How to Close Your Limited Company
We sometimes hear from clients who want to cease trading and request to close their limited company . Where the limited company does not have any debts, other than money owed to company directors, it is fairly straight forward to close the limited company.
The dissolution method known as “voluntary strike off” can be followed and the directors simply need to follow the Companies House prescribed process. The company directors will need to complete and sign form DS01 which can be downloaded here.
Once complete the form must be posted to Companies House at the address provided and a cheque for £10 will need to be enclosed. This is an admin fee levied by Companies House for the strike off of a limited company.
You must ensure that you have taken the following steps prior to applying for voluntary strike off:
1) The company has ceased trading and has not traded in the last three months;
2) You have informed HMRC as they will expect a final set of accounts and for any tax to be settled – although if you do close your limited company before submitting your final corporation tax return it is likely that HMRC will not ask for payment as the company has been dissolved;
3) All creditors must be informed prior to your application for voluntary strike off.
Finally, don’t forget to close your business bank account before the company is struck off. If you don’t the bank account will be frozen and any remaining balance will be lost to the Crown.
This is a new HMRC Online system that will be introduced from April 2013. It will require employers to file their payroll details with HMRC every month/week before they are able to pay their staff. This means employers will no longer be able to give cash advances to staff which then later deduct from their wages.
Currently employers only file a summary of this information once a year which has led to issues in recent years with individuals under or overpaying taxes due to incorrect tax codes. This new system will mean that the information held by HMRC should be up to date and hold accurate details of an individual’s earnings at any point during the year.
HMRC claims that RTI will:
Payments and penalties
Under the current system of annual filing HMRC are unable to tell if employers are paying the correct amounts of PAYE & National Insurance contributions throughout the year however the new monthly reporting system will enable them to check this.
The penalty system was updated in 2010 in anticipation of the new RTI service and penalties will be imposed based on the number payment defaults on a percentage basis. The percentage penalties range from 1% for 2 to 4 defaults in the year to 4% for 10 or more. Employers paying 6 months late will incur a penalty of 5% with a further 5% charged if the payment is 12 months late. HMRC have said that they will issue warning letters for first and second defaults before penalties are issued so that employers are aware of the risk of incurring penalties.
Payroll software will need to be updated so that it can pass the information to HMRC. All payroll software developers will have accounted for this but you need to make sure you have got the necessary update. If you are not using payroll software you will need to use this going forward, however there is some free software provided by HMRC called Basic PAYE tools that is available for small employers.
There will be a payroll alignment process before each employer goes onto the RTI system so it is important to make sure you hold all the necessary employees details beforehand (name, address, National Insurance number and date of birth).
Owner managed businesses
We had been hoping there would be an exemption for owner manage businesses who currently only file an annual payroll return as they are paid below the limits for Income tax and National Insurance. As the deadline is fast approaching and nothing has been announced we have to assume that these businesses will now have to file a monthly payroll return under the new system. This is a big increase in form filling for small businesses when the government had pledged to reduce red tape for businesses.
You may find this HMRC checklist useful http://www.hmrc.gov.uk/payerti/getting-started/business-readiness-checklist.pdf
If you have not yet filed your 2011/12 tax return the self assessment deadline is the end of this month (31st Jan), if you miss this date by even a day you will incur an automatic £100 penalty regardless of the tax you owe. We can take the worry and stress away for a very competitive fixed fee, we offer weekend and evening appointments and free tax advice throughout the year, we will also deal with HMRC on your behalf, leaving you free time to concentrate on running your business.
Choosing an accountant can be a daunting task which is why we have set out below some guidance to help you make the right decision for your business whether its a simple tax return or a prospering limited company/LLP
Should I pick the cheapest?
Unfortunately a number of accountants choose to compete on price rather than service, you want an accountant that will help your business grow not just compliance, see what services are being offered and always get fees agreed in advance. We are not the cheapest as we offer a 5* service to our clients however our fees are competitive.
Will the most expensive accountant provide the best service?
This is not the case in our experience, the larger firms tend to charge more than the smaller firms but the work is actually delegated to a junior member of staff, therefore you may find yourself paying a premium for a service which is not the best. Smaller firms (such as ourselves) offer a much more personal contact with a dedicated accountant which you can contact immediately who knows your business intimiately, all for a competitive fee, which can be paid monthly (in our case anway)
Do I need a local accountant?
