If you are the director of a limited company, then it’s vital to remind yourself that you and your limited company are separate legal entities. This makes the taxation situation for limited companies different to that for an individual. A limited company’s director and employees pay income tax via the PAYE system, as well as employees’ National Insurance Contributions (NICs). Our accountants in Richmond and the wider Surrey area here at Freelancer Accounting (http://www.freelanceraccounting.com) can provide advice relating to all aspects of personal taxation for directors.
The directors and employees of limited companies have taxable income on which they must pay income tax. HMRC has a system for the collection of income tax from directors’ and employees’ pay as they earn it, known as PAYE (Pay As You Earn), with the tax being deducted monthly. It is the responsibility of the employer to deduct income tax and NICs from the pay of its employees, before submitting the deductions to HMRC. The 19th of each month is normally the deadline for this, although quarterly payments may be possible if your average monthly payments are not likely to reach a minimum of £1,500.
As a prospective or current client of our accountants in Surrey, you should also be aware of the taxation of directors and employees on benefits in kind, such as medical insurance or a company car. Employers are also required to pay class 1A NICs on benefits, with a form P11D being used to declare them on an annual basis.
Freelancer Accounting can assist with all aspects of personal taxation
All freelancers have their own tax responsibilities in the form of personal income tax and employees’ NICs, in addition to business taxes, and the small business accountants of Freelancer Accounting can provide any advice that you require on aspects of personal taxation. You may require advice on the Self Assessment system, for example, within which most freelancers fall. This makes necessary the submission of a personal tax return for each tax year ending 5th April, and it needs to be correct and submitted in time if you are to avoid being charged interest and penalties.
Clients of our accountancy services typically need to complete a tax return due to being a director of a limited company, a sole trader or a freelancer. Generally speaking, you’ll need to complete an annual tax return if you have tax to pay outside of ordinary employment, pension income and small amounts of investment income – and you are responsible for informing HMRC on an annual basis if you need to complete a return.
When it comes to Self Assessment, our accountants for freelancers can give you advice on when to fill in the form, the consequences of failing to file a tax return on time, what actually appears on the form and even personal tax on dividends. Contact Freelancer Accounting (http://www.freelanceraccounting.com) now if you are a limited company director who requires the highest standard of tailored advice.
When you are running a freelance business, it’s vital to distinguish between allowable and non-allowable business expenses with regard to tax treatment – and yet, doing so can be fraught with anxiety. That’s why, in today’s blog from accountancy services provider Freelancer Accounting (http://www.freelanceraccounting.com), we consider the basic rules.
Put simply, allowable expenses are those that are incurred wholly and exclusively for the purpose of earning business profits, which is why you can either fully or partially deduct them from your turnover for the purpose of reducing the business’s tax liability. Examples of such allowable expenses include goods that you have bought for resale, although for closing stock, an adjustment will need to be made. The likes of wages, rent, lighting, heating and repairs are also allowable expenses.
There are also costs, however, that you incur for a non-business purpose, and which our small business accountants would advise you to class as non-allowable. Examples include your own personal expenses or drawings, capital costs and costs which are recoverable under insurance, although neither of these aforementioned lists is exhaustive.
In general, we would advise that an expense paid by the company is not allowable unless it has been incurred wholly and exclusively for purposes of trade. An expense is normally deductible for the company if it results in a benefit in kind for an employee. If the business has sole trader or partnership status, then there is a restriction to the amount of expense that is allowable for tax purposes as a result of any private use by the owners. Expenses that the employee has paid are only allowable if they have been wholly, exclusively and necessarily incurred in the performance of the office or employment’s duties.
When you are determining whether a particular expense is allowable or non-allowable, you will need to consider all manner of factors on which our accountants for contractors can advise you in greater detail. Consider, for example, whether any given expenditure has a dual purpose element, as it will not be allowable for taxation if it does. For example, although you may buy a suit or dress to wear at work, the fact that you need to wear clothing anyway renders it a non-allowable expense.
For many business expenses, there is some ambiguity as to whether certain elements may, or may not be allowable. With regard to legal and professional fees, for example, fees for preparing your company accounts relate to your trade, and are therefore allowable. However, if you incur legal fees on taking on a new lease, their relation to capital means that you will not be able to claim tax relief on them.
We could continue in much more detail, but really, when you have a core business to focus on, it can be a significant benefit to have a PCG accountant from Freelancer Accounting (http://www.freelanceraccounting.com) by your side to take the hard work out of making these distinctions. Get in touch now to find out more.
