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TAX AND ACCOUNTANCY FEQUENTLY ASKED QUESTIONS

Stirling and Falkirk-based small business specialist Jonathan Deb, of TaxAssist Accountants, answers some frequently asked questions about tax and accountancy matters:

Q. I’m starting up in business as a limited company, is this the best entity for me and can anybody access my accounts?

A. When starting a business, you can choose what type of entity you want to operate as. Some of the options are sole trader, partnership, or limited company. 
There will be advantages and disadvantages to each option, but careful consideration should be given as to which type of entity would be best for you by looking at criteria such as any other income you may receive and the level of profits you expect to make. 

Your accountant would be best suited to sit down and look at the facts and your own personal circumstances to review which option may be best for you. 

If you operate as a sole trader or a partnership, your accounts do not get published anywhere, the information is just incorporated into your self-assessment tax return which is only submitted to HMRC. 

If you are a limited company, there is a formal requirement to file your accounts with Companies House and although the accounts that are filed do not show the full information, what is filed is still available for any member of the public to access.


Q. I’ve recently set up a limited company, what date do I have to prepare my accounts to?


A. When you incorporate a company your accounting reference date is automatically set as a year from the end of the month in which it was incorporated e.g. incorporation date was 2nd August 2021, so the accounting reference date will automatically be set as 31st August 2022.

It is possible to change your accounting reference date to be a different date. You can shorten it as many times as you like but you can only extend it once in every five years and it can only be extended to a maximum of 18 months, unless the company is in administration. Changing your company’s accounting reference date will likely impact the filing deadline for your accounts unless you are filing your first period of accounts and will also impact the dates that your corporation tax is due for payment.


Q.I have lent my company some money, can the company pay me interest?

A.Yes, it can. If a director lends its company some money, this will sit as a credit on the directors’ loan account for the director to draw from tax-free as and when they want to.

The company can pay the director interest on this loan, but the company must deduct income tax at 20% and pay this to HMRC along with completing form CT61. The net interest is therefore paid to the director.

Q. I own/control a limited company that I charge rent to for a property that I own personally, can I use the property allowance against it on my self-assessment tax return?

A. The £1,000 property allowance was introduced from 6th April 2017 and may apply if your annual gross rental income is more than £1,000 as you may be able to deduct the allowance rather than actual expenses.

   Unfortunately, the allowance is not available in the following situations:

· If the property income is from a company, you or someone connected to you owns or controls

· If the property income is from a partnership where you or someone connected to you are partners

· If the property income is from your employer or the employer of your spouse or civil partner.


You will, therefore, not be able to claim the allowance in your situation as the company is owned/controlled by you.

Q. How do I get a tax refund if I am a subcontractor?

A. If you are a subcontractor (and you’re not trading through a partnership or limited company) you are self-employed and therefore should be registered for self-assessment. Under self-assessment, you will need to send HM Revenue and Customs (HMRC) a self-assessment tax returns each year. You should also consider registering for the Construction Industry Scheme (CIS) if you work for a contractor. Under CIS, the contractor will deduct 20% from your payments. If you don’t register for the CIS scheme, the contractor will deduct 30% from your payments instead. At the end of the tax year (6th April to the following 5th April), you should send HMRC a tax return which shows: 

· the full amounts on your invoices as income (or from the statements you’ve had from the contractor) 

· any deductions contractors have made in the ‘CIS deductions’ field 

· any allowable business expenses you have incurred 

HMRC will work out your actual tax and National Insurance bill and then take off the amounts your contractor deducted from you. 

HMRC will work out your actual tax and National Insurance bill and then take off the amounts your contractor deducted from you. 

If you’re due a tax refund, HMRC will pay the money back.

Q. As a CIS contractor on top of the normal issues surrounding whether to be a limited company or a sole trader, are there any CIS specific issues to be aware of?

A. From a Construction Industry Scheme (CIS) point of view ONLY, there is another factor that can affect your decision as a contractor when thinking about whether to become a limited company or not.  

Being a sole trader, any CIS you and your business suffers can only be reclaimed via your own self-assessment tax return. This means that you can only claim it once the tax year is up, so you do have to wait up to a whole year to get any relief. This relief is obtained as the CIS you suffer is, in essence, a payment on account of your tax bill. 

Whereas if you were a limited company, then you are allowed to offset any CIS your business suffers against any CIS, PAYE tax or National Insurance deductions that you are due to pay over to HMRC each month. This means that your company gets the relief much sooner and throughout the tax year. 

*This is only looking at becoming a Limited Company from a CIS suffered point of view and takes no consideration of other factors that could affect this decision. Please seek advice before taking any action.  

Q. How long do I need to keep tax records for my business?

A. The UK Government states that businesses should retain their tax records for at least five years after the 31st January submission deadline of the tax year in question. For example, for the 2020/21 self-assessment tax return, with a final submission deadline of 31st January 2022, you must retain these records until 31st January 2027. If you misplace them, you should make notes now to provide estimated or provisional figures if needed in future. Please keep in mind that there are additional record keeping requirements for limited companies that are not covered here.

Jonathan Deb specialises in managing tax and accountancy affairs for small businesses and individual taxpayers in Stirling and Falkirk. For more information about the topics covered above contact: 01786 447030 or email jonathandeb@taxassist.co.uk

**Disclaimer **

These FAQs are intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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