Business strategy: Creating, implementing, and reviewing the business strategy regularly to ensure the company is meeting its targets.
• Employing staff: Directors will hire staff at all levels of the business and must ensure they are qualified to do their job and will work will within a team to meet company goals.
• Corporate Governance and sustainability: Making sure the company is complying with all relevant regulations and following good practice.

In summary, the shareholders own part of a business and are responsible for the large important decisions, whereas a director takes care of managing the company and making the day-to-day decisions.

A limited company is entitled to claim a variety of expenses against its sales income. It is important to get this right as this will help reduce the company’s tax liability and accurately reflect the financial position of the business.

The number one rule for identifying which expenses can be classified as business expenses is that the expense must be incurred “wholly and exclusively” while running your business. The words “wholly” and “exclusively” prevent a deduction for expenditure that serves a dual purpose, i.e.  a business and a non-business purpose.

An example of dual-purpose expenditure is money spent on ordinary clothing that is worn at work. Clothing that is worn both in and out of work has a dual purpose and so no deduction is allowed. This can be contrasted with protective clothing that is required to be used at work for the safety of the employee. In this case the expenditure would be allowable.

It should also be noted that the above “wholly and exclusively” rule applies to expenses incurred directly by the business. If the expense is incurred by a director or employee and recharged to the company, there is an additional level of qualification required in that the expense must be incurred wholly, necessarily, and exclusively for the purposes of the business. This is a much stricter rule requiring the expenditure to be necessarily incurred in the performance of the employment duties by any employee carry out those duties.

The types of expenses that typically can be claimed are wide ranging and depend very much on the nature of the business. They include, but are not limited to:

• Buying goods or materials
• Employees salaries and benefits in kind
• Office rent and bills
• Office supplies and equipment
• Travel and accommodation for business activities
• Marketing and advertising costs
• Professional fees such as accountancy and some legal fees
• Vehicle expenses for business journeys
• Relevant training and development expenditure for employees
• Bad debts from customers
• Finance costs

Buying assets for the business is treated differently from business expenses. Capital assets are things you keep and use in the business rather than consume, such as vehicles, plant and machinery and office equipment. You are still able to obtain tax relief on these items through claiming something called Capital Allowances.

The key to ensuring you claim all the expenses you are entitled to and keep your company tax bill down, is to maintain good quality accounting records and have these regularly reviewed. A combination of accounting software such as Xero together with an expense recording system such as Dext will provide this. It is also important to have an accountant on hand with whom you can have a sensible conversation regarding which expenses are relevant and appropriate to claim for your limited company.

In recent years there has been a substantial move towards buying property through a limited company rather than holding it personally as a sole trader or investor.

This has been driven partly by adverse changes to mortgage interest relief for individuals and partly by an expansion in the availability of commercial mortgages.

However, before delving too far into the benefits and drawbacks of the property ownership model, we need to consider the reason why you are buying the property in the first place:

• Are you buying the property with the intention of “doing it up” to sell on for a profit?
• Are you buying the property as a long-term investment to generate rental income?
• Do you intend to use the property personally whilst you (or the company) own it?

The first two points seek to determine whether you are a property trader or a property investor. This distinction has far greater consequences if you are a sole trader rather than a limited company as the tax treatment of each is fundamentally different. Whereas, in a limited company, capital gains are taxed in a very similar way to other corporate profits.

The final bullet point relates to whether you are likely to derive any personal benefit from the asset. In a situation where a property is owned by a company, this can give rise to both a taxable benefit in kind on you and additional company taxes (such as ATED).

Main benefits of owning a property through a limited company

1. Tax efficiency – Limited companies are subject to corporation tax rates which can be lower than personal tax rates (particularly for high earners). In addition, there is no restriction on the allowability of mortgage interest in a limited company.
2. Limited liability – Limited companies can provide shareholders with limited liability in the event of financial issues and protect the personal assets of shareholders.
3. Succession planning – Ownership of property assets can be transferred more easily through shares rather than trying to divide up the underlying property asset.

