A guide. to running your own limited company

Transcription

1 A guide to running your own limited company

2 2 Contents Sections Key things to consider before you set up a limited company...3 Setting up your limited company...4 Initial taxation planning and other considerations...5 Invoicing, collecting your cash and remuneration...6 Monthly, quarterly and annual deadlines...8 Dormant companies and closing down your company...9 SPi services and costs...10 Appendices An introduction to IR SPi Accountancy background and people...14 What people are saying about SPi...18

3 3 Key things to consider before you set up a limited company Employment vs. running your own company It is important to understand that the key difference between being in employment and running your own limited company is that you are entering business on your own account and this means you will be subject to a whole new set of laws, rules and regulations. Holiday pay and sick pay are associated with full time employment positions and this safety blanket does not exist for those running their own limited companies. Director s duties and responsibilities Any individual considering setting up a limited company must be eligible to act as a director (e.g. the individual must not be an undischarged bankrupt or subject to a disqualification order). As you will need to act as a director of your limited company this subjects you to various duties and responsibilities under the Companies Act It is not easy to summarise the role of a director in a few lines, and it is not a position to be accepted lightly, but as ever the law is only intended to ensure that reckless, incompetent or neglectful behaviour is targeted. You can be assured that SPi Accountancy will guide and advise you to make sure you have nothing to worry about. Time commitment We will do everything we can to make your contracting life as easy as possible, but there will inevitably be some work that you yourself must be prepared to undertake. For example, you will need to make payments from your limited company bank account to pay yourself and your taxation liabilities as they fall due, but don t worry, we will tell you exactly what needs to be paid and when. How long do you intend to contract for? You should think about the length of the contract you are about to undertake and whether it is appropriate to open a limited company to facilitate this and maybe future contracts. If you want to partially mothball your company as you are between contracts, SPi have a tailored service that allows all statutory deadlines to be met and the company to remain in existence until needed in the future. This service can be provided at just 15/month (plus VAT). IR35 considerations The Intermediaries Legislation commonly referred to as IR35, was introduced on 6th April The aim of the legislation was to eliminate the avoidance of tax / NIC by the use of intermediaries such as Personal Service Companies (i.e. your own limited company) in circumstances where the individual worker would otherwise for tax and national insurance purposes be regarded as an employee of the end client. This does not mean that contractors cannot run their affairs through a limited company but it does mean that IR35 should be considered if you are a contractor looking to run through your own company. SPi can help you here as we have linked up with independent specialist advisors to ensure that you get the advice that you need. We are aware of many accountants claiming to provide direct advice to contractors on IR35, however contractors need to be wary of this because there is a clear danger that the accountant may be conflicted in an attempt to win new business. As an ACCA practice, professional ethics are at our core, and we believe an independent IR35 review is in the contractors best interests and ensures that the law plays a large part in the decision to run through a limited company rather than any commercial interests of an accountant. SPi can facilitate this for you (from 95 plus VAT per contract review) and will gather the information needed to assess your IR35 position on a contract by contract basis. In short, you will receive independent advice on whether you are caught by IR35 whereby all of your earnings via your limited company will be treated as employment income and subject to the PAYE system (which is the most inefficient way of operating for a contractor) or you could be deemed to be outside of IR35 whereby you will be able to plan a salary/dividend strategy and legitimately optimise your net income.

