couple of questions - expenses, bank account and taxes :-)

[craig1]

On the debit/credit card thing. Many years ago I got advice that I should do my damnedest to separate private and business expenditure wherever possible as that gives HMRC no route in to investigating your own accounts. It was mainly around banking but the advice was that if I can split out personal and business card transactions then that's just one more tick in the separation box.

For items that are potentially dual-use, such as laptops, buying them with a company account just makes it in no doubt where the ownership of the kit lies and avoids some of the dual-use questions that might be thrown in an audit.

[malvolio]

From my experiences with sjd one of the first things they will do is setup a call with you to go through all these kinds of questions which is very useful. Things like whether you should take salary when moving from perm part way through the tax year, vat/flat rate scheme, share allocations etc. Anything else i normally drop them an email and they generally respond the same day.

As others have mentioned HSBC are a good option. If you open in a branch (don't be tempted to do online as it will take weeks!) then you should get an account number the same day and debit card/cheque book within a week.

Deffo go with HSBC. Does what it says on the tin, has all the services you will need and never any problems in 15 years.

And talk to SJD (email or voice) - they will always answer your questions.

[ddaft]

From my experiences with sjd one of the first things they will do is setup a call with you to go through all these kinds of questions which is very useful. Things like whether you should take salary when moving from perm part way through the tax year, vat/flat rate scheme, share allocations etc. Anything else i normally drop them an email and they generally respond the same day.

As others have mentioned HSBC are a good option. If you open in a branch (don't be tempted to do online as it will take weeks!) then you should get an account number the same day and debit card/cheque book within a week.

[predo]

Worth noting that when you first register for VAT you can claim back VAT on anything you've purchased in the last six months (even on FRS). So buy your laptop etc. before registering and you can claim back VAT. Might also be worth seeing if you can pay for a year's accountancy in advance!

does it need to be BEFORE registration or is it within first 6 months since registration (regardless if FRS or normal)?

EDIT: ok I've found it. Services up to 6 months before registration, good up to 4 years before registration.

Also how does the switch from FRS to normal VAT claiming works?
assuming my new 6 months contract will be at a rate that, if it would go on for 12 month it would take me above threshold. Do I just now register for FRS now assuming i'm not going to hit the upper limit and then when I'm near the limit I swap for the remainder of the tax year?
Or do I need to decide with my accountant just now?

[mudskipper]

The downside is that on the FRS you can't claim back VAT on your inputs. Normally, if you brought a laptop for £1,200 you could claim back £200 VAT but on the FRS you can't. The exception is if it's a capital expenditure of over £2,000 so if you are going to buy some stuff then consider going large.

Worth noting that when you first register for VAT you can claim back VAT on anything you've purchased in the last six months (even on FRS). So buy your laptop etc. before registering and you can claim back VAT. Might also be worth seeing if you can pay for a year's accountancy in advance!

[Wanderer]

1. bank account - people seem to recommend CA - I think I might go for them but I'm slightly worried that they don't provide debit card until after 6 months of trading. Is this big inconvenience? I would think that it would be easier to book hotels/flights etc directly with company card so I don't incur expenses from my own money.

I prefer to use my company VISA and pay things directly because it keeps things simple but as nomadd says, there is no problem using your personal card then claim it back and get your company to reimburse the expense (the same day if you like). If you have a credit card then you don't have to pay it off for 6 weeks so even large expenses shouldn't be such a problem.

a) after end of the month I invoice my client (agency) for amount of days x daily rate

Invoice your agency weekly if you can. If you invoice monthly and their payment terms are 30 days then you are allowing them up to 60 days credit. Minimise your risk by invoicing weekly is my advice.

c) I pay myself nmw salary - that is taxed at paye rates and NI is paid as well

No, if you are a company director then you do not have to pay yourself NMW, you can pay yourself whatever you like. I suggest £7072/year or £589/month because that way you don't pay any PAYE or NI so there's less admin. The accountant may suggest some higher figure like £12,000/year but that means you would pay more tax for no reason.

d) for any expenses I paid with my personal money I can issue myself a cheque - this isn't taxed

Correct, but don't go thinking that everything your company pays for is "free", all you are actually doing is drawing this money from the company tax free so effectively you are getting about 25% of the expense back.

f) once every 3 months company will pay me a dividend - that is not taxed providing my salary is in basic tax bracket

You can draw dividends at any time that the company has profits. A quirk is that if you raise an invoice then you can declare a dividend against that invoice even before it's paid, so long as you have a reasonable expectation that it will be paid and not become a bad debt.

at the end of the financial year I also need to pay VAT - assuming I join flat rate scheme its 12% in first year - how does it work - which amount is used to calculate VAT, is it like corporation tax so I don't pay VAT twice for my company expenses (like I bought laptop, paid 17.5% VAT on it already so I don't need to pay additional 12% on that amount)

VAT is every 3 months. Your accountant will tell you when and how much to pay. When you invoice you put the VAT number on the invoice and show the amount of VAT at 20%. So if you invoice for £1,000 + £200 VAT = £1,200 you then pay 12% of this total (£144) to the VAT man and keep the £56 for your trouble.