Its helpful for meetings but not essential, the specialist service they provide is far more important, we look after clients in the surrounding area i.e Brighton, Hove, Portslade, Eastbourne, Shoreham etc however technology has enabled us to also look after clients all over the UK by liasing via telephone/email & skype etc
What else should I consider?
Once you have found your accountant treat him/her with courtesy i.e don't ignore them or send them your figures at the last minute and also make sure their fees are paid on time, this will ensure a mutually beneficial working relationship
If you would like us to provide a no obligation quotation or free consultation please don't hesitate to get in touch using the contact us link.
Sole Trader Vs Limited Company
Corporation tax is currently 20%, for profits under £300,000 and 24% for profits above £1,500,000. Therefore conversion of your business into a limited company is more beneficial than before. You will enjoy a marginal rate tax saving of 9% from 1 April 2011, compared to 8% previously. This is compared to running your business under self assessment where Income Tax is 20% and Class 4 National Insurance is 9% for profits up to £42,475, profits up to £150,000 will be subject to 40% Income Tax and 2% National Insurance. Profits over £150,000 will be taxed at 50%. There are other factors to consider before incorporation its best to get in touch with us first.
Annual Investment Allowance
Where a business currently purchases plant and machinery, the first £25,000 of the expenditure qualifies for 100% tax relief in the year of the expenditure.
VAT Flat Rate Scheme
If you are mainly working for commercial customers it may suit your circumstances to register for VAT under Flat Rate Scheme voluntarily, even if your turnover is below the new VAT turnover threshold of £77,000 per annum. This is on the basis that you do not have much input VAT to reclaim (i.e. service companies). The scheme allows you to charge 20% to your customers, but only pay a smaller percentage of the gross turnover to HMRC. For example a computer consultant with a turnover of £50,000 would charge his customer 20% VAT and therefore receive £60,000, the additional £10,000 would be paid to HMRC, however under the Flat Rate Scheme only 14.5% of the gross turnover needs to be paid i.e. £60,000 x 14.5% = £8,700. Therefore a VAT saving of £1,300, which is taxable.
You will also enjoy a 1% discount during the first 12 months from date of VAT registration under the Flat Rate.
N.B - each industry has its own specific flat rate percentage.
1. Generally speaking its more tax efficient than employment
2. More control over your personal income: No tax deducted at source or NIC
3. You can claim valid business expenses: Expenses lower the profit of the limited company, this decreases the tax it has to pay. This is a huge benefit for contractors because you can now claim expenses that you would not have been able to claim as a permanent employee.
4. Flat Rate VAT option: Under the flat rate vat scheme you pay VAT over to HMRC at a rate specific to your industry, but you still charge VAT at the normal rate (20%). The rate you pay to HMRC is always lower than the current VAT rate. Bear in mind its calculated on your gross sales.
5. National Insurance Uplift: Most recruitment agencies will offer you a National Insurance (NI) uplift if you decide to contract through a limited company. If the recruitment agency pays you like a normal employee (PAYE) they will deduct Employer National Insurance tax
When you are a contractor you get paid for your services rendered, you do not get paid a gross salary which means no Employer National Insurance tax is payable by the recruitment agency. So in effect they save 12.8% tax. This is why the contractor’s rate is normally higher by 12.8% than the gross salary rate the recruitment agency will offer you.
Disadvantages: 1. If you don’t work, you don’t get paid: As a permanent employee you usually get permanent employee benefits like annual leave and sick leave. As a contractor you won’t have these benefits.
2. Accounting costs: This will off course be an expense to your limited company. However if you manage your company properly then your tax savings and higher rate could easily absorb these costs so you’ll still be much better off contracting through a limited company.
3. Administrative hassle: you’ll have some basic responsibilities as the director of a limited company. Responsibilities include the raising of invoices and payment of taxes at specific times during the year. Once you’ve got the hang of it, the tax saving of contracting through a limited company will be well worth the extra administrative tasks.
Before going ahead its important to seek professional advice, for example, IR35 affects all contractors who do not meet the Inland Revenue's definition of 'self employment'. The IR35 rules will result in an increased tax and N.I. liability and will prevent contractor companies from retaining profits to grow their business in the future.
Licenced Accountant in Brighton