4 4 Setting up your limited company Choose a company name and shareholder structure Once you have decided upon a name for your company, we will arrange for it to be set up with our specialist company software which is linked to Companies House. At this stage it is also important that you get the right advice on the corporate structure of your company regarding shareholdings and SPi will advise you on this. Open a limited company bank account You will need a bank account for your limited company and at SPi we have researched the market and met with various bankers to establish what the best all round account is and we have linked up with Royal Bank of Scotland plc to enable an account to be opened as quickly as possible. We also give our clients the option of authorising SPi with view only access to the limited company bank account in order to make it far easier for cashbooks and accounts to be kept up to date. Arrange adequate insurance cover You will also need insurance for your company as it will be required by any clients your company provides services to. SPi has linked up with a specialist insurance broker to arrange a blanket scheme, whereby insurance is included free of charge in our Liberty service (detailed below). The normal cost for a policy would be p.a. The following cover is in place under the policy through Royal Sun Alliance: Register with HMRC Your newly incorporated company will need to register for PAYE/NIC, VAT (and the VAT flat rate schemes in most cases), and CIS if appropriate. Registration for Corporation Tax happens automatically upon formation of the company. SPi will complete all of the necessary forms to register your company as required. We are also happy to be appointed as agents with HMRC for PAYE/NIC, VAT and CT issues should you so wish, in order that routine correspondence can be copied in to SPi to allow HMRC to deal with us if they have any routine queries. Choose the right accountant You will need to choose an accountant that is not only professionally qualified and competent but crucially the firm must be aware of the industry specific issues currently facing contractors such that you receive specialist advice. SPi Accountancy LLP is an ACCA registered and Professional Passport audited practice with qualified, experienced, friendly staff. We will talk you through all of the issues involved such that you can make your decisions based upon all of the salient facts. All initial consultation and meetings are free of charge so there is no pressure on you to make your mind up quickly as to how you wish to proceed. Employers Liability... 10M Public Liability... 5M Professional Indemnity... 2M Personal Accident Insurance... 20K

5 5 Initial taxation planning and other considerations It is important that you receive the right advice from the outset in all areas of taxation in order that you do not miss out on any taxation or other benefits of running through your own limited company. SPi will guide you through the VAT registration process and will help get your company registered under the VAT flat rate scheme in order that your records can be simplified such that you have less margin for error and therefore more certainty and peace of mind. Setting salary and dividend extraction policy correctly will provide you with an efficient outcome from a taxation and national insurance point of view and also prove effective in addressing the specific issues facing contractors in relation to IR35 issues (see pages 3, 12 and 13 for more information on IR35). It is vital to ensure that all relevant expenses are claimed and set against income to reduce taxable profits and SPi can explain to you what can be claimed in this respect. One of the key considerations here is making sure you know how you are going to keep a record of all expenses incurred as this will prove invaluable should HMRC seek to challenge expenses that have been charged to your company. Again, we will talk you through how your expenses should be recorded so that any queries raised by HMRC can be addressed fully and quickly. Setting the correct shareholder structure at the outset is also important and SPi can advise you in this area such that you get it right from the outset. Keeping adequate books and records is a requirement of the Companies Act and therefore you should think about how much you want to do yourself and how much you want your accountant to do. At SPi we are happy to do as much or as little as you want us to do and we can discuss your requirements with you. Most clients are happier to get SPi to carry out their invoicing and maintain cashbooks for them, but if this is something you are comfortable doing and wish to do it yourself then no problem. Cashflow is always a consideration for any business, but especially on start up for contractors who may have periods of being between contracts or periods of illness and therefore having no income in the company to take salary/dividends out of. It is therefore advisable to think about building up some reserves in your company for that rainy day.

6 6 Invoicing, collecting your cash and remuneration Invoicing and collecting your cash Invoicing your client accurately and promptly is clearly a minimum requirement for any contractor running his or her affairs efficiently, but sometimes contractors simply do not have the time to keep on top of this task. Should you choose SPi as your accountants and want us to carry out this task for you then that is no problem. You can be assured that we will treat the raising of your invoice as urgent and give it the priority it requires. As we fully understand the importance of collecting your cash on time, we will contact your agency on your behalf to chase collection if you do wish us to. If this is something you wish to do yourself then that is fine. Most of our clients value this service as they do not have the time to do this each time they raise an invoice. We find that building up relationships between SPi staff and the agencies our contractors work through is very effective in collecting cash on time - we never go in heavy handed, but we always ensure, diplomatically that our clients affairs are prioritised! Remuneration Once your cash has been collected, the next step is to calculate how much you need to put aside to settle taxation and national insurance liabilities and therefore how much is available for you to withdraw from the company. SPi operates an online accounting system, IRIS Openbooks. This allows contractors to see exactly where their company s affairs are up to whilst they are on the move. We do the book keeping (under the Liberty service) so you can concentrate on running your business. Under the SPi Liberty service all the above is included in the price. Using a dedicated software we will ensure that your bookkeeping is maintained on a timely basis such that the information you see online is always up to date.

