How do I pay expenses from my limited company, to myself?

greensalad

I have just set up a limited company. I'm currently seeking an accountant who I can bother with questions. But obviously would be great if anyone could answer here.

Prior to setting up the company I incurred a number of costs that specifically apply to the new business. This included:

- Printer and office stationary
- Software to complete work duties on
- Travel to a temporary workplace

I accrued a total of £702 from 7th September to 3rd November. I only incorporated on the 22nd October. However I've read in the Corporation Tax Act 2009 Section 61 that you can claim costs pertaining to business set-up 7 years prior, so I'd hope my month-and-a-half would be fine.

Having incorporated the company on the 22nd October, but not planning to have any cash in the company bank account until this coming Friday (13th) I paid this all out of personal funds.

I also purchased a laptop for work use (required for the job) on my personal credit card to the cost of £1000.

Now I am going to be paid £2050 on Friday and am looking to withdraw that cash from business to personal. However, would this not be a dividend?

Because I spent £1702 from my personal funds, would this just be payment of an expenses claim, rather than payment of a dividend? I am confident that all the expenses do meet the strict regulations of what can be considered an expense.

I had planned to always pay a monthly dividend of almost my entire company account, leaving a buffer around 10-15% in the account to pay for expenses straight from the business account. I had then planned to stick 20% of the paid dividend in my personal ISA in order to pay my personal self-employed tax bill come January 2017.

But, because this is an expense, is it considered an income to me personally? I can't be taxed 20% on this £1702 because I've physically had to spend it, and I'll be back to £0 once it's paid, therefore not earning anything? Is this right? Just for this expense. I obviously plan to buy everything from now on directly from my business account.

Also, how do I handle paperwork for this? I was planning to keep a solid paper trail by creating myself an 'expense' form detailing the list of personal expenses from Miss Greensalad to My Company Ltd and then marking it as paid, and putting it down as a paid expense in my accounts.

This would obviously then leave me £338 in the business account with more coming every Friday, so plenty to cover future expenses.

chrismac1

The law on this is that:

Dividends are taxable on their declaration date on the voucher. So when, for example, BP declares a divdend on 1 April 15 that is taxable in 2014-15 tax year even though typically they will transfer the funds in May 15.

A limited company director in your type of company can owe his or her company up to £10k with no tax consequences.

OK now you know the law, you need to find an accountant with an approach you are comfortable with. Some are really pedantic that each bank transfer is marked up "dividends", "salary", "expenses" and so on. Where I have clients who want to do that then fine.

Most folks - including me in my own company - think life's too short for that sort of stuff, especially when there is no legal obligation to do so. Each time I recommend a dividend for a client, the most prominent number in the file - the only one in bold type on a blue cell - is:

"Minimum advisable bank balance."

If a client keeps above that, any HMRC or Companies Act issues are my problem. Where the balance goes below that, I will do my best to still own the problem but the client needs to accept there could be extra tax to pay - either as a taxable benefit in kind or extra corporation tax.

greensalad

Thanks a lot for your advice.