Delayed Payments + Pension Amounts vs Salaray

[shoktone]

Hello Everyone,

I have a few questions which for the accountants on here. All questions are aimed at a limited company structure.

1) Lets say I invoice a customer in January 2010 and they don't pay me until June 2010 (hypothetical question btw) which puts me into the next tax year. How do I handle this on my accounts? Do I include it in the 2009-2010 accounts or the 2010-2011?

2) If my company turnover was £60k (i.e. what I made before tax) last year and after cost of sales I'm left with £50k. There are then administrative costs and wages to pay from the £50k so lets say that goes down to £20k. Can I take £10k from the remainder tax free for my pension? So basically, I'm left with £10k that is liable to corporation tax.

3) Lets say I pay myself £6k/year from my limited company. How much can I put into my pension from the limited company (i.e not from my wages)? Is it limited to £6k or can I put in more if I want.

4) VAT Question. If my current turnover is £65k, and I issue an invoice for £4k which pushes me over the VAT threshold, how much VAT would I have to pay? Someone told me I would have to pay VAT on the entire £69k which doesn't sound right to me? Surely I only pay VAT on the difference over the vat threshold (i.e. £1k at 17.5% = £175).

5) How do I decide what is a legitimate business expense (that goes through the AIA)? I build websites, but I've had a few clients express interest in me doing some music for them (on hold music, tv adverts etc). So if I bought some music software/hardware, could I justify that as a business expense, even if the clients later tell me they've changed their minds. It's something that I'm still trying to do for people, just not very successfully :mad:

Thanks all.....

[elainec100@cheapaccounting]

1)Lets say I invoice a customer in January 2010 and they don't pay me until June 2010 (hypothetical question btw) which puts me into the next tax year. How do I handle this on my accounts? Do I include it in the 2009-2010 accounts or the 2010-2011?

Limited company y accounts do not have the same year end as self assessment. You have not said what the year end of the company is but either way sales are accounts for when invoiced and not paid (may be different accounting for vat if on cash accounting)

2) If my company turnover was £60k (i.e. what I made before tax) last year and after cost of sales I'm left with £50k. There are then administrative costs and wages to pay from the £50k so lets say that goes down to £20k. Can I take £10k from the remainder tax free for my pension? So basically, I'm left with £10k that is liable to corporation tax.

Yes – assuming the £10k is paid into a valid pension scheme through the company.

3) Lets say I pay myself £6k/year from my limited company. How much can I put into my pension from the limited company (i.e not from my wages)? Is it limited to £6k or can I put in more if I want.

Talk to a financial adviser about setting up a company pension scheme

4) VAT Question. If my current turnover is £65k, and I issue an invoice for £4k which pushes me over the VAT threshold, how much VAT would I have to pay? Someone told me I would have to pay VAT on the entire £69k which doesn't sound right to me? Surely I only pay VAT on the difference over the vat threshold (i.e. £1k at 17.5% = £175).


The £68k threshold is a rolling 12 months and not your accounting year.

Once you reach the threshold you have to add vat to the invoice read here:

http://www.franklyaccounts.co.uk/glossaryvathelp.php

5) How do I decide what is a legitimate business expense (that goes through the AIA)? I build websites, but I've had a few clients express interest in me doing some music for them (on hold music, tv adverts etc). So if I bought some music software/hardware, could I justify that as a business expense, even if the clients later tell me they've changed their minds. It's something that I'm still trying to do for people, just not very successfully file:///C:/DOCUME%7E1/Elaine/LOCALS%7E1/Temp/msohtmlclip1/01/clip_image001.gif

The AIA is for capital costs only. See here for a guide to costs:

http://www.franklyaccounts.co.uk/glossarycosts.php

Discuss this and all of your questions with an accountant.

For a limited company you really need one for your filing responsibilities which are:

An Annual Return
This is a snap shot of information about the Company at a point in time eg. who are the shareholders, directors etc. This if often confused with the accounts but is very different.
This must be filed at Companies House along with a fee of £15 if electronic or £30 if paper.
Annual Accounts
Although Companies House only require an abbreviated set of accounts to be filed, which look easy to prepare, HMRC do require a full set of accounts including a detailed profit and loss account and directors report.
Companies House and HMRC are very different government departments and do not work together. So do not assume that just because you have filed some with one of them, the other gets it as well.
CT 600 Corporation Tax Return
Along with the full set of accounts, HMRC will require a CT 600 to be completed.
This is not a straight forward form and, unless you have experience, it is best left to professionals to complete.
Annual Self Assessment
Regardless of how much they earn, each director of the Company may have to complete a self assessment which should show all of their income from every source, not just from the company.
Annual Employer Returns
Any business which employs staff has a number of reporting requirements eg. P35, P14, P11D etc.
Quarterly VAT Returns
Any business, not just companies, whose turnover exceeds VAT threshold in the previous 12 months has to register and account for VAT. The biggest mistake made here is assuming that the need to register relates to the accounting year rather than the previous 12 months from the current date.
Registering for VAT means the completion of a quarterly VAT return. This is due at the end of the month following the quarter end date. So it is essential that the accounts are kept up to date so that this can be completed on time.
Late filing
Late filing of any of the above returns will result in a fine, penalties and interest. In the case of your accounts you can be fined by both Companies House and HMRC. The fines start at £100 and increase from there up to the possibility of a criminal conviction for significant late filing of documents.

[shoktone]

Thanks for the reply Elaine, your answers have been REALLY helpful :)

With regards to the AIA question, could you possibly elaborate on your answer? I thought that as long as it was for business use, it was eligible for tax relief.

I believe I'm allowed to buy PCs (which are an essential business tool for me) with the AIA allowance? So if my business expands to using PCs to make music, surely the tools to make music are also valid?

I'm just trying to get a better understanding of how you work out what is a legitimate business expense, as I've been told different things by any number of people :D

[elainec100@cheapaccounting]

As I said the AIA realtes to capital items for the business.

Yes if you business use then you can claim under AIA if falls into plant and equipment, read here:

http://www.hmrc.gov.uk/ct/forms-rates/claims/capital-allowance.htm

Business expenses can either be profit and loss (see the link I gave you on costs) or capital items. The AIA relates to plant and equipment capital items only.

This is why you need an accountant and then you can concentrate on the business and not the accounts!

[shoktone]

Thanks Elaine. I'm just trying to get an idea what I can claim for when deciding whether to buy something, and what it's going to cost my company.

I guess it's just a case of using a little common sense.

[elainec100@cheapaccounting]

I guess it's just a case of using a little common sense.

Yes - and that is in short supply for some! :p