Ltd company tax

[Simba7]

Hi not sure what to do.

My account emailed asking he needs my payslips/invoices/bank statements for year ending March 2012 as he accounts are due for filing by 31.12.12.

I do Locum work and I am not sure if I can pay my ltd company tax of when I file my accounts.

I have been paying myself a minimum salary but I think my balance on my bank statement end of March 2012 is around £16k! Is that balance profit? Does that mean I wil need to pay tax on that?

How do HMRC know how much you earn in a tax year or do they go by what you file? I think I've earnt around £60k but i have been spending the money also for social e.g. Eating out, shopping etc I have been paying the PAYE tax though.

My accountant has not really explained how to manage a ltd company and I think I'll be in trouble if I file my accounts. I know it's wrong but can I wind down the company or close it down before filing?

Does anyone have any advice?

Many thanks

 

[Paul_Rosser]

You will be due to pay Corporation tax at 20% on any profit you have made. Which is based on your turnover minus any allowable expenses, which would include any salary payments you have made to yourself.

So for example if you have taken 60k in fees this year and have spent 40k on business expenses then you would be left with 20k and would need to pay 20% of this as corporation tax. You should of course have receipts/invoices for all the business expenses you have paid out and your accountant should have advised you to keep these at the very least.

I remember a similar post from someone where another member advised you could just have the company struck off prior to filing any accounts and then the HRMC will never know what you should have paid in Corporation Tax and unless you have any creditors should be passed without any issues.

 

[Simba7]

Can I file to close the company down before filing in accounts? How do I do that? Via HMRC or companies house. What if I was still trading till last month?
Can I still open up a fresh new ltd company and this time I will keep my accounts clean?

 

[Paul_Rosser]

Yes, you just need to apply to have the company struck off prior to submitting your accounts.

Your accountant should be able to advise on how to do this.

 

[Paul_Rosser]

This is the post I was talking about - http://www.ukbusinessforums.co.uk/forums/showthread.php?t=278176

It's spongebobs advice on page 3 you need to have a look at.

 

[Simba7]

What happens to the tax I owe? Will HMRC ask to see my accounts first?
When can I open a new ltd company?

 

[Paul_Rosser]

As Spongebob said provided you never file a set of accounts then only you and your accountant will ever know about any tax liabilites so the petition for your company to be struck off should go though without any problems. Don't worry as you will see from the post it took me a while to get my head around the concept too.

You can open another limited company straight away.

 

[Simba7]

Thanks for your advice. I'll speak to my accountant tomorrow.

 

[Paul_Rosser]

No problem, however can't take the credit as it was Spongebobs plan.

Let us know how you get on.

 

[Simba7]

Just one other thing- do you know of anyone who's done this strike off? Even with assets? I have filed accounts only once does that matter? Can I still strike off? Does it cost to strike off?

Thanks again

 

[Paul_Rosser]

Any limited company can apply to be struck off, if you have filled accounts previously have you paid any tax owing from then ?

Don't think it costs anything but your accountant may charge you to fill in the forms.

 

[Paul_Rosser]

More info here - Costs a £10

http://www.companieshouse.gov.uk/infoAndGuide/faq/strikingOff.shtml

 

[Mitchells Bristol]

Lets back-track slightly. The bank balance at the end of March 2012 was £16,000, which should have been sufficient to cover the corporation tax liability. What is the bank balance now?

Are you still working as a locum?

 

[Simba7]

I have previously paid PAYE and Corporation tax previously for the first tax year, this will be my second. At the end of march 2012 it was around 16k, but unfortunately due to personal debts and recession I have had to put my hand in there and spend it on personal expenditure. I last worked under the limited company last month.

Given the above, is it still ok for me to go ahead and close the company, or am I in trouble?

Thanks guys this is stressing me out

 

[Paul_Rosser]

Yes you should, however the rules do state the company should not have been trading for 3 months, so don't do any more work and you may have to wait until Feb if you want to do things by the book.

Go and speak to your accountant and see what they think of the suggestion.

P.S. This is not my advice, I personally think it's terrible someone can run a firm for a year, take all the money paid and not pay any CT. It's based on the advice Spongebob gave in the thread I previously posted the link to.

 

[Walkol]

You mention £16k in the bank. Now, assuming all other things are accounted for (VAT, PAYE, other creditors) or can be accounted for with future revenues, that would mean you would have £80k of taxable profits to wipe out the £16k. Do you know roughly what your profit will be?

 

[Simba7]

Sorry Walkol, how did you get to the 80k figure? I am not a VAT registered company, so i just pay PAYE and corporation tax. The 16k I have in the account, I still had to use some of it for business use, would that lower my corporation tax if I filed my accounts?

 

[Walkol]

Sorry Walkol, how did you get to the 80k figure? I am not a VAT registered company, so i just pay PAYE and corporation tax. The 16k I have in the account, I still had to use some of it for business use, would that lower my corporation tax if I filed my accounts?

