Limited company - very basic questions

lmedland

Hi,

I hope you can help, I really have no clue when it comes to this .....

I started IT Contracting in the end of March with the intention of being a sole trader to keep things simple however found that most agencies would not deal with me unless I had my own limited company. So I setup a limited company but have a couple of questions now...

I'm a pretty simple setup, I just do consultancy, I don't buy or sell products for my clients. I just get paid a daily rate for my time. I currently have two clients and work in their buildings from time to time but I have also hired an office space locally.

I have found an accountant that I'm due to see next week, but I don't want to look like a complete tool hence why I'm asking questions here!

1.) People tell me I can 'claim' back the rent on the office space as a business expense? But I'm unsure as to what I am claiming, does this entitle me to get the VAT back or does it somehow offset the amount of income tax or corporation tax I need to pay? BTW, I am not VAT registered, is that a pre-requisite to claim?

2.) Do I really require a separate business bank account? At the moment my invoices are being paid into my current account where I transfer a certain amount for tax into a savings account.

Thanks for your time.

Silk

In order to claim back the VAT you need to be registered for VAT if you don't register then you can't claim it back so it depends whether you will be over the threshold for charging VAT before you decide.
If you are going to be below it I would suggest you don't bother.

Yes you will be advised to have a seperate bank acct because if anything happens to the Ltd Co. the Bank acct will be frozen etc

orangeslimes

lmedland wrote: »

Hi,



I have found an accountant that I'm due to see next week, but I don't want to look like a complete tool hence why I'm asking questions here!

1.) People tell me I can 'claim' back the rent on the office space as a business expense? But I'm unsure as to what I am claiming, does this entitle me to get the VAT back or does it somehow offset the amount of income tax or corporation tax I need to pay? BTW, I am not VAT registered, is that a pre-requisite to claim?

Your rent is a business expense in the same way as if you buy a printer cartridge to use for business it is an expense...so your rent will be included in your ltd company accounts and be deducted from your turnover. So yes it will offset how much tax you have to pay.

VAT is a separate issue. To claim your VAT on rent back you need to register - and whoever you are paying rent to needs to be VAT registered and you will need the invoice to be addressed to the limited company (not just Mr Imedland) I'm sure your accountant will advise on that.

And yes you do need a separate business bank account...and you should take advise from your accountant about withdrawing money for yourself from the limited company as it may have tax implications.

lmedland

Many thanks

PlutoinCapricorn

I am sorry that you have been forced to have a company: being a sole trader as you say would be much simpler for a consultant.

Is is really necessary to go through agencies? I am a home-based researcher and consultant, and find that evdence that I am self-employed is enough for my clients.

Silk

PlutoinCapricorn wrote: »

I am sorry that you have been forced to have a company: being a sole trader as you say would be much simpler for a consultant.

Is is really necessary to go through agencies? I am a home-based researcher and consultant, and find that evdence that I am self-employed is enough for my clients.

It seems to be becoming a current trend now for a lot of them esp in the public sector.
A lot of companies are worrying about employment liabilities for sole traders who are only employed by one company etc etc

ukbill69

Id suggest speaking to an accountant and he will answer any questions like this. Be careful of ir35 being a it contractor!

slipp_digby

1) yes the office rent can be claimed back as an allowable expense and it will be deducted as a cost from your turnover to derive your gross profit on which corporation tax is calculated.

2) you need to decide whether to VAT register (and whether you have a choice depending on turnover etc) or not. you can only claim back VAT yourself if you are VAT registered yourself.

3) you need a seperate current account for your business cash and you need to make sure this is enturely seperate to any personal banking etc. any money taken out needs to be properly documented. strictly speaking the money is not yours but the companies!

have your checked if you fall outside IR35 rules? you need to be 100% sure on your position on this as it can effect the tax efficiency of being ltd if you are IR35. my concern is that you work on their sites, you need to get good professional advice on this immediately.

you mention drawing money off for 'tax', but i am a little concerned about what/how your are drawing off to live on.

are you taking a salary and looking to pay dividends? the usual route is low salary/high dividends as this is usually the most tax efficient position for a consultant.

you need to make sure you have a well organised system established for PAYE even with a low salary.

System

Ignore the turnover limits for VAT. If you don't bill for anything that is zero rated or exempt then definitely register regardless of your turnover. Go for the flat rate scheme as IT consultancy is only 11.5% (10.5% for first year)

You effectively make a profit on VAT. Charge your clients 15% pay the taxman 11.5% (10.5%)

Pennywise

!!!!!! wrote: »

Ignore the turnover limits for VAT. If you don't bill for anything that is zero rated or exempt then definitely register regardless of your turnover. Go for the flat rate scheme as IT consultancy is only 11.5% (10.5% for first year)

You effectively make a profit on VAT. Charge your clients 15% pay the taxman 11.5% (10.5%)

Just be careful of some traps in the flat rate scheme. Firstly, bank interest received has to be included as turnover on which the 11.5% is due - not much of a problem whilst interest rates are so low, but when they rise again, it can erode some of the benefits of the flat rate scheme. Also, the reverse charge rules if you buy goods or services (Ebay, Google Adwords, Paypal, Amazon, etc) from other EU countries - you have to account for output VAT but can't recover the input VAT - again eroding the flat rate scheme benefits. Finally, you can't reclaim input VAT on expenses and services bought in. Depening upon your circumstances, it may be better to ignore the flat rate scheme and just use normal VAT schemes to avoid these traps - you'd need to do some number crunching of the costs you'd be paying and what other EU costs you'd be incurring.

chickmug

Pennywise wrote: »

Just be careful of some traps in the flat rate scheme. Firstly, bank interest received has to be included as turnover on which the 11.5% is due - not much of a problem whilst interest rates are so low, but when they rise again, it can erode some of the benefits of the flat rate scheme. Also, the reverse charge rules if you buy goods or services (Ebay, Google Adwords, Paypal, Amazon, etc) from other EU countries - you have to account for output VAT but can't recover the input VAT - again eroding the flat rate scheme benefits. Finally, you can't reclaim input VAT on expenses and services bought in. Depening upon your circumstances, it may be better to ignore the flat rate scheme and just use normal VAT schemes to avoid these traps - you'd need to do some number crunching of the costs you'd be paying and what other EU costs you'd be incurring.

Again another helpful post but I would add I have advised a number of people to go on the flat rate scheme as it does simplify the book keeping. This could be felt to make it worthwhile regardless of the interest issue?