Small business start up, step 2: tax!

ZeJudge

Hi All, I posted on here a few months ago explaining that I was starting a business with 2 partners, and was wondering if we needed an accountant. Now we have registered the company, registered with HMRC and now a few months down the line they are asking for an Employer annual return (P35).

The thing is, we have no employees, there's only 3 of us, and we're all Directors/Employers. I feel pretty lost when it comes to all this tax stuff, every time I ring HMRC they seem to stop talking English and I can't get a straight answer out of them, or they try and pass me off to another sector of HMRC. I've also been onto the BusinessLink website and I can't seem to find a situation similar to ours, and it kind of seems like information overload on that website.

Ok, so here's where we're at right now, we managed to acquire funding for our company, a loan, so we're already in debt, right? We're paying ourselves via the company, barely enough to survive until we start making revenue which won't be for around another 6 months as we're still in development. Do we need to pay tax on our earnings or complete an Employer Annual Return? Is there anything else we REALLY need to be aware of right now?

Thanks for reading and replying!

bni

Are you a limited company as you refer to directors or is it a partnership?

In a limited company, the directors are always treated as employees so if you are paying out any funds to them it either has to be done through a properly operated PAYE scheme or by way of dividends from taxed company profits. Any salary you pay out needs have the correct tax and NI deducted (unless under the thresholds) and paid over to HMRC on regular basis. From your post it doesn't sound like you are doing either, so if you are limited company you could be withdrawing funds illegally.

Do you not have an accountant that is doing this or at least advicing you on the correct and best (for your situation) way of doing this?

ZeJudge

Thank you for you're reply bni.

Yes, we are a Limited Company. At the moment we do not have an accountant, and it really seems that now we need one badly. How often do we need to pay HMRC tax and NI and how? And what are the thresholds for this? We registered with HMRC about 3 months ago and have been 'trading' for that time, though we are NOT making a profit at all, we are paying ourselves through the company as a salary from the loan that we acquired.

bni

Yes, please get an accountant as soon as possible because what you are doing is withdrawing funds illegally from the business.

You can register with HMRC for lots different taxes which are operated more or less independently. You have to register as an employer to operate a PAYE scheme. Is this what you have done (the fact that they are asking for a P35 sounds like it).

The NI threshold is £110 per week (but this threshold is applied on a yearly basis for directors so should be £5720). The tax depends on each directors tax code, you should have either applied for P46 for each director being paid or had an P45 from a previous job to base this on. Otherwise tax should have been deducted at the emergency rate and funds been with HMRC by the 19th day after the end of each period (normally quarter for small company).

As you have not been trading for very long, you might be able get away with organising all this now and getting any potential funds deducted at emergency tax rate over. But again, get an accountant on board asap would be my suggestion.

Savvy_Sue

bni wrote: »

As you have not been trading for very long, you might be able get away with organising all this now and getting any potential funds deducted at emergency tax rate over.

Especially as a small employer can pay what's due to HMRC quarterly rather than monthly.

Definitely get an accountant. Even if you know what you're doing, it can be hard to keep on top of what's needed for a Ltd, and it doesn't sound as if any of you DO know what you're doing! At least not as far as the tax etc is concerned ...

Seraphim

Savvy_Sue wrote: »

Definitely get an accountant. Even if you know what you're doing, it can be hard to keep on top of what's needed for a Ltd, and it doesn't sound as if any of you DO know what you're doing! At least not as far as the tax etc is concerned ...

I'd second this. My accountant is worth their weight in gold. I pay about £100/month and it's well worth it - they fill most of my forms in for me (for both company & personal forms) and I can ask them an unlimited amount of (usually silly!) questions. The only thing I really do on my own are the quarterly VAT returns.

An accountant should give you an initial chat for free. I'd advise you shop around until you find one which you feel comfortable with.

ZeJudge

Wow, we have been so ignorant of this as we have no previous business experience and have only been focusing on development.

I just want to say, thanks to all of you, especially bni, this information has been absolutely crucial. Right, now I just need to find a good - affordable accountant. Anybody have any suggestions? Should I shop around my local town and see how the ones are here?