Accounting and Taxation

ACCOUNTING

There are three types of spreadsheet that you will need to become familiar with, if you are going to attempt to do your own finances.

  • Profit & Loss Account (P&L) – this provides a record of your business revenue and expenditure
  • Statement of Financial Position (SFP) or Balance Sheet – this provides a snapshot in time of your businesses assets and liabilities. It must BALANCE.
  • Cashflow – perhaps the most important statement of all. Cash is King for a new business. Here you recall all cash movements in your P&L and SFP – essentially it is your bank account movements.

See a sample set of financial statements here, courtesy of UKTaxandAccounts.com

TAXATION FOR A LIMITED COMPANY

There are various taxes that you should be aware of in relation to a limited company.

CORPORATION TAX

You need to register with HMRC for Corporation Tax as soon as you start “trading”. Broadly speaking, this means as soon as you start earning revenue from the company.

  • You will pay Corporation Tax at 20% on any taxable profits.
  • If you are not taking money out of the company for yourself, there is no more tax to pay.

VAT

  • Once your business starts earning over £82,000 you need to compulsorily register for VAT.
  • You can voluntarily register for VAT before this, if you have the type of business where you are reclaiming a lot of VAT. See this article.

DIRECTOR’S LOANS

  • As a director of the company, if you give money to the company as a loan, you are entitled to withdraw up to the value of the “loan” without any tax consequences.
  • If the company lends you money over and above this, there may be tax consequences of this, if the loan is not repaid within 9 months of the year end.

EXTRACTING MONEY FROM THE COMPANY

There are different methods of extracting money from the company.

  • Salaries – you will be taxed on the salary at your personal income tax rate but you can deduct as a company expense
  • Dividend – taxed at the dividend tax rate.
  • A mixture of salary and dividends
  • Loans

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