Main drawbacks of owning a property through a limited company

1. Finance – securing a mortgage for a property owned by a limited company may be more difficult and may be subject to different terms and conditions than a personal mortgage.
2. Complexity – company administration and compliance requirements can be more costly, complex and time- consuming compared to being a sole trader.
3. Personal use – as set out above.

Owning a property as a sole trader

Assuming you are not trading (i.e., “doing it up and selling it on”), the main benefits and drawbacks are generally the opposite of the above. Personal ownership of a property is generally simpler, more flexible but with the drawback of potentially putting your personal assets at risk and being less tax efficient.

However, there isn’t a one size fits all explanation and an in-depth conversation with an experienced accountant will take you along the best path.

A company acts through two bodies of people. Its shareholders and its board of directors. Quite often for smaller companies these people are one and the same, however, they wear two different hats in their roles as (1) directors and (2) shareholders. It is important to distinguish between the two roles.

Directors are appointed by the shareholders to manage the company’s day-to-day affairs. For a small company this may mean you are appointing yourself, but that does not restrict your responsibilities as a director. Shareholders in isolation are the investors in the business.

Directors oversee the management of the company’s business. They make the strategic and operational decisions of the company and are responsible for ensuring that the company meets its statutory obligations.

Directors’ responsibilities are set out in the Companies Act 2006. The key legal duties include the following:

• Duty to act within powers
  • Directors must act in accordance with the company’s constitution and only exercise powers for proper purposes.
• Duty to promote the success of the company
  • Directors have a fiduciary duty to act in a way that promotes the success of the company for the benefit of the shareholders as a whole.
• Duty to exercise independent judgement
  • Directors should exercise their own judgement and avoid being unduly influenced by others.
• Duty to exercise reasonable care, skill and diligence
  • Directors should use their skills and expertise to the best of their ability when making decisions.
• Duty to avoid conflicts of interest
  • Directors must avoid situations where their personal interests’ conflict with those of the company.
• Not to accept benefits from third parties
  • Directors should not accept benefits from third parties that are offered due to their position, unless approved by the shareholders.

In addition to the above further obligations are placed on directors from sources outside of the Companies Act 2006. These include a duty of confidentiality, obligations relating to health and safety of the workforce and increasingly, obligations under anti- corruption and environmental legislation.

Accountants are usually seen primarily as helping directors to prepare and file the company’s annual accounts together with statutory filings at Companies House. However, given the wide range of responsibilities and duties held by directors, the accountant’s role needs to be far more advisory, maintaining a conversation with the director throughout the year.

The 2023 Autumn Statement provides an update on the government’s plans for the economy. It is not “The Budget” but often contains provisions that impact directly on businesses.

The 2023 Autumn Statement provides an update on the government’s plans for the economy. It is not “The Budget” but often contains provisions that impact directly on businesses.

Summarised below are the two principal areas where the Chancellor announced changes that have a direct effect on businesses:

Tax relief for investing in business assets.

One of the Chancellor’s headline announcements in the Autumn Statement was that businesses would be able to fully expense the expenditure they incur on buying qualifying plant and machinery.

This effectively means that the cost of acquiring such plant and machinery is reduced by up to 25% as the cost is fully deductible against taxable profits in the year it is acquired.

There are some matters to be aware of:

• Cars are excluded from qualifying plant and machinery.
• The full allowance is only available for expenditure on plant and machinery. Therefore, expenditure on buildings, structures, land is not eligible.
• A company (rather than a sole trader or partnership) must incur the expenditure.
• Assets acquired from connected parties are excluded, as are second hand assets.

The above only provides a broad outline and you should discuss any significant proposed capital expenditure with your accountant to see how the above may affect you and your business.

Changes to National Insurance

The second headline announcement was the staggered changes to National Insurance.

If you are self-employed changes have been announced to self-employed National Insurance Classes 2 and 4

From 6 April 2024 the main rate of class 4 National Insurance for the self-employed will be reduced to 8% (from 9%). This will result in an annual saving of £377 for a self-employed person with profits of £50,270 or more.

Also, from the same date, the flat rate class 2 National Insurance will be abolished. This will result in an annual saving of £179.40 for a self-employed person with profits above £12,570.

