Help with accountant and company set up AND 2 sources of Income HELP!?

[dexterabn]

Hi everyone,
My first post so be kind!
I'm just starting up a new company and i'm a little concerned with my accountant and how theyve dealt with my requests.

My position;

I work in the medical profession with a relatively high income, borderline 50%. I've incorporated half my private income to run through a company (i cant incorporate it all due to current NHS pension position but may be able to in the future, ie 2015).
I don't want to take any of the income out of the company.
I want to build it and every other year buy a small terrace property to rent out, gradually building a property rental business.

My accountant has quoted me £1400+vat a year on top of the £440+vat i pay for self assessment to do my company accounts. This does not include bookkeeping. She quoted my £350 to set up the company which i did myself for £15 after reading the forums here. (so thanks!) It took 15 mins with companies house.

I have been told i do not need to register for VAT on my medical side and I will not yet be paying a salary from the company.

My accountant told me the following today after enquiring about the above A MONTH ago;

"The tax dept have now got back to me over the question of the corporation tax rate.

Even though the company will have some investment income, the majority of its income will come from the trade of “Associate”. Accordingly the small profits rate of 20% will apply rather than the standard rate of 24%. Incidentally, the Autumn Statement last week announced that this standard rate will be falling to 21% over the next couple of years, so the differential will be marginal.

Expenditure on properties will not be eligible for relief from corporation tax, i.e. it wont be set against your income from the NHS. The cost of the properties will be capitalised in the balance sheet. Should you sell a property in the future then the profit on the sale would be a chargeable gain and subject to Capital Gains Tax (same rate as corporation tax), the profit being the difference between the sale and purchase prices. Effectively you will only get tax relief on the cost of the properties at the point of sale.

Also be aware that the profit in the company subject to corporation tax will income rental income less the expenses of rental."

My questions are as follows;

1) Am I being shafted for accountancy fees, considering my accounts will at present be VERY simple until the company buys property? i.e cheques into bank, pension paid and corporation tax paid only.
2) Should I consider self assessment for the company while the accounts are simple?
3) Can a company legitimately have two sources of income with tax relief on costs from both areas? Or is the accountant right? (I dont know why she's calling it an investment company, i want to buy property to rent out, so shouldnt i be able to have tax relief on expenditure on the property rental side of the company?)
4) Would the cost of a property come off the company profits if made as a capital purchase as my accountant has suggested? She seems to be or has confused me.
5) I've been considering joining PCG is it worth it?
6) SJD accountants offer a package when joining PCG for Accountancy @ £96.50 per month + VAT or Accountancy + Bookkeeping @ £126.50 per month + VAT. Any advice on what you experts think i need?

I realise this is a long post and I really appreciate anyone who takes the time and trouble to read and help advise me on these questions.
Thanks again for all the help to other people on the rest of the board that has helped me also!

Cheers.

[Nathan SJD Accountancy]

Hi everyone,
My first post so be kind!
I'm just starting up a new company and i'm a little concerned with my accountant (morris & co) and how theyve dealt with my requests.

My position;

I work in the medical profession with a relatively high income, borderline 50%. I've incorporated half my private income to run through a company (i cant incorporate it all due to current NHS pension position but may be able to in the future, ie 2015).
I don't want to take any of the income out of the company.
I want to build it and every other year buy a small terrace property to rent out, gradually building a property rental business.

My accountant has quoted me £1400+vat a year on top of the £440+vat i pay for self assessment to do my company accounts. This does not include bookkeeping. She quoted my £350 to set up the company which i did myself for £15 after reading the forums here. (so thanks!) It took 15 mins with companies house.

I have been told i do not need to register for VAT on my medical side and I will not yet be paying a salary from the company.

My accountant told me the following today after enquiring about the above A MONTH ago;

"The tax dept have now got back to me over the question of the corporation tax rate.

Even though the company will have some investment income, the majority of its income will come from the trade of “Associate”. Accordingly the small profits rate of 20% will apply rather than the standard rate of 24%. Incidentally, the Autumn Statement last week announced that this standard rate will be falling to 21% over the next couple of years, so the differential will be marginal.

Expenditure on properties will not be eligible for relief from corporation tax, i.e. it wont be set against your income from the NHS. The cost of the properties will be capitalised in the balance sheet. Should you sell a property in the future then the profit on the sale would be a chargeable gain and subject to Capital Gains Tax (same rate as corporation tax), the profit being the difference between the sale and purchase prices. Effectively you will only get tax relief on the cost of the properties at the point of sale.

Also be aware that the profit in the company subject to corporation tax will income rental income less the expenses of rental."

My questions are as follows;

1) Am I being shafted for accountancy fees, considering my accounts will at present be VERY simple until the company buys property? i.e cheques into bank, pension paid and corporation tax paid only.
2) Should I consider self assessment for the company while the accounts are simple?
3) Can a company legitimately have two sources of income with tax relief on costs from both areas? Or is the accountant right? (I dont know why she's calling it an investment company, i want to buy property to rent out, so shouldnt i be able to have tax relief on expenditure on the property rental side of the company?)
4) Would the cost of a property come off the company profits if made as a capital purchase as my accountant has suggested? She seems to be or has confused me.
5) I've been considering joining PCG is it worth it?
6) SJD accountants offer a package when joining PCG for Accountancy @ £96.50 per month + VAT or Accountancy + Bookkeeping @ £126.50 per month + VAT. Any advice on what you experts think i need?

