Accounting questions

[timo]

Hi,

I've recently started working under my own ltd company (was with an umbrella previously) and just have a couple of questions while I'm looking into accounting.

I'm pretty sure this is not true, but my colleague (who has been contracting for a few years with a ltd company) swears that you don't have to pay tax in the first year of starting up a ltd company, as an aid to new start-ups. Although it sounds very dodgy to me and I can't see any info on this anywhere, is there any truth to this or at least any tax incentives or discounts for starting up a company?

Secondly (if you've stopped laughing at my first question), while I think my accounts are going to be quite simple, I'd rather somebody else does the work for me, so am thinking of getting an accountant. However, can someone tell me does the accountant actually have to do something every month that would require me to pay them a monthly fee, or could I just sort out everything at one time, once a year?

Thanks,
Timo

[partimer]

re: Accounting questions

LOL



You don't have to pay tax ever, but I suggest you have a one way ticket to Rio handy !

I think your friend was confused by the zero percent corp tax which is now gone. What ever you do get proper advice since "difference bewteen tax avoidance and tax evasion is the thickness of a prison wall". Maybe he's confused with zero VAT rate ?

Ignorance is something the IR won't take as an excuse. In fact as a director you have legal obligations to complete ...

As for the accountants. Doesn't the payments amount to the same thing ?
One off payment at year end for X pounds is the same as X / 12 for monthly payment. Easier for you to prepare your account at the end of each month but you'll still end up paying the same when all is said and done.

Most accountants work on a fixed price and not a percent of how much work they did. Same as a contractor goes normally by hours worked and not how much effort was involved.

[fiddleabout]

Re: re: Accounting questions

Most contractor accountants do work for you every month and you pay a fixed monthly fee as you go along.

If you've been contracting some time and didn't have an accounatnt to start with you've missed out on some worke being done for you already - PAYE and VAT for starters.

You haven't by any chance just been withdrawing the money from your company account have you?

[silicondale]

zero percent corporation tax

The zero percent corporation tax band is still there. It's just that you can't take advantage of it when taking money out as dividends. You'll pay tax on all your dividends at an effective rate of 19/119 or about 15.8%, unless your total income pushes you into the higher rate bracket.

There is actually a way around this non-corporate dividends rule, if you can afford to accumulate retained reserves in the company for a while. You get the zero percent corporation tax break for the first year. Then if your company doesn't make a taxable profit in the next accounting period, you can pay out all the retained reserves as dividend and there's no tax to pay on it. The reason this works is that the "non-corporate dividend" tax rate is an adjustment to corporation tax - and if you're not actually paying this, thenre's nothing to adjust.

Only problem, is the rules are complex, and the notional tax liability on untaxed dividends is simply carried forward, so your company must never again make a profit otherwise you'll pay the deferred 15.8% at some stage.

You can of course avoid that problem by making so much profit in the third year that your company is above the £50,000 marginal rate ceiling ! The notional tax then just gets wiped out.

Thanks a bunch, Gordon B and Dim Prawn - It would have been much easier for everyone if you'd just admitted your zero percent CT was a mistake, and gone back to the 10% starting rate we had before.