Even the best-prepared client of Freelancer Accounting’s (http://www.freelanceraccounting.com) accountants in Richmond and the wider Surrey area will occasionally get something wrong – it’s just a fact of life, and it’s why insurance exists to provide some peace of mind and financial compensation for any mistakes made that necessitate it.
There are types of insurance, such as IR35 insurance, income protection insurance and business interruption insurance, which may only apply to certain freelancers or be an optional extra rather than essential. But which insurance is it essential for freelancers to have? Well, it’s difficult to see past employers’ liability insurance. With employers having legal responsibility for the health and safety of their employees while they are at work, employers’ liability insurance covers the cost of any compensation and legal fees for workers who can attribute an injury or illness to their work for you.
Not only is it morally imperative for you to take out employers’ liability insurance as a freelancer, but it’s also legally required, with some exceptions. You will not need to take out this cover if you are exempt from the Employers’ Liability (Compulsory Insurance) Regulations 1998. One example of an exempt business is a limited company that employs only its owner, who has more than 50% of the issued share capital. Nor are family businesses required to take it out, as long as all employees are close relations of the owner, such as husband, wife, civil partner, mother, father, son or daughter – although this exemption is not applicable to those family firms incorporated as limited companies.
It may have crossed your mind to engage a substitute or enter into a contract with a substitute clause, in which case it is vital to accurately clarify whether, for the duration of the contract, this substitute may be considered as your employee. A legal practitioner should be able to assist you with this.
Our accountants in London would always urge clients to ensure that they have met the minimum legal requirements – or more specifically, that insurance covers at least £5 million of employers’ liability insurance, courtesy of an approved supplier – of which the FCA maintains a list. It is also necessary for an employer to display their employers’ liability insurance so that all employees can see it – whether in electronic or physical form.
The Health and Safety Executive (HSE) urges businesses to maintain a complete record of employers’ liability, given the potential for diseases to develop decades after exposure to their cause, possibly leading the worker to make a claim against their employer at the time. Clients of our accountants for freelancers should also be reminded that at any time, HSE inspectors can request to see their certificate of insurance. Fines can be imposed for lack of insurance or the failure to produce a certificate.
For more freelancer-related advice, visit the website at http://www.freelanceraccounting.com).
Our accountants in London here at Freelancer Accounting (http://www.freelanceraccounting.com) are used to providing a limited company formation service to those who have thus far been a sole trader, but want to make the most of their income. It’s not so often, however, that advice is given on the reverse process, of going back to sole trader status, perhaps after a significant loss of income that makes the additional paperwork and filings with Companies House seem less worthwhile.
It may not seem likely that you would ever want to return to sole trader status after experiencing the benefits of a limited company, but it does happen for some of the clients of our contractor accountants. They might have lost their biggest client, and it might seem unlikely that business will significantly pick up again soon. If you are in a similar position, then it may seem worth closing down your limited company for good – but the process of doing so can be more protracted than you think. It starts with ensuring that you have tied up all of your limited company’s ‘loose ends’ before you proceed with life as a sole trader.
That means that any outstanding bills will need to be settled, and any owed invoices collected. You’ll also have to account for ongoing running costs between now and when your limited company is finally legally wound up. You may, for example, be receiving help from credit control services in the rounding up of any late payers, or your last batch of returns may be being worked on by small business accountants to whom you still owe money. Thankfully, as these costs are legitimate business expenses, you are able to offset them against your last tax bill.
There are other tasks to attend to – such as, once the company has gone for three months without trading, filing form DS01 with Companies House so that it can be ‘struck off/dissolved’. Those that are VAT registered will also need to complete a VAT 7 form, so that HMRC knows that they intend to de-register. Once HMRC receives this form, it will get in touch to provide a de-registration date. A final VAT Return will also need to be completed, taking into account the likes of business-owned equipment and leftover stock.
Informing HMRC that your company has ceased trading will also stop you receiving Corporation Tax reminders, and they will also need to be told about any PAYE Scheme that you no longer operate. Many freelancers also find that they need to pay Capital Gains tax on company equipment that they take possession of personally. With these and other factors to bear in mind, you may just find that it’s better to make your limited company “dormant” rather than close it down, while working outside it as a sole trader – at least for now. Freelancer Accounting can give you the most informed advice for your particular situation. Find out more at http://www.freelanceraccounting.com.