I realise this is a long post and I really appreciate anyone who takes the time and trouble to read and help advise me on these questions.
Thanks again for all the help to other people on the rest of the board that has helped me also!

Cheers.

Hello... I have dropped you a PM. :-)

[northernladuk]

Hello... I have dropped you a PM. :-)

Would have been nice if you had dropped the reply with quote as well

[Craig at Nixon Williams]

Hi dexterabn

I have answered your questions below:

1. The accountancy fees do seem a little steep given that initially the financial affairs of the company should be relatively simple. I’d only really expect fees to increase once the company begins to invest in properties etc.
2. Not too sure what you mean by this, but if you mean preparing the accounts yourself I would always advise that you appoint an accountant (though I accept that you may see my opinion as being biased).
3. Basically the company will have two separate trades – the consultancy business and the rental business and the expenditure from one trade cannot be offset against the income from the other. You will still be able to get tax relief on expenses relating to the rental business but these will only be able to be offset against rental income, therefore if there is no rental income then you won’t get tax relief against the rental expenses. If the company begins investing in properties, the company may (but not necessarily) be classed as a closed investment holding company, rather than a trading company and would therefore be subject to Corporation Tax at the main rate rather than the small company rate.
4. The cost of the property will not be corporation tax deductible in the year of acquisition but the cost will be taken into account against any chargeable gain arising on disposal of the property. If a capital loss is made, again this cannot be offset against other income made by the company, only against other capital gains.
5. If you are contracting then joining PCG may be a good idea, if you quote ‘NIXWIL’ you will receive a discount of 15%.
6. Until you start making the planned investments, any contractor accountant will be sufficient for the needs of your business and may save you a fair bit of money compared to what you are currently being quoted.

I hope this helps!

Craig

[Nathan SJD Accountancy]

Would have been nice if you had dropped the reply with quote as well

Haha. I did consider it.

[dexterabn]

Wow. Quick and excellent answers. I've gleaned more information and knowledge in a couple of hours than my old accountant in a month.
presume one of you will be hearing from me shortly.
Thanks for your replys folks. ;-)

[Jessica@WhiteFieldTax]

Please think twice abiut buying properties in your company; there is a high chance it will end in tears.

~ assets at risk if there is a claim against trading company
~ possible double tax on sale (dependant in circumstances)

[dexterabn]

Please think twice abiut buying properties in your company; there is a high chance it will end in tears.

~ assets at risk if there is a claim against trading company
~ possible double tax on sale (dependant in circumstances)

Sorry to drag my old thread back up.
I ended up going down the road of setting up a limited company.

Ive seen a commercial property for sale that needs ALOT of refurbishment. Once restored it will be a wedding venue like it used to be.

Since you all helped so much last time I was wondering if you wouldn't mind me picking your brains again!

My questions are these;

Rounded up my income deposited in the limited company at present will be around £150k a year before tax. This is solely from medical consultancy.

If I purchase this commercial property and put down a 10% deposit for a mortgage,

1) would the money put down or the cost of the property in any way have any tax relief from it? Or be drawn before profits and corp tax is paid?

2) there will be no income for several years from the building to use as a wedding venue as a lot needs spending on it. Would money spent by the company on restoring the property come off profits if the money in the company came from the medical income?

3) the company doesn't have to be VAT registered as it is medical (so I am told) so would I have any VAT to pay on the purchase of the property and the spend on refurbishment?

4) if no tax relief is gleamed from my medical income in the company, would it be more efficient to buy it privately considering I will be spending ALL on my left over income in restoring it.

5) Alternatively would the company be able to get a larger mortgage than the purchase price to spend on the propery refurbishment? (I don't know what business banking mortgages are like with lending at all)

6) finally, in the future, with the property in the companies holdings, what effects would this have on inheritance tax if any?

Thanks for all your help.

Dexter

[Jessica@WhiteFieldTax]

1a - no relief, other than against sale
1b - generally profits after tax. If your company owns the property, the deposit comes from profits after tax, if you own it personally then you will need to extract this e profits by dividend or salary.
2 - very unlikely. The circumstances in which refurbishments can be offset to income are very limited. They are most likely to be capital expenditure, I.e. funded from profits after tax
3a - double check your vat status - not enough detail is given to conclude whether you need to be registered or not.
3b - re vat on purchase: depends whether the property has been opted to tax (i,e to have vat on it)or not. That is a historic decision of the owner, and not affected by your affairs.
3c - refurbishments - depends on the vat status of the contractors you are using
4 - do the sums
5 - unlikely
6 - IHT - can only been considered in the context of a full estate review really, and beyond a free forum like this. Normally shares in a trading company are exempt from IHT, but an investment property complicates that. However it depends in how wills are written.

You are asking a lot of questions here, and we only have limited background. I would **strongly** advise you to have a structured discussion with your accountant.