Newly incorporated business – Things to consider
Share Structure
If you give due consideration to the allocation of shares in your company you could significantly reduce your tax burden by keeping individual shareholder dividend payments beneath income tax thresholds.
For example, keeping your personal dividend payments and other income beneath the £50,270 basic rate band would mean you pay income tax on your dividends at 8.75% . The tax rate for dividends received over this limit is 33.75% . Therefore, if your income is going to be in excess of the basic rate limit, sharing your dividends with a trusted fellow shareholder could mean that you could pay all dividends at the lower rate.
We would work with you to help you establish an optimal share structure which balances business ownership with income tax exposure.
Remuneration
How you extract money from your company can make a significant difference to your personal income tax position. Taking a salary below national insurance and income tax thresholds and taking the rest of your required income as dividends can be advantageous.
This is because income tax paid on dividends is less than taxes and national insurance tax paid on a salary.
VAT
If you expect your business to exceed £85,000 in the first 12 months of trading then you are obliged under the future test to register for VAT.
However, sometimes it can be beneficial to register for VAT voluntarily even if your turnover is below the £85K limit.
This would be the case, for example, if you are making zero rated supplies to your customers such as construction of new domestic building or providing healthcare. You would pay no VAT output tax on your sales but would be able to claim all VAT back on your qualifying expenses.
Also, If your customers are businesses who are VAT registered, rather than domestic customers, you may want to voluntarily register for VAT as your customer will be able to reclaim any VAT charged and you will then be able to claim back VAT back on your qualifying expenses.
You can also choose to adopt a specific VAT accounting scheme.
If you have a business with turnover of less than £150,000 you can adopt the Flat Rate Scheme. It is much less complicated to adopt the flat rate scheme (where you pay a flat percentage of gross sales) rather than adopt the standard scheme where you have to account for VAT charged on sales (VAT output) and VAT recovered on qualifying business expenditure (VAT input).
In addition, if you adopt standard VAT you can opt for the cash accounting VAT scheme, rather than accrual VAT, if your turnover is less than £1.35m. Accrual VAT means you account for VAT when you raise a customer invoice or a supplier invoice regardless of when these are both paid. Cash accounting means that you only pay VAT when you actually receive money on a customer invoice or claim VAT when you actually pay a supplier invoice.
Adopting the accrual scheme means that you could be effectively paying VAT on money which has not actually been paid to you so unless you are a cash on sale business it is normally beneficial to adopt the cash accounting scheme.
VAT is a complex area and we would help you navigate the options which best suit your business needs.
Bookkeeping System
Under the Making Tax Digital (MTD) legislation you are now obliged to adopt digital accounting software such as Xero, Quickbooks or Sage if you are VAT registered.
Some of these systems are more user friendly and more likely to suit your business needs than others and we can share our experience with you.
We also offer free training on Xero if you want to carry out your own bookkeeping.
If your business is not VAT registered and you have few transactions then it may be easier and more practical to record your business transactions on a simple spreadsheet. We could provide you with an appropriate spreadsheet template which would accommodate your typical business transactions.
Workplace Pensions
All employers must provide a workplace pension scheme which is called automatic enrolment.
If you have employees who are aged between 22 and the state pension age and earn at least £10,000 per year you must automatically enrol them into a pension scheme although they do have the option to opt out.
You can only delay the date you must enrol your employees into a pension scheme by up to 3 months.
We can help you set up and administer a suitable scheme.
These are just some of the areas you need to consider when setting up a business. It can lead to some serious, costly and stressful problems down the line if you make the wrong decisions at the beginning of your business journey and don’t receive the correct advice and support.
