Accounting advice for a new business

[Elasticrock]

Hi guys,

I recently took the leap and set up a couple of businesses (one dormant for the time being), and one which I've been trading since Sept 2022. It's a Limited company and I'm the only employee as well as being the company director. I'm just after a bit of advice as to how best to approach paying myself as well as NI & student loan repayment etc. I've currently just been making payments out of my business account to myself.

I understand a mix of dividend payments and salary is best, but just need a bit of help on how exactly to do that (you need to include meeting minutes every time you issue dividends?)

I do my accounts every month and pretty good at keeping it all organised and it's pretty straightforward and simple so not sure I really need a full time accountant just yet, but was maybe thinking of getting a consultation session first to answer a few questions and then just someone to look over it all when I come to submit everything?

Any pointers appreciated!

Cheers

 

[Paul Kelly ICHYB]

Welcome to the family.

The first bit of advice is to speak to an accountant. You might get 30/60 minutes for free and any advice they give now, even at a cost, will probably save you time, money and stress in the longer run.

A lot will depend on your personal position, other income and a few other bits, however, the way many people do it is (was, the last time I looked):

Either:

• Pay yourself £9000 a year/£750 month - no personal tax and employer NI (although choosing to do this voluntarily is not a bad thing).
• Pay yourself up to £12500 a year/£1k per month. This way you are below the 20% tax level but you do have to make NI business contributions - NOTE: you will need to set up a PAYE system which has additional costs and obligations

If you need more than that £12500, take that as dividends - there is a procedure to follow.

 

[WaveJumper]

Firstly a warm welcome to the UKBF and congratulations on setting up your company there are many accountants on here who I am sure will point you in the right direction, my initial thoughts for what they are worth.

When first starting up many people do not understand what they can or cannot claim for, and many miss out on not offsetting a lot of their costs as they simply don't know. So I would always recommend speaking to an accountant and making sure you get the basics right, build on sound foundations and nothing is going to come back and bite you.

Setting up a payroll needs to be done right (I am not an accountant) again you don't want to get this wrong, and you don't want to be relying on paying yourself dividends if the company has not got the income coming through to support this, there are strict rules on taking dividends you can find these on the GOV website. Just taking money out of your business account is a bit of a red flag straight off.

How are you recording all your transactions, are you using a spread sheet or an accounting software package. repeating myself but try to find a local accountant you can sit down with, who understands your business and more importantly who you feel you can work with ie don't pick the first one out the phone book. You can opt to still do you own accounts but at least you know you're on the right track, have somewhere to go for professional advice (your going to need it) and someone to submit your accountants at the end of the year.

 

[MyAccountantOnline]

Hi guys,

I recently took the leap and set up a couple of businesses (one dormant for the time being), and one which I've been trading since Sept 2022. It's a Limited company and I'm the only employee as well as being the company director. I'm just after a bit of advice as to how best to approach paying myself as well as NI & student loan repayment etc. I've currently just been making payments out of my business account to myself.

I understand a mix of dividend payments and salary is best, but just need a bit of help on how exactly to do that (you need to include meeting minutes every time you issue dividends?)

I do my accounts every month and pretty good at keeping it all organised and it's pretty straightforward and simple so not sure I really need a full time accountant just yet, but was maybe thinking of getting a consultation session first to answer a few questions and then just someone to look over it all when I come to submit everything?

Any pointers appreciated!

Cheers

Hi @Elasticrock welcome to the forum.

Can I ask what made you opt for a limited company for your business?

As an accountant I look after the accounts and tax for a lot of new and small businesses and I very much appreciate the desire to try and save costs by not paying an accountant but it's very often when you'll gain the most in ways you've never thought of. It's good to keep good accurate records but bookkeeping and accounting are very different.

 

[MyAccountantOnline]

Hi guys,

.... I've currently just been making payments out of my business account to myself.

...