7 7 Invoicing, collecting your cash and remuneration The benefits of using IRIS Openbooks through SPi With IRIS Openbooks you can: Create invoices in any currency, with proactive payment chasing. Keep track of expenses and bills. View projected Income Tax, VAT, PAYE and Corporation Tax payments and due dates in the unique Tax Timeline. Automatically generate dividend vouchers. View accounts and records wherever Internet access is available. Scan expenses in using an App. Discard the need to maintain spreadsheets. Rest assured that your data is saved securely. All information is encrypted using the same technology that banks use to protect data and is hosted on servers at Rackspace, the UK s largest hosting company.

8 8 Monthly, quarterly and annual deadlines Introduction Apart from ensuring that your invoicing is done on time every time and that your cash is collected promptly, SPi will ensure that all of the statutory deadlines that are placed on your limited company are met, although this will require some input from you as director. Monthly/quarterly deadlines The main monthly return is in respect of PAYE and NIC in most cases (unless deductions are less than 1,500 a quarter in which case quarterly returns can be made) which is due on the 19th of each month. All deductions made in the previous calendar month need to be reported and paid over to HMRC on that date. Your company may be selected to supply statistics for the National Statistical Office monthly. Selection for this is random and requires that the selected company provides monthly information concerning sales, employee numbers, etc. If your company is selected for this administrative task then we will complete and submit these for you. VAT returns can be submitted monthly or quarterly. Unless you are in a repayment situation then quarterly returns and payments are more appropriate than monthly from a cashflow point of view. SPi will ensure that you are registered for VAT, that the appropriate VAT flat rate scheme for your activity is being utilised such that you only pay the correct VAT due and that your returns are completed and submitted on time. If you have asked SPi to carry out invoicing on behalf of your company we will hold the records needed to submit VAT returns under the flat rate scheme so it could not be easier as we will let you know how much you have to pay well in advance of the deadline. If cash accounting is appropriate for you then we can assist you on this and implement it for you to improve cashflow for your company. Annual deadlines The two main annual events are the preparation and submission of statutory accounts to Companies House and to HMRC, together with a Corporation Tax return. SPi will take care of these on behalf of your company. In addition, there is an annual return detailing directors, shareholders and other statutory information that needs to be submitted to Companies House and again SPi will complete this for you. Self assessment returns must also be completed and submitted each year by 31st January. SPi can complete this return for you (n.b. an additional charge of 100 plus VAT will be made for non-complex cases).

9 9 Dormant companies and closing down your company Dormant companies In cases where our clients are between contracts, or simply wish to take a break from contracting, then it is possible to keep the company alive by continuing to meet all of the statutory deadlines such that you can pick it up again in a few months or even years should you wish to have the ability to trade quickly through it. SPi offers a dormant service of 15 (plus VAT) per month for limited companies that are not trading but are still required by the contractor. This ensures that the company ticks along by meeting all of its accounting and taxation requirements. Closing down your company If you reach the end of your contracting career and wish to close down your company then we can assist you with this to ensure that all of your liabilities are settled and that the affairs of the company are correctly dealt with. On closure there are two main options available; i) distribute all funds via a final dividend distribution, or ii) treat the final distribution as a capital distribution thereby using up annual CGT allowances and ensuring any entrepreneurs relief available is claimed. SPi can advise you on the optimum strategy to adopt upon closing down your company and then implement it for you.