The downside is that on the FRS you can't claim back VAT on your inputs. Normally, if you brought a laptop for £1,200 you could claim back £200 VAT but on the FRS you can't. The exception is if it's a capital expenditure of over £2,000 so if you are going to buy some stuff then consider going large.

Remember that in a business to business relationship you always quote prices as Ex-VAT. So if you agree a daily rate of £100/day then you bill for £120 including VAT.

[SueEllen]

I tend to still use my own card and simply reimburse at the end of the month when I pay my salary. This is a carry-over from the days (still true?) when you had a lot more protection on a personal card. Whatever, I've got by without a company credit card for 23 years. Others might have a different opinion.

It's still true.

However if the item goes wrong and ownership has been transferred to the business, it would be fraudulent to claim it under consumer protection laws.

[predo]

thanks!!!

I'm not asking for spoon feeding - I WILL be using accountants and read SJD guide back to back. What I want to do is ask for confirmation that I do understand things correctly myself as well.

I'll get on further reading because I think its the VAT that I'm yet to understand fully.

[nomadd]

hi, first post here so please don't flame me :-)

I'm just about to go contracting, currently in permanent role but I've agreed to the role already and will be signing up contract early this coming week.
I've already sent out company registration application using SJD so waiting for this to go through and decided that I'll initially appoint SJD as accountants as my good friend is using them and is happy so I thought this will be least hassle option.

But I have couple of queries that I want to clarify first.

1. bank account - people seem to recommend CA - I think I might go for them but I'm slightly worried that they don't provide debit card until after 6 months of trading. Is this big inconvenience? I would think that it would be easier to book hotels/flights etc directly with company card so I don't incur expenses from my own money.

I tend to still use my own card and simply reimburse at the end of the month when I pay my salary. This is a carry-over from the days (still true?) when you had a lot more protection on a personal card. Whatever, I've got by without a company credit card for 23 years. Others might have a different opinion.

2. sort of coming from first question - for anything I spend on company - need to buy laptop for example, if I buy it with my own money - do I need to let person at the checkout know that this is for company use (to provide me with different type of receipt or something?) or do I simply buy it and issue myself a cheque (or bank transfer) for exactly same amount of money from company's bank account as an expense?

Again, I tend to buy "big ticket" items with my own card and reimburse. Never had a problem with that. Just make sure when you buy it it's bought for the company (not your name) and get a VAT receipt. Also look at the "fixed rate" VAT scheme. Might work out better for you if you don't claim back much in VAT on a regular basis (and you can still claim the VAT for big ticket items - over £2k, I think.) Get yourself a good accountant and they will advise you on all this.

3. regarding tax payments. Can someone clarify I understand the whole process right?
In very simple terms -
a) after end of the month I invoice my client (agency) for amount of days x daily rate
b) they pay money to company's bank account
c) I pay myself nmw salary - that is taxed at paye rates and NI is paid as well
d) for any expenses I paid with my personal money I can issue myself a cheque - this isn't taxed
e) if I need to pay for anything with bank transfer I can transfer it directly from company's bank account
f) once every 3 months company will pay me a dividend - that is not taxed providing my salary is in basic tax bracket
g) at the end of financial year I need to pay corporation tax - total amount taxable is total of invoices (company income) minus expenses. Dividends are included in this taxable amount but expenses aren't is that right?

a). Yes. Don't forget to add the VAT. You'd be surprised how many new folks ask that question around here.
b) Yes. With the VAT on top.
c) Yes. Your accountant does most of this set-up for you. You simply use online banking to do the transfers.
d) Legitimate items, yes. I just simply add it up each month and pay it as a single transfer with my salary. Keep all the receipts and send them to your accountant.
e) Yep.
f) Roughly right. Again, speak to you accountant for the details. As your salary, accountancy fees, equipment depreciation, "office" items (maybe part of a phone bill, internet connection, mobile phone, trade magazines/subscriptions, yada, yada) can usually all come out before corp. tax. Company vehicles (I have a motorbike) also need special care.

4. that should be really g) for the last question but deserves its own point :-)
at the end of the financial year I also need to pay VAT - assuming I join flat rate scheme its 12% in first year - how does it work - which amount is used to calculate VAT, is it like corporation tax so I don't pay VAT twice for my company expenses (like I bought laptop, paid 17.5% VAT on it already so I don't need to pay additional 12% on that amount)

Longish first post but I think this should sort out all of my questions I've been trying to find answers to.

Thanks guys!!!

See my earlier points. Speak to your accountant. But yes, in general, you'll pay less than the 20% (not 17.5%) you've added onto your invoices. Oh, and VAT isn't Corp. tax - it's paid on a quarterly basis, not annually.

[SueEllen]

But I have couple of queries that I want to clarify first.