If you are a director / employee

There have also been changes to the main rate of class 1 National Insurance paid by directors and employees earning over £12,570. The current rate of 12% has been reduced to 10% and this will come into effect on 6 January 2024. This will result in a National Insurance saving of up to £754 per annum for a director or employee earning at least £50,270.

It is important to ensure that the payroll software used by your business reflects these changes in time for the processing of the January 2024 payroll.

There was no change to the rate of employer’s National Insurance and so employers’ liabilities will remain the same as before.

Probably one of the largest financial transactions that we enter into is the purchase or sale of our homes. Not only are the amounts involved substantial, but the associated excitement and stress of the process add to the experience.

Capital Gains Tax

The sale of our homes also gives rise to one of the largest financial gains we are likely to see from our investments, notwithstanding the need to reinvest in a new home. The gain is potentially subject to Capital Gains Tax, a tax on the profit you make when you sell something that has increased in value.

Private Residence Relief

Fortunately, your home is also the subject of one of the most generous tax reliefs in the UK. This relief is called Private Residence Relief (PRR) and can significantly reduce, or entirely eliminate, Capital Gains Tax.

However, a word of warning. Do not assume your home is covered by this relief if your property circumstances are anything other than living in your property as your main residence for the entirety of ownership.

Letting your home / second home

If you have let the property at any time, this can result in a charge to Capital Gains Tax. Furthermore, if you have been in the fortunate position of owning more than one home at the same time, there are strict rules regarding which property can benefit from the PPR relief.

Reporting deadlines

In addition to the above, HM Revenue & Customs have introduced strict reporting and tax payment rules that fall outside of the usual Self-Assessment tax reporting regime. This often catches out unsuspecting taxpayers. Chargeable property transactions and tax payments now need to be made within 60 days, rather than annually.

Tax liability

If you are caught in the Capital Gains Tax net, higher rates of tax coupled with a reduction in the Annual Exempt amount for CGT have increased the tax burden. This needs to be considered when calculating your spoils.

Conclusion

Selling a UK property is not just about the deal. It is about understanding the potential tax consequences that come with the territory. With a little planning, unravelling the complexities of Capital Gains Tax and accessing available reliefs, this could help you save tax and fulfil your reporting commitments. Have a conversation with your accountant ahead of any proposed transaction.

In the UK, the most common type of limited company is one that is “limited by shares” (as opposed to “limited by guarantee”).

However, there are choices to make in the types of shares that a company issues:

• Ordinary shares. Ordinary chares are the most common type of shares issued by a company in the UK. They represent the basic ownership of a company and typically give shareholders a number of rights, including:

• The right to vote at general meetings
  The right to receive dividends, if any, declared by the company
  The right to share in the assets of the company in the event of a liquidation

• Preference shares. In the UK, preference shares are a type of share that ranks above ordinary shares in terms of dividend payments and return of capital. This means that preference shareholders are paid their dividends before ordinary shareholders, and they also have a priority claim on the company’s assets in the event of liquidation.

Ordinary shares do not carry any preferential rights over other types of shares, such as preferred shares. This means that ordinary shareholders are last in line to receive dividends or assets in the event of a liquidation.

Companies may issue different classes of ordinary shares, each with its own distinct rights. For example, a company could issue ordinary shares with voting rights and ordinary shares without voting rights.

They may also issue ordinary shares of different classes – for example, A ordinary, B ordinary and C ordinary shares. The rights of each class can be varied by agreement.

The terms of ordinary shares are set out in the company’s articles of association. These are the company’s governing documents and they set out the rights and obligations of shareholders.

In addition, shareholders may enter into a legal agreement between themselves (called a “Shareholders’ Agreement”) which regulates the relationship between the different shareholders and classes of shareholders.

The best time to organise the desired share structure is on incorporation, however, it is possible to reorganise a company’s share structure at a later date by the shareholders passing resolutions in general meetings.