10 10 SPi services and costs We currently have two levels of fixed fee service to help contractors decide the level of support they require but we are always happy to discuss tailoring our service and fees to suit the specific requirements of our clients as we appreciate that every contractor is unique. Our two illustrative services are set out below: Vital service - 95 per month (plus VAT) - Key service features: Monthly/quarterly services Expense advice and verification. Calculation of monthly/quarterly PAYE/NIC liabilities and preparation/submission of returns. Advise each month as to the available funds to withdraw from the company. Monthly bank reconciliation(s) to the company bank account(s). Calculation of monthly/quarterly VAT liabilities and preparation/submission of VAT returns. Year end services Prepare year-end accounts for review by director. File accounts online with Companies House. Complete Corporation Tax return for review/signature by director. Complete the annual return. General VAT advice relating to your company. Advice on directors duties and responsibilities. Advice on Corporation Tax and other tax matters. Accounting and bookkeeping advice.

11 11 SPi services and costs Liberty service per month (plus VAT) - Key service features: The Liberty service includes everything under the Vital service detailed above plus the following additional benefits: Monthly/quarterly services Agency/client invoicing upon instruction (weekly or monthly). Credit control if required. Cashbook maintenance using IRIS Openbooks Online Fully comprehensive insurance (usual premium would be p.a.) for your company is included free of charge with the following claim limits- Employers Liability... 10M Public Liability... 5M Professional Indemnity... 2M Personal Accident Insurance... 20K First step to joining SPi We have told you a little bit about us, but clearly you will have additional questions or may need additional information before making your informed decision. Please feel free to call or contact our technical specialists so that we may learn about you and your business requirements, and provide you with an illustration of how much you can expect to earn through your company after all taxes, NIC and costs. Telephone amanda.evans@spiaccountancy.co.uk or shaun@ spiaccountancy.co.uk or contact us via our website at Free initial meeting (North West or Aberdeen) Should you wish to meet up to talk through everything that is involved in setting up and running your own company then feel free to call or us and we will be delighted to set up a meeting at our offices in Knowsley (easily accessible from the M57 and M62 motorways), anywhere in the North West of England or our Aberdeen office. We can chat through with you the options open to you in a relaxed manner with no strings attached. Personal Taxation services including self-assessment completion We also provide a personal tax planning and compliance service, which is separate to the above Vital and Liberty services. The service includes completion of a selfassessment return at a cost of 100 (+VAT) for non-complex cases. If complex tax planning is required there may be additional charges but in most cases the 100 (+VAT) charge covers planning issues and advice.

12 12 An introduction to IR35 Before IR35 was introduced, many contractors were operating as self employed individuals. This was perceived as a significant risk by HMRC in respect of potential non-payment of tax by individuals and therefore HMRC introduced rules that passed on any unpaid liabilities to the recruitment company that engaged the self employed person. Inevitably, this presented an unacceptable risk to recruitment companies who immediately refused to contract with self employed individuals. This had the effect of pushing contractors down the route of opening their own limited company such that any unpaid tax bills would remain with that company if not settled and crucially they would not be enforceable against the recruitment company. The financial benefits of running through a limited company were not lost on the contracting community which fuelled a steady growth in freelancers running through their own limited (or personal service ) companies in the late 80 s and 90 s. However, HMRC soon realised that this was resulting in the taxation generated from this group of workers being significantly less than desired and as a result IR35 was introduced. IR35, known as the Intermediaries Legislation, was effectively introduced to test the relationship between the individual freelancer and the end client such that the true employment status was established. Prior to the introduction of the legislation, an individual could avoid being taxed as an employee on payments for services and paying Class 1 NIC by providing those services through an intermediary. The worker could take the money out of the intermediary, normally a Personal Service Company, in the form of dividends instead of salary. As dividends are not liable to NICs, the use of a dividend remuneration strategy results in the worker paying less in NICs than either a conventional employee or a selfemployed person and PAYE would not apply to the dividends. The legislation ensures that, if the relationship between the worker and the client would have been one of employment had it not been for an intermediary the worker pays broadly tax and NICs on a basis which is fair in relation to what an employee of the client would pay. When attempting to establish IR35 status it is important for contractors to recognise that it is not only the contract between them and their recruitment company that is important. The relationship under a notional contract between the contractor and the end client will attempt to construct a contract based upon the actual working arrangements in place. This may be logistically difficult as you may not be able to establish your working practices before you commence your contract. It is clearly important to consider IR35 in advance of accepting contract work. A contract that is deemed outside of IR35 may be considered far more lucrative by a contractor to a contract that it deemed to be inside of IR35 and may therefore have a significant bearing on which contract to accept.

