A Few Basic Accounting Questions Pertaining to my new Ltd

[Chrisbridgett]

Hey there, would really appreciate it if someone could help me out on the following few questions. I recently had everything formalised by setting up a Ltd in March.

1. If the only salary taken from the company is the lower earnings limit (£8,105 or thereabouts now, isn't it?), is there any tax to pay? (National insurance?).

2. We process most of our payments via paypal, am I correct in thinking that to account (no pun intended) for fee's, I put the full amount down as an income, then the fees as an expense?

3. Assuming that my company made £8k in profit this year and all of that was paid as a salary, did my company actually make no profit (since salaries are an expense, correct?) and mean no corporation tax would be due?

4. I recently verified my new business bank account with paypal, in which to do, Paypal deposited two small amounts into my bank account for verification. How should I account for these? Should I create a miscellaneous invoice made out to Paypal with verification and the totals, so I have a full paper-trail?

5. Whilst business is 'sparse', is there anything wrong with paying £2k in wages one month, £500 the next, £1k the next etc? Provided it didn't exceed the lower earnings limit, are there any problems with this?

I don't really want to have to speak to an accountant just yet whilst things are quite(/very) small - or at least if my assumptions in the previous questions are correct, I don't see any need. I'm writing my own (I'm a developer) accounts management software that will integrate nicely with the other modules I've already developed to manage the rest of my company.

Would really appreciate any answers or advice to any/all of my questions!

Regards,
Chris.

 

[wagstaf]

Chris. My advice is that is you can pay yourself a salary of £2K per month then take 10% out of it and ask an accountant for continued advice. There are some good people on here that will give you a great service for a fair price.
Good luck in your business! W.

 

[Chrisbridgett]

Will definitely be seeing an accountant at some point, would just like to understand the basics first.

 

[MyAccountantOnline]

1. If the only salary taken from the company is the lower earnings limit (£8,105 or thereabouts now, isn't it?), is there any tax to pay? (National insurance?).

You'll generally only pay tax on a salary from the company if it exceeds £8,105 for this tax year (subject to your personal circumstances). You will pay NI at that level though.

2. We process most of our payments via paypal, am I correct in thinking that to account (no pun intended) for fee's, I put the full amount down as an income, then the fees as an expense?

Yes that's correct, or you will understate the company turnover.

3. Assuming that my company made £8k in profit this year and all of that was paid as a salary, did my company actually make no profit (since salaries are an expense, correct?) and mean no corporation tax would be due?

Yes if the company has no profit it pays no Corporation tax but why pay unnecessary NI on a salary to avoid Corporation tax?

4. I recently verified my new business bank account with paypal, in which to do, Paypal deposited two small amounts into my bank account for verification. How should I account for these? Should I create a miscellaneous invoice made out to Paypal with verification and the totals, so I have a full paper-trail?

I'd credit them against PayPal fees.

No need to create an invoice.

5. Whilst business is 'sparse', is there anything wrong with paying £2k in wages one month, £500 the next, £1k the next etc? Provided it didn't exceed the lower earnings limit, are there any problems with this?

You can do this if you want to but bear in mind you dont have to draw a salary you can add it to a directors loan account to be taken at a later date when the company has the cash to pay it.

I don't really want to have to speak to an accountant just yet whilst things are quite(/very) small - or at least if my assumptions in the previous questions are correct, I don't see any need. I'm writing my own (I'm a developer) accounts management software that will integrate nicely with the other modules I've already developed to manage the rest of my company.

You dont have to use an accountant but you may be surprised as to how much hassle, and possibly tax, a good accountant will save you for very little cost.

As for writing your own software why get some that's been fully tried and tested and does what you need?

Good luck with the new venture

 

[MyAccountantOnline]

Chris. My advice is that is you can pay yourself a salary of £2K per month then take 10% out of it and ask an accountant for continued advice. There are some good people on here that will give you a great service for a fair price.
Good luck in your business! W.

Can I ask why £2k per month:|:|

 

[penquanash]

-For a salary of £8105, you will pay a total national insurance of £146.71
-Income should be recognised seperately from fees. Put them seperately
-The profit or loss figure on which tax is calculated is different from the profit/loss figure showing on your profit and loss account. This arises because in calculating tax on profit, there are some adjusting items such as depreciation ,capital allowance etc that needs to be considered.
- Will you have to refund the deposit made by paypal? If yes, there is no need to create an invoice.
-It doesnt matter whether you pay yourself £2000 in month 1 and £200 in month 2 so long as your annual salary will not exceed £8105 metioned.

 

[elaine@cheapaccounting]

May I suggest having a read of our FREE limited company guide to accounts and tax ...

http://www.cheapaccounting.co.uk/2012guide.php

Good luck

 

[MyAccountantOnline]

Slightly off topic but you may also find these links helpful -

http://www.companieshouse.gov.uk/about/guidance.shtml

http://www.hmrc.gov.uk/ct/index.htm

 

[Chrisbridgett]

Can I ask why £2k per month:|:|

I'm guessing they were just ballpark figures to demonstrate. Thanks for your advice, I really appreciate it. Just a quick question on your answer to question 3. How would I be paying unnecessary NI to avoid Corp tax? Not sure what you're getting at here. Are you asking why I'm taking all of the profit as a salary? Thanks again.

-For a salary of £8105, you will pay a total national insurance of £146.71

How would I go about calculating NI for salaries larger than £8105 - what's the formula? Or is there a link to the gov website with the current tax figures on? Thanks.

 

[penquanash]

You can go this website.
http://listentotaxman.com/

For anything, you can send me a private mail and I will answer

 

[MyAccountantOnline]

How would I be paying unnecessary NI to avoid Corp tax? Not sure what you're getting at here. Are you asking why I'm taking all of the profit as a salary? Thanks again.

The NI threshold is lower than the tax threshold so you could pay a salary of £8105 (assuming you have a standard personal allowance) and pay no tax, but at that level you'd pay NI.

The NI tables are on the HMRC website.

If are going to look after your own payroll you may want to look at using some payroll software - it will make looking after the payroll much easier. I personally recommend MoneySoft but as ever you have lots of choice. Moneysoft enables you to deal with all of the necessary year end reporting etc soon to be replaced by RTI (Real Time Information).

 

[stevo5678]

Hi Chris,

NI is calculated in the same way as tax. You can earn up to a certain amount per year before paying NI of 12%. However when a salary is calculated say monthly the annual free limit is divided by 12 so you only get 1/12th of the limit each month. If you pay below this limit all year then there will be no NI,

However regarding the 'unnecessary NI' it is worth paying some NI to qualify towards your state entitlement. This means that it is actually appropriate to pay some NI.

A salary level between the NI limit and the tax limit is generally advisable as you pay no tax but some NI to qualify as stated above.

You are correct if you take all £8k in salary it will make your profit nil but this will be included in your personal tax return. As long as you have no other personal income from employment, bank interest, rental etc then there will be no tax consequences.


Stephen Edwards - ACCA (Chartered Certified Accountant)
Andorran Chartered Accountants - www.andorran.co.uk