First Year Ltd. Company Tax

[romol]

I registered a limited company last year, and am now rather confused about the taxation issue. As i'm in the music industry I was advised to establish a limited company to protect myself, as I'm dealing with sampling music which can be tricky at any point further down the line. We're not planning on making much (if any) money through this company for at least another five years.

As the sole director I used my own money to fund the business (a very small amount, just about £1500) and since then the business has made a loss and will probably continue to do so

As a result I have not taken any money out of the business account personally, only used it to pay for stock, mastering etc. and also just had all the money made from the business put back in there to use for future business releases.

If no money's been taken from the company am I still considered an employee as the sole director? I'm quite confused as to what I need to file to avoid being stung by overdue fees! The business is merely there to protect myself legally, as releasing music isn't my full time job at all, more of just a hobby.

Any advice would be greatly appreciated.

 

[Ray_Stewart]

You are an employee of the company automatically if you are a director.

There is a seperate box on the employer page of your self assessment form for an employee who is a director but who earned no salary from the company. You tick the box to say nil salary and don't enter any figures at all, not even £0 - it just keeps everything open for when/if you actually draw one in the future.

 

[KM-Tiger]

Any advice would be greatly appreciated.

Unless you fancy a real hard slog, coupled with the risk of fines/penalties for getting it wrong then get an accountant.

You need to file accounts whether it's a profit or loss, both for HMRC and Co's Ho. An accountant can also advise you on the best way of making use of those losses, it can be possible to offset against future profits.

No problem in theory with not drawing a salary as a director, but HMRC don't deal with that very well and are likely to demand a P35 which must be appealed within a time limit or they hit you with a penalty.

You probably don't want an accountant's fee right now, but it could turn out cheap compared to the potential hazards.

 

[elaine@cheapaccounting]

For a limited company you will need to complete the following:-

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.

Dormant Accounts

It doesn't end there of course. Even when you have stopped trading you have to file dormant accounts each year or if you decide to close the company down there is even a long winded process to follow for that.

 

[elaine@cheapaccounting]

These are the notes from the self assessment:

You will not need to complete an Employment page if you:

•were a company director and received no payments of any kind or benefits from that directorship

 

[Jaydee]

The fines start at £100...

Elaine, just in case this summary is extracted from your website, it is still pre-2006 Act.

 

[romol]

thanks for the advice everyone, this forum really is great.

I think I'm going to give it a shot putting it together myself, purely as this is not meant to be an enterprise really, just something to get some music out there and retain the rights.

I'm not sure how much an accountant would cost but if the company hasn't made any money, I'm assuming (possibly incorrectly) that there won't be tax to pay, hence I'll spend more on an accountant then what I'll save.

One last question though, will i receive reminders on when these forms need to be in, or is it on me to work this out?

thanks again.

 

[Williams lester]

I would not recommend trying to complete the accounts and CT return yourself unless you have a good knowledge of what needs to be included in a set of accounts, how to construct a tax computation etc., if you get these wrong there is the possibility of the accounts or CT return being rejected and you will then be fined by CH/HMRC, you will probably find these fines could be more than the cost of an accountant.

 

[Deleted member 53208]

Been there, done it, paid the fine..............get an accountant, it should cost about £600 per annum

 

[elaine@cheapaccounting]

Elaine, just in case this summary is extracted from your website, it is still pre-2006 Act.

To clarify fines do start at £100 - the late filing penalty for CT600 is £100.

Yes the Co House ones now start at £150 but the quote is generic for all fines.

 

[romol]

The problem is this is only really a ghost company turning over under £1500 a year and overall making a loss. It exists to protect the music releases legally so that in the case of sample lawsuit (say fifteen twenty years down the track...this happens more frequently then you'd think) the artists personal assets will be protected. Therefore £600 annum is not really ideal. Is it possible to fill out everything then get an accountant to look over them as a one-shot before sending them off (hopefully for about £30), or is this not really done?

 

[Zeno]

The problem is this is only really a ghost company turning over under £1500 a year and overall making a loss. It exists to protect the music releases legally so that in the case of sample lawsuit (say fifteen twenty years down the track...this happens more frequently then you'd think) the artists personal assets will be protected. Therefore £600 annum is not really ideal. Is it possible to fill out everything then get an accountant to look over them as a one-shot before sending them off (hopefully for about £30), or is this not really done?

Firstly, reading between the lines of what you are saying and are not saying I am not sure as to what extent you think that this protects you from legal action but I would not think it would be as far as you think - I bet you use your own name as the "artist".

Secondly, you really should have looked into this aspect before setting up the company - the paperwork is the price of limited liability. I would agree that you are unlikely to be able to deal with all of this yourself. £30 will not come close for what you need.

 

[elaine@cheapaccounting]

(hopefully for about £30),

With respect you are having a laugh

Did you not investigate this BEFORE you set the company up.

Great thread to use as a case study

 

[romol]

okay so looks like I got some bad advice in setting this up, and made the wrong decision in deciding to do so.

The company owns the tracks, the publishing, all rights etc. and from what I understand this is common practice.

So what are my options now? Pay £600 pa (which I can't do) for an accountant that will probably be used once a year.

Take a punt and do the forms myself.

Close down the company (which i don't want to do).

 

[JGOffshore]

Dormant Accounts

It doesn't end there of course. Even when you have stopped trading you have to file dormant accounts each year or if you decide to close the company down there is even a long winded process to follow for that.

Not that difficult anymore!

 

[K2012]

The only thing I do myself is the VAT return.

Please get an accountant for the CT 600, Self Ass, etc.. These forms are just best left to these guys for you.

You don't pay it once a year you can pay monthly so it less hassle and that accountant is then your agent to the HMRC, they can act and speak on behalf of you so you don't have to..

Kev

 

[JGOffshore]

okay so looks like I got some bad advice in setting this up, and made the wrong decision in deciding to do so.

The company owns the tracks, the publishing, all rights etc. and from what I understand this is common practice.

So what are my options now? Pay £600 pa (which I can't do) for an accountant that will probably be used once a year.

Take a punt and do the forms myself.

Close down the company (which i don't want to do).

I'd try having a go yourself. You won't actually have to send a full set of accounts to HMRC as the turnover is so small. The guidance notes are fairly helpful and you can always call HMRC for advice on anything you don't understand. You won't get fined so long as you don't leave everything to the last minute so you don't have time to make corrections if the return is rejected.

If you try doing it yourself and you find it too much then you will need to think again. Closing down the company isn't much of a help as you will still need to file the tax return. You would also lose the legal protection you wanted.

Have a look at this guide to accounting & taxation for small businesses. Rather over complicated for your purposes but give a better idea.

 

[K2012]

If you do want to close the company down look up "Striking off" on the companies house website.

 

[romol]

the truth is I do have a background in business, only it was in Australia. I picked up a small business accounting book before doing this however it mainly just said there were a lot of forms to fill out come tax time, which i figured was no big deal. It didn't actually go in to detail saying how complicated the forms were.

Thanks for the advice so far guys, anything else as a next would be a great help as I'm starting to freak out a bit in regards to this. The main thing is I don't want to get fined, but at the same time we're only trading once or twice a year, and then do nothing the rest of the time so there's not much point in hiring an accountant for all year.

 

[romol]

just saw all the replies, thanks again everyone!

 

[elaine@cheapaccounting]

Not that difficult anymore!

As long as company is truly dormant and hasn't just stopped trading for a couple of months