Corp tax is 20%. So £80k * 20% is £16k. Having expenditure now will not affect previous corp tax returns.

 

[Simba7]

Oh ok. So your saying the 16k that I should have in the bank now, is the tax I need to pay if I filed my accounts? Ok, so I dont have that money anymore, recession has hit hard, would it be better to close the account ASAP before 31st December or can you file to close the account after 31.12.12 AND not file the accounts, so that I wait for the 3 month window allowing me To close the account?

 

[Walkol]

Oh ok. So your saying the 16k that I should have in the bank now, is the tax I need to pay if I filed my accounts? Ok, so I dont have that money anymore, recession has hit hard, would it be better to close the account ASAP before 31st December or can you file to close the account after 31.12.12 AND not file the accounts, so that I wait for the 3 month window allowing me To close the account?

No, i'm saying you have £16k of company funds available to pay any corp tax.

Your corp tax will be 20% of taxable profit, it has nothing what so ever to do with money in the bank.

Cease trading, and get an accountant do to a quick set of accounts so you know where you stand re corp tax and profitability.

IMO - talk of closing the company down is far to premature, by the sounds of things you have a profitable business.

 

[Simba7]

But the last time my accountant filed for my accounts he asked for the final balance in my business account at the end of that tax year. He will ask for the same now, I assume, which is around 16k so your saying I'll have to pay 20% of 16k which is £3200- I don't have that money. At present my business account shows £300! That 16k I was saving to pay my MSc course fees, which was 11k but I paid that after march 12. I should've paid it before then my balance in march 12 would be 5k. My MSc is business cost in effect so can I not lower my tax even more i.e 5k is taxable profit?

 

[Walkol]

But the last time my accountant filed for my accounts he asked for the final balance in my business account at the end of that tax year. He will ask for the same now, I assume, which is around 16k so your saying I'll have to pay 20% of 16k which is £3200- I don't have that money. At present my business account shows £300! That 16k I was saving to pay my MSc course fees, which was 11k but I paid that after march 12. I should've paid it before then my balance in march 12 would be 5k. My MSc is business cost in effect so can I not lower my tax even more i.e 5k is taxable profit?

Ok, things are different to what I got from your previous posts, I assumed you still had £16k.

To do your accounts, he will need your bank balance to do a reconciliations. I repeat - your bank balance has NO impact of your profit, and as a result no impact on your corp tax. It can give an indication in some cases, but that is as far as it goes.

When you pay your invoices (you mention course fees) will not affect your corp tax. The date of that invoice will, along with when the supply takes place. If it was dated 31 March 12 and it was covering courses that took place in that year, it will be included in your March 12 accounts (assuming you have a march year end) regardless when you paid it.

My advice again - seek proper financial advice on this, pronto.

 

[Simba7]

Many thanks for your patience and advice.

 

[Mitchells Bristol]

IMO - talk of closing the company down is far to premature, by the sounds of things you have a profitable business.

I fully agree with this view point, which is why I aimed to back-track the conversation which seemed to move far too quickly toward "yes - close down the company and start a new one - it will only cost you £10".

Whilst closing the company down is an option, this should be considered as a last resort.

Moreover, the last thing you want is for other people reading this thread to think that they can set up a limited company, earn £60k, spend all the money, close down the company to avoid paying corporation tax and then start a new one.

The first step should be to quantify the liability to corporation tax - which will probably involve passing your books and records to your accountant. On turnover of £60k, assuming a salary of £7k, subscriptions of £5k, travel of £5k, accountancy of £1k, other sundry costs of £2k, you are potentially looking at a profit of £40k and therefore a tax liability due for payment by 1 January 2013 of £8k.

You then need to look at how long it will take the limited company to generate sufficient cash to pay this liability and approach HMRC with a payment plan. HMRC will explore other options available to you - such as personal borrowing, selling assets and if no other options are found, and HMRC reject your proposed payment plan then you can consider a voluntary strike off after the company has ceased trading for a period of three months.

Has the locum work dried up completely or just on a reduced level? All of my locum clients are still earning a good living as far as I am aware

 

[Simba7]

Thanks for your input. The Locum work has dried out and is very reduced at present. I've had personal debts (family etc) to deal with. If one was to spend money from there business account for personal expenditure i.e mortgage, shopping, leisure etc, is that wrong? How are you meant to survive then of you can't touch the money? Just to let you know I always used my limited company to develop a website(s) and that has gone bust, so can I use that to lower my taxes?

 

[Mitchells Bristol]

You mentioned PAYE in an earlier post - if all of the cash has been paid to you as a net salary, and the PAYE accounted for to HMRC then you have nothing to worry about. If you have just drawn the cash out of the business effectively as a loan, then this is owed back to the company and can therefore be used to contribute toward the corporation tax liability.