Do bear in mind if you didn't put any funds into the company initially you'll be creating a directors loan by doing this. This can create avoidable and unnecessary tax charges and reporting requirements. This will give you an overview - https://www.gov.uk/directors-loans

 

[GLAbusiness]

Hi, and another welcome from me

I am not an accountant but my pointers for you are:

1. You certainly will not need a full time accountant
2. There are two key areas where an accountant will add value to your business. The first is to advise on the best way to set up and run the accounting side of your business (including, as other have said, to make sure you know what you can and can't claim together with the best way to take money from your company - everyone is different so you need advice from someone who understands you circumstances). The second important area is to get your year end returns done properly.
3. I recommend you get some accounting software. I use FreeAgent but an accountant can advise.

 

[Daybooks]

As you have already withdrawn funds then you need to esatblish whether they were salaries, lawful dividends or a loan as there are implications for all.

A mix of salaries and dividends may be best – but for what? What is your objective; to pay no tax, to pay minimal tax, maximise profits or maximise the amount you keep? Each warrant a separate discussion. Taxes interact with one another so in isolation what seems like the best option might not be when taking other income, taxes and allowances into account.

Engage with a professional accountant who can discuss with you and illustrate the potential outcomes of various scenarios.

With your specific question on dividends there are essentially five things to do: establish the available distributable reserves; determine the total amount; the dividend per share; board meeting and minutes to approve and finally make payment. It is not retrospective.

 

[Elasticrock]

Hello all, thanks for the welcomes...

Yes, it does seem like I need at least an initial consultation with a friendly accountant to make sure I'm on the right track with everything I'm doing and taking proper advantage of all the things I could be doing in the setup and first year.

The reason I went for a Limited company was to get that separation with the business from myself and just have the flexibility if and when it grows. Also favourable taxation taking a wage compared to a sole trader? (I was under that impression)

I basically keep pretty good records of everything that goes on on a daily/weekly/monthly basis just on spreadsheets and have a Starling business account that all income/outgoings go through. The money that I've been withdrawing from that to use personally I've been assuming being able to class that as a salary, but really want to be able to set myself up to pay myself in dividends as well.

The aim currently is to pay myself the minimum I need to live while building the business balance, and to pay myself a salary for the first 12.5k before moving to dividends. (if that's possible)

The only accountants I've had contact with so far have quoted me a flat annual rate for doing the company accounts and my wage as the director, which does include meetings and advice etc, but maybe I need to have another look. It's been around £7/800 which I guess isn't bad but of course looking to slim everything down at the moment.

 

[WaveJumper]

Its good hear to hear your taking onboard the advice you have seen above especially considering the way in which you are taking money out of the company (to pay yourself) at the present, the sooner the meeting with an accountant the sooner your be on the road to success.

Have a read here if you have not already done so:

Running a limited company: your responsibilities

Running a limited company - including directors' responsibilities, company annual returns, reporting company changes and how to take money out of a limited company.

www.gov.uk

 

[Daybooks]

The payments should be a matter of fact and cannot be re-categorised later to produce a more favourable tax position. The legislation in the main would not recognise this anyway. With your good accounting records it would be more difficult to prove otherwise!

Salary payments over £123 (National Insurance Lower Earnings Limit) per week would require a PAYE Scheme and be operated under “Real Time Information.” Penalties apply for non compliance; therefore may be accruing already! Pre-planning is much more effective than retrospective “planning”.

The appropriate legislation applied from incorporation of the company with no grace period.

You may have already missed opportunities as your year end may have spanned the tax year end. If you do appoint an accountant then hopefully the value of what you could have achieved can be applied to the future. Just some of the reasons why sooner rather than later might be best. Apologies for sounding so problematic but good luck though.

 

[MyAccountantOnline]

...

I basically keep pretty good records of everything that goes on on a daily/weekly/monthly basis just on spreadsheets and have a Starling business account that all income/outgoings go through. The money that I've been withdrawing from that to use personally I've been assuming being able to class that as a salary, but really want to be able to set myself up to pay myself in dividends as well.

..

If you want to look at paying dividends I'd get some proper bookkeeping software. You'll need to ascertain the retained profits to enable you to see what dividends can be paid - it's hard work and very easy to make a mistake with spreadsheets.

You also need to get a payroll in place to pay a salary have a read here