13 13 An introduction to IR35 In short, the key issues that need to be considered relate to the following: i) Right of substitution - if the personal service of an individual is required and the contractor has no unfettered right of substitution then the contract may fail a review under the IR35 in this area. ii) The control over how the work is to be performed will be considered in detail and if it is deemed too much control is exerted by the end client then the contract may fail an IR35 review in this area. iii) If a mutuality of obligation exists, for example an obligation on the end client to provide ongoing work to the contractor and an obligation on the contractor to perform that work then it may be that the IR35 applies. iv) If other business factors indicate that the contractor is in business on his/her own account, e.g. the contractor carries business risks to remedy poor workmanship at his own cost, the contractor provides his/her own equipment and operates a proper business structure then these factors will help in indicating that the contract is outside of IR35. The above is not intended to provide definitive advice on what constitutes a relationship/contract being caught by IR35 as each case will be different and professional advice on each assignment should be sought in order to avoid costly mistakes. It should also be noted that it is not just how a contract is written that will determine whether IR35 applies, as it is the actuality of what happens in the practice that needs to be examined. Only those professionals with full knowledge of the law and case history will be qualified to provide advice on such issues and SPi can ensure that you are appropriately advised in this area.

14 14 SPi Accountancy background and people SPi was formed in 2005 and has been serving the contractor industry after joining forces with I-PAYE in the UK. I-PAYE was the 7th fastest growing UK privately owned company in the four years to 31 March 2009 and SPi Accountancy has been the accounting arm behind this meteoric success. SPi is staffed with qualified accountants (ACCA and CIMA), tax experts (ATT) and accounting technicians (AAT) and is governed by an ACCA practicing certificate meaning that the strictest ethics and working practices are adopted in our day to day business. We will always strive to provide the best advice possible, even if this means you do not enter contracting and therefore do not become a client of SPi. We have invested heavily in our people and our systems. We utilise the following software, IRIS Openbooks, IRIS Company Secretarial, IRIS Accounts Production, IRIS Business and Personal Tax, IRIS Payroll for accountants and IRIS Practice Management. We strive to ensure our clients get the best advice and support and we are fully open to speaking with our contractor clients for however long it takes for them to be sure they are getting the support they deserve. We are also happy to meet with our clients as often as they wish to ensure they feel fully advised.

15 15 SPi Accountancy background and people Paul Partner Paul joined SPi in 2005 and brought with him a big four background of taxation training with Deloittes, together with a wealth of experience in the provision of taxation and accounting services to individual contractors. Since then, Paul has developed a detailed working knowledge of the contracting issues facing the UK national working abroad and this has proved beneficial to our continued growth. Paul holds the ATT qualification. Shaun Partner Shaun trained and qualified as a Chartered Certified Accountant with Deloittes and holds a Practicing Certificate issued by the association, Following qualification, Shaun joined PricewaterhouseCoopers where he enjoyed a 10 year career before joining SPi in 2005 to head up the accounting side of the firm. Amanda Practice Manager Amanda joined SPi in July 2012 and has over 6 years experience in accountancy. She ensures a high standard of service is delivered to all existing and potential clients of SPi and oversees the day to day running of the practice. Amanda qualified as a Chartered Certified Accountant in 2009.