In relation to the website - there may be a possibility to offset any costs you have incurred in this respect. It depends when the costs were incurred and if they relate to the locum business or a separate trade.

So what is the projected turnover from the locum business for the year to 31 March 2013?

 

[Simba7]

But do I need to tell HMRC how much of it I'm taking as a 'loan' or is that upto me when I file my accounts? I've been paying PAYE for the minimum 8k I think.

Projected turnover I think is 15k, no deductions of costs or
Anything. It's been bad for me.

 

[Mitchells Bristol]

But do I need to tell HMRC how much of it I'm taking as a 'loan' or is that upto me when I file my accounts? I've been paying PAYE for the minimum 8k I think.

Projected turnover I think is 15k, no deductions of costs or
Anything. It's been bad for me.

The loan will be disclosed in the accounts. Presumably there was no director loan at the end of March 2012, and this was built up from April onwards? So the loan balance will form part of your March 2013 accounts if you get as far as sumbitting these.

It may also come up when you speak to HMRC about a time to pay arrangement - if you go down this route.

A marketing push may be required to boost sales.

 

[Anonymouse72]

i feel for the OP & hope you get this sorted out without too much hassle, BUT, this clearly shows how you can't just go setting up a Limited company without any understanding of the responsibilities or how things will work/need to be accounted for.

again, no offence intended to the OP, you're not the first, & i very much doubt you'll be the last either!

 

[Simba7]

Hi guys. I've decided to close my company down. But I still need to work as a Locum. I want to start fresh and have learnt from my mistake. Can I open a new company up and start Locuming immediately? Should I open it before I apply to close it down or is that illegal? Because there's this 3 month rule, but is that rule for the proposed 'closed company' and not the new company I want to trade in? or is the 3 month rule ON ME personally regardless number of ltd companies I open?

 

[Walkol]

i feel for the OP & hope you get this sorted out without too much hassle, BUT, this clearly shows how you can't just go setting up a Limited company without any understanding of the responsibilities or how things will work/need to be accounted for.

again, no offence intended to the OP, you're not the first, & i very much doubt you'll be the last either!

With the greatest respect, I do not feel for the OP at all. While I understand that there should be a mechanism to protect directors from personal liability, when every single day, so many people abuse the system like this, it really stinks.

There, imo, it should be much more difficult to start a limited company, and much harsher penalties for those who liquidate companies.

 

[Anonymouse72]

With the greatest respect, I do not feel for the OP at all. While I understand that there should be a mechanism to protect directors from personal liability, when every single day, so many people abuse the system like this, it really stinks.

There, imo, it should be much more difficult to start a limited company, and much harsher penalties for those who liquidate companies.

i agree completely!

perhaps i should have been clearer, i feel for the OP as it's a big mess & needs sorting asap?

but, they should have made themselves more aware of what was involved, hindsight is a wonderful thing. then on the other hand, the current system allows this to happen!

 

[Simba7]

Sorry but you havnt answers my question. Also what's OP stand for?

 

[Homshaw]

You have earned 60K and you have no intention of paying any tax.

Some of the advice on this forum is bordering on obscene

 

[Simba7]

Most of what I earnt was spet on business investment and expenditures. My situation is honest and it has stressed me out. I have paid my first year of taxes with no issues, this year it had hit heard and I lost money from the wrong investments. But HMRC won't see that would they? They want to see numbers and want there money, regardless of it makes me homeless.

 

[Homshaw]

Investment in your business is tax deductible by way of Capital Allowances

You are a locum. You earn good money and I would have thought it was near impossible to lose money.

Money should have been put aside to pay your tax in a safe place not high risk investments where there is a chance of losing money

I have people who earn a fraction of what you do on my books and they pay their taxes. Why do you feel you are special?

I have no sympathy with you. You hasve earned 60K and want to pay no tax. Where do you think the money comes from to pay locums?

 

[Paul_Rosser]

You have earned 60K and you have no intention of paying any tax.

Some of the advice on this forum is bordering on obscene

I totally agree that it's terrible anyone could run a firm, make 60k and then have it struck off to avoid paying corporation tax.

I couldn't believe it myself when I first saw it suggested in the thread I previously posted, but UKBF is meant to offer impartial advice regardless of how morally wrong you feel the advice may be.

 

[Paul_Rosser]

Sorry but you havnt answers my question. Also what's OP stand for?

OP stands for Original Poster, as in the person who started the conversation off...in this case you.

 

[David Griffiths]

but UKBF is meant to offer impartial advice regardless of how morally wrong you feel the advice may be.

But nobody is obliged to give such advice.

 

[Paul_Rosser]

But nobody is obliged to give such advice.

Good point.

No one is obliged to give any advice, but when they do choose to should it not be impartial and not based on ones personal feelings of whats right and wrong?