1. bank account - people seem to recommend CA - I think I might go for them but I'm slightly worried that they don't provide debit card until after 6 months of trading. Is this big inconvenience? I would think that it would be easier to book hotels/flights etc directly with company card so I don't incur expenses from my own money.

You can open an account with someone else i.e. the bank you bank with, HSBC(who open accounts quickly) then change to CA once you have been trading for a while. There is nothing stopping you from changing business banks.

2. sort of coming from first question - for anything I spend on company - need to buy laptop for example, if I buy it with my own money - do I need to let person at the checkout know that this is for company use (to provide me with different type of receipt or something?) or do I simply buy it and issue myself a cheque (or bank transfer) for exactly same amount of money from company's bank account as an expense?

Just make sure the receipt is a VAT one (most receipts are), transfer ownership to the company and then claim the amount back. You do need to record somewhere in your accounts that is what you have done.

3. regarding tax payments. Can someone clarify I understand the whole process right?
In very simple terms -
a) after end of the month I invoice my client (agency) for amount of days x daily rate
b) they pay money to company's bank account
c) I pay myself nmw salary - that is taxed at paye rates and NI is paid as well
d) for any expenses I paid with my personal money I can issue myself a cheque - this isn't taxed
e) if I need to pay for anything with bank transfer I can transfer it directly from company's bank account
f) once every 3 months company will pay me a dividend - that is not taxed providing my salary is in basic tax bracket
g) at the end of financial year I need to pay corporation tax - total amount taxable is total of invoices (company income) minus expenses. Dividends are included in this taxable amount but expenses aren't is that right?

1. Read the first timers guide (look under CUK navigation on the RHS and click on "First Timers")
2. Go on to the PCG website register for free and read their guide to contracting

3. Finally get yourself an accountant, and see how they suggest you pay yourself and your dividends.

4. that should be really g) for the last question but deserves its own point :-)
at the end of the financial year I also need to pay VAT - assuming I join flat rate scheme its 12% in first year - how does it work - which amount is used to calculate VAT, is it like corporation tax so I don't pay VAT twice for my company expenses (like I bought laptop, paid 17.5% VAT on it already so I don't need to pay additional 12% on that amount)

Get yourself an accountant as soon as you know you are getting a contract

They may register your company for you, making sure you don't **** up how you set up the dividends, set up and administer your payroll, register your company for VAT, register your company for the VAT flatrate scheme, do the VAT calculations for you (though they are really easy to do yourself) and advise you on what expenses you can claim. They may also throw in doing your self-assessment for free plus can help you with getting a CA account.

Oh and VAT is normally paid by the likes of us quarterly. Though the HMRC website has lots of useful information. I find it's best to search it using google and putting the words "HRMC" before my other search term.

Remember - We are not here to spoon feed you, and while the accountants, lawyers and others can often help you on here as we don't know your particular situation so take any advice with a pinch of salt. Also while your accountant is can advise you, s/he isn't the financial director of your company.

[predo]

hi, first post here so please don't flame me :-)

I'm just about to go contracting, currently in permanent role but I've agreed to the role already and will be signing up contract early this coming week.
I've already sent out company registration application using SJD so waiting for this to go through and decided that I'll initially appoint SJD as accountants as my good friend is using them and is happy so I thought this will be least hassle option.

But I have couple of queries that I want to clarify first.

1. bank account - people seem to recommend CA - I think I might go for them but I'm slightly worried that they don't provide debit card until after 6 months of trading. Is this big inconvenience? I would think that it would be easier to book hotels/flights etc directly with company card so I don't incur expenses from my own money.

2. sort of coming from first question - for anything I spend on company - need to buy laptop for example, if I buy it with my own money - do I need to let person at the checkout know that this is for company use (to provide me with different type of receipt or something?) or do I simply buy it and issue myself a cheque (or bank transfer) for exactly same amount of money from company's bank account as an expense?

3. regarding tax payments. Can someone clarify I understand the whole process right?
In very simple terms -
a) after end of the month I invoice my client (agency) for amount of days x daily rate
b) they pay money to company's bank account
c) I pay myself nmw salary - that is taxed at paye rates and NI is paid as well
d) for any expenses I paid with my personal money I can issue myself a cheque - this isn't taxed
e) if I need to pay for anything with bank transfer I can transfer it directly from company's bank account
f) once every 3 months company will pay me a dividend - that is not taxed providing my salary is in basic tax bracket
g) at the end of financial year I need to pay corporation tax - total amount taxable is total of invoices (company income) minus expenses. Dividends are included in this taxable amount but expenses aren't is that right?


4. that should be really g) for the last question but deserves its own point :-)
at the end of the financial year I also need to pay VAT - assuming I join flat rate scheme its 12% in first year - how does it work - which amount is used to calculate VAT, is it like corporation tax so I don't pay VAT twice for my company expenses (like I bought laptop, paid 17.5% VAT on it already so I don't need to pay additional 12% on that amount)

Longish first post but I think this should sort out all of my questions I've been trying to find answers to.

Thanks guys!!!