Here are some tips on how to deal with tax return penalties in the UK:

1. Don’t ignore the penalty notice. The first step is to understand the penalty notice that you have received. It will explain why you have been penalized and the amount of the penalty. You should not ignore the penalty notice, as this could lead to further action from HMRC and potentially increased penalties.
2. Check if you have a reasonable excuse. If you believe that you have a reasonable excuse for filing your tax return late, you can appeal the penalty. A reasonable excuse could include illness, bereavement, or a natural disaster.
3. Pay the penalty if you don’t have a reasonable excuse. If you do not have a reasonable excuse for filing your tax return late, you will need to pay the penalty. You can pay the penalty online, by phone, or by post.
4. Consider seeking professional help. If you are unsure about how to deal with a tax return penalty, you may want to consider seeking professional help from an accountant or tax adviser. They can help you to understand your options and ensure that you comply with HMRC regulations.

Here are some additional things to keep in mind:

• The amount of the penalty will depend on how late you filed your tax return.
• You may also be charged interest on the amount of the penalty.
• If you do not pay the penalty, HMRC may take further action against you, such as issuing a County Court Judgment (CCJ).
• If a penalty has been charged and you pay it, you must still file the outstanding return. HMRC will raise penalties for increasing amounts until it has been filed.
• There may be other repercussions for not filing your tax return, for example, you might be asked for proof of income to support a rental agreement or a mortgage application and be asked to provide evidence of your income in the form of filed returns or forms SA302 from HMRC, which will only be available once the return has been filed.

There are many reasons why we like our clients to use cloud-based accounting packages such as Xero, including:

• Xero is cloud-based, so it can be accessed from anywhere. This is convenient for both us as accountants and our clients, as we can access the same information at the same time.
• Xero is easy to use, even for people with no accounting experience. This makes it a great option for small businesses and startups that don’t have a dedicated bookkeeper.
• Xero integrates with other popular business apps, such as Dext and CRM software. This makes it easy to share information between different systems.
• Xero is constantly being automatically updated with new features and functionality. This means that we can be confident that our clients are using the latest version of the software, unlike desktop software where many different versions can exist at the same time.
• Improved efficiency and error reduction. Xero can help us to save time and improve our efficiency by automating many of the tasks involved in bookkeeping, such as data entry and reconciliation. By electronically transferring data between software systems, keying errors can be minimised, making the data more reliable.

Here are some additional benefits of using Xero for our clients:

• Enhanced collaboration: Xero makes it easy for us as accountants to collaborate with our clients by providing real-time access to financial data.
• Xero can help our clients to improve their cash flow management. The software provides real-time insights into their finances, so they can make informed decisions about their spending and investment.
• Xero can help our clients to grow their business. The software provides tools that can help them to track their sales, expenses, and profits. This information can be used to make strategic decisions about the future of their business.
• Xero enables more meaningful “Conversational Accountancy”. This might include monthly (or quarterly) business reviews, remuneration planning: and business exit planning.

HMRC uses the term “agent” to describe an accountant who is acting for a client/taxpayer. They use this specific term because as an agent we are acting on behalf of a client and not on our own behalf. HMRC will only recognize that we are acting for a taxpayer when they have been officially notified.

For many years HMRC asked taxpayers to submit a paper form called a 64-8 (sixty-four-dash-eight) to notify them that an accountant had been appointed to deal with certain taxes on their behalf. The 64-8 is still in use, but it doesn’t grant access to a client’s online tax accounts, which we generally need to be able to deal with a client’s affairs.

However, to access HMRC’s online services for corporation tax, PAYE/NI, and self-assessment, HMRC has brought in an agent authorisation code system, which works this way:

• The client provides their new accountant with their tax references and addresses.
• The accountant applies online to request that HMRC send a hardcopy letter in the post to the client. The letter contains a unique code.
• A separate letter needs to be applied for each type of tax, e.g., corporation tax, PAYE/NI, and self-assessment.
• The letter will take approximately 10-14 days to arrive.
• The client needs to open the letter and either send a scan/photo of the letter or a note of the code to the accountant.
• The accountant logs into HMRC’s online services and enters the code.
• 24-48 hours later the accountant will have access to the client’s tax records.

There are different agent authorisation systems in place for VAT and Capital Gains Tax returns.

Pinkham Blair Limited is a “name-protection company”. We have formed it to stop anyone else forming a company with the name Pinkham Blair.

Pinkham Blair, our trading vehicle, is a partnership, not a limited company or a limited liability partnership (LLP). Partnerships have been the traditional trading vehicles of accountants and other professionals, such as solicitors, for centuries, with the law in the UK first codified by Parliament with the Partnerships Act 1890.

