This is a brief informal post on some points that you should consider or at the least keep in mind when you have setup and are running a UK Limited Company for your business. The points and information below are some of the observations that I have made from my dealings with small business owners in regard to running their companies.
First and Foremost – Always Keep These Points in Mind
- The company is its own stand-alone entity.
- Any revenue that the company earns is company money – it is not your personal money.
Limited Liability Shielding
One of the many reasons you may wish to set up a Ltd Company for your business is to separate and shield your personal assets from your business activities. This means that if your business goes bust, generally your personal assets are safe from creditors.
Very Important Note – This is not a “get out of jail free card” for you personally. If, as a director, you have acted in a negligent or fraudulent manner and your business has gone into liquidation, the liquidator can sometimes make a claim on your personal assets.
Also, keep in mind that you may need to borrow money for your business, especially when you are starting out. As you do not have a trading record, the lender may require a personal guarantee from you and so will have a claim against your personal assets if your business gets into financial strife.
Check out this webpage for a short video and additional information – Can I lose my house if my company goes into liquidation
Statutory Filing Responsibilities
As the director, you must ensure that your company files its statutory returns/accounts – confirmation statement, corporation, VAT, PAYE returns, etc. – and pay any tax that may be due on time.
Note – Even if you have an accountant/bookkeeper to take care of this for you, as the director, you are ultimately responsible to ensure that returns are filed on time and the tax is paid on time. HMRC will not accept the excuse that you thought your accountant had taken care of it.
Mobile Phones and Usage
While your company can supply and pay for mobile phones and usage for directors and other employees, you need to abide by certain legislative rules or risk falling foul of extra taxes for the company, as well as for the directors and employees.
In short, it is not an open ticket to supply and pay for all and any mobile phone costs, whether business or personal.
Read our blog post for more information – Putting Mobile Phone Costs Through Your Limited Company – VAT & Corporation Tax
Entertainment
This is another area where business owners may get tripped up.
You cannot pay for and claim a tax deduction (corporation tax & VAT) on an unlimited amount of entertainment expenditure.
There are also different criteria for employee entertainment and business (client) entertainment. For example, you cannot claim back the VAT incurred on UK client entertainment expenses, but you can generally claim the VAT back on entertaining overseas clients.
Read our blog post for more information – Limited Company Entertainment – Careful
Business Taxes
As business owners, we all want to minimise our taxes as much as possible – and rightly so. However, this is an area where some business owners want to push the limits.
Claiming tax deductions on personal expenses put through the business, etc. – Fair Warning: you can do this, and you or your buddies may have been doing this for years and gotten away with it. BUT the keywords here are “gotten away with it,” only because you or your mates have not been audited by HMRC.
It’s all great until HMRC comes knocking on your door for an audit.
Remember that HMRC has seen it all before and are likely to spot anomalies and signs that alert them to dig deeper into your accounts.
Consider this – if you have continually pushed the limits on what you can legitimately claim for your business, and at some point make a legitimate mistake, how likely is it that HMRC will believe it was a genuine mistake when your history shows you have been pushing the limits?
Yes – absolutely maximise what you can legitimately put through your business and/or claim tax deductions on – and sleep easy.
Business Money vs Personal Money
Remember that business money is business money and personal money is personal money. You should think of them as completely separate.
With that in mind, consider some planning.
How much money do you want to take from the business personally to live on, etc. (assuming the business has the funds to support what you want)?
You should work this out on an annual basis and then calculate the monthly amount. Then, pay yourself this amount every month – through a salary and/or dividends.
Read our blog post on how to pay yourself tax efficiently – Tax-Efficient Strategies for Paying Yourself from Your UK Ltd Company
Reasons for the above recommendation
- Allows for better business planning
- Better cashflow forecasting.
- Corporation tax planning.
- Personal income tax planning.
Taking random amounts of money out at random times from your business bank account may cause issues, such as:
- Higher taxes paid by your Ltd company and yourself personally.
- Difficulties in obtaining personal loans or mortgages due to erratic personal earnings.
- Problems when trying to raise capital by selling shares in your company. Potential investors may not be happy when they see random amounts of money being taken out of the business at random times, suggesting, at best, that your personal finances may not be under control, or at worst, that you are using the company like your own personal bank account.
Summary
This is just a handful of things that are often overlooked or not considered by small business owners when starting out – so I wanted to share.
Get in touch with us if you need assistance with your business bookkeeping.
Disclaimer: The content on our site is for general information only and not professional advice. Always seek professional guidance before acting on any information here. While we strive for accuracy, we cannot guarantee completeness or timeliness of the content.