16 16 SPi Accountancy background and people Sue European Business Development Director Sue joined SPi in 2011 after having successfully performed with I-Paye since With over 7 years experience in tax matters, and qualifications in Financial Planning and Personal Taxation, Sue assists agencies and contractors with any payroll query in UK, EU and EEA, as well as advising those individual who wish to explore running their own limited companies. Her highly professional and caring approach together with her wide experience make Sue a precious addition to the SPi team. Tim Account Manager Tim joined SPi in July 2012 bringing over 5 years experience in accountancy and a patient, professional approach to life and work. Tim is a qualified accounting technician, currently studying for the ACCA qualification. Acting as a first point of contact, he can assist on any queries, advising on the day to day running of your company. He also looks after SPi clients accounts including, invoicing, expenses, bank reconciliations, VAT and PAYE returns. Karl Administrator and Account Assistant Karl joined SPi in October 2011 from Santander, starting as a trainee and quickly working his way up to his current position. He is responsible for company setups, tax returns, and assisting the Account Managers with the day to day running of the accounts. Karl is currently qualifying for AAT level 3.

17 17 SPi Accountancy background and people Theresa Management Accountant Theresa joined SPi in late 2010 having worked for I-PAYE full time since November Theresa is a qualified member of the Chartered Institute of Management Accountants and is responsible for production and review of accounts on behalf of clients. She also controls the internal finance of SPi and client billings. Francesca Marketing and Events Manager, European Business Developer Francesca Joined SPi in February With over 10 years experience in Account & Events Management, SEO, Marketing and Business Development; she is responsible for making the world aware about SPi, I-Paye and their services. She also deals with any working overseas queries and makes sure that all of our agencies are properly looked after. Gemma UK Business Development Manager Gemma joined SPi in July 2011 bringing her wide experience in account management, payroll, admin and sales. Her knowledge on AWR and HMRC regulations, together with her strong business development, client management and client acquisition skills are a great addition to the SPi team. Gemma is responsible for starting and nurturing relationships with our Agencies, advising them on which solution is best for them and their contractors.

18 18 What people are saying about SPi Gareth Qualified Chartered Accountant Since I became self employed four years ago SPi s Service have been a huge help, allowing me to focus on delivering service to my clients whilst SPi took on all the strain of the initial set up and making sure this was done in an efficient and effective way. On an ongoing basis SPi provide proactive, clear and timely advice both on routine issues and reacting quickly to changes in legislation. As well as being friendly and personal the service is cost effective. As a result SPi is a firm that I have been more than happy to recommend to a number of close contacts who have ventured into the world of self employment. Sue Owner and manager of her business for six years SPi have been there every step of the way for me, from making the big decision to go it alone through to what is now an established business, Thank you SPi. Steve Long standing Professional Contractor and client of SPi SPi have consistently provided a first class service to my company. Always polite, courteous & efficient, I would not hesitate to recommend their services.

19 19 What people are saying about SPi Rob Runs own Company and is a valued Client I contracted SPi Accountancy services because I was impressed with the personal service it promised. To date that promise has been delivered over and above what I expected. The service provided and standard of advice has been absolutely first class and as a result many successful business decisions I have made have been done so after consulting with SPi. I look forward to many more years of working alongside SPi in order to grow and safeguard my business. I am more than happy to recommend SPi to any professional or business looking for that little bit extra. Alex Professional Contractor operating in Marine Consultancy I would recommend to any professional contractors that they should use the services of SPi if they are thinking of going limited. First class service, thanks to everyone at SPi Accountancy.

20 SPi Accountancy LLP, Unit 2 Puma Court, Kings Business Park, Knowsley L34 1PJ