When we set up Pinkham Blair in 2004, most firms of accountants with more than one principal still traded as partnerships. Since then it has become more popular for new accountancy firms to be set up as either limited companies or LLPs. And some established firms have switched from being a partnership to being a limited company or an LLP too.

We just haven’t seen the need to switch, so we are still a traditional partnership.

Other dormant name-protection companies that we have formed and own include:

• Conversational Accountants Ltd
• Conversational Accountancy Ltd
• Corporate Refugees Limited
• Square Root People Limited

A company’s ability to pay dividends hinges upon a variety of factors, most notably the company’s financial performance, it’s need for cash in the future and its reserves (the profit the company has made which has not yet been withdrawn). It is up to the company’s board of directors to decide how often and how much these dividends will be. Dividends can only be paid out if the company has enough reserves to cover the dividend.

There is no set frequency at which dividends should be paid. Instead this will depend on the company’s financial situation. For instance, if a company has very steady profit throughout the year the board of directors may decide to pay out a set dividend every month. However, if a company’s performance varies through the year they may decide to only pay out a dividend once or twice a year in order to ensure the company has enough retained profits to cover the slower portions of the year. Additionally, even if the company has the reserves to pay out a dividend the board of directors may decide to instead reinvest the funds in the company’s future trade to expand it’s operations or purchase assets.

When considering whether to declare a dividend you should also consider what the affect will be on your personal tax as controlling which fiscal year the dividend falls into could increase or decrease your tax due significantly.

It is recommended to consult with your accountant or financial advisor to determine the appropriate timing and value of dividends for your specific situation.

Dormant and non-trading companies are both types of company which are not actively trading. However, the legal and statutory requirements for each are difference, so it is important to make sure you have correctly identified which one applies for your company.

Dormant Companies

The term ‘dormant company’ means different things depending on if you are talking to HMRC for corporation tax, or Companies House.

From Companies House’s perspective a company is dormant if in the financial year there have not been any “significant accounting transactions”. The only exceptions for this are:

• Companies House filing fees
• Companies House penalties
• Funds paid for shares upon incorporation

HMRC consider a company to be dormant if it is not active for corporation tax purposes. This covers companies which are:

• A ‘new’ company that has been set up but is not yet trading
• A company that will never trade because it has been formed to own an asset such as land or intellectual property
• A company which has previously traded but is currently not trading and has not at any point during the period.

It is therefore possible for a company to be dormant to HMRC, but not to Companies House.

Non-trading

A non-trading company is similar to a dormant company in that it is not actively trading. However, where a dormant company can’t have any “significant” transactions in the period, a non-trading company can make transactions as long as they are not related to a trade. For example, a non-trading company can pay off liabilities without affecting it’s status.

The most tax efficient salary for a director-shareholder of a small UK company for 2023/24 depends on the corporation tax rate applicable to the company’s profits, availability of employment allowance, and the individual’s personal tax situation. As a general rule, for the distribution of profits of up to £150,000, the most efficient remuneration structure is to draw a low salary of either £12,570 or £9,100, (with only a small difference in the tax and national insurance position between the two), and to take the rest of the renumeration as dividends.

If a salary of £12,570 was taken there would be no employee’s national insurance to pay on the salary. However, the company may need to pay employer’s national insurance on the salary over £9,100, dependant upon whether the company is able to claim employment allowance and if the allowance has already been used up by other employees. The employer’s national insurance due by the company would be up to £479, though this may be outweighed by the corporation tax savings from the additional salary and national insurance.

If a salary of £9,100 was taken there would be no employee’s or employer’s national insurance to pay. However, this lower salary would result in a higher corporation tax liability.

Taking as an example a company with £13,049 of its profit to be allocated to the director (i.e. £12,570 of salary plus £479 of national insurance), at both the 19% and 25% tax rates the director receives a higher gross income by taking the £12,570 salary. How this reflected into net salary would depend upon the director’s individual situation. Working on the assumption that the director has no other form of taxable income, in most cases they will receive the highest net income through the £12,570 salary.