Usually individual open companies with help of online company formation services which are very cheap and affordable. However they do not provide you guide what type of company will be beneficial for your circumstances.
I will try to list few of the mistakes made by company shareholders which have resulted in loss of money in taxes and penalties.
Are you withdrawing money without salary or dividends ?
Most small companies start up business are not aware of company is counted as separate person in HMRC eyes than the owner/shareholder. Directors withdrawn the cash as when needed without processing it through payroll or dividends.
HMRC is very strict on directors withdrawing money from the ltd company without proper process. Any money withdrawn from limited company accounts is counted as loan where it has not been processed through payroll or dividend. If the loan/withdrawn amount is above 10,000 and it repaid in 9 months of corporation tax period end, you will have to pay 32.5% of original loan value which can be significant amount for a small company. You will also incur the interest charges for the loan amount at official rate.
However, good news is you can claim back the 32.5% loan charge once you have paid back the loan permanently.
How dividends can save you £400 in tax ?
Dividends are paid from the profit after the corporation tax has been deducted. Small businesses directors who do not issue dividends during the year from their company, lose around £400 on their personal tax. HMRC do not charge personal tax on directors self assessment up to £2000 of dividends which is saving of £400 if you are basic rate tax payer.
How taking salary from your own limited company can save £1805 in corporation tax ?
Majority of small company start up directors only working for their own company, they do not have any salary or other income source. Salary appear as a expenses on company accounts which help to reduce the profit means less corporation tax to pay.
Directors can take up to £792.00 in salaries per month without paying a penny in tax. The directors who do not take the salary from the company loss around £1805 in corporation tax plus other amount is personal tax.
CIS Contractor paying subcontractor
In construction industry when company use subcontractor, Company is liable to deduct 20% of tax before paying subcontractor. HMRC charge penalty up to £300 or 5% of the deduction amount if no deduction is filed to HMRC up to 12 months.
How much will it cost you not filing company's accounts ?
Some individuals opens limited company what never needed it in first place. They leave the company open and forget about any filing deadlines. Companies which have no activity during the year are still require to file accounts; known as dormant accounts. Company house charge £150 for 1 month late filing and it increases with the time.
We strongly recommend using an accountant to set up your company and getting consultation which can help you to fulfill your duties and save tax. We here at S K Punia Accountants Ilford provide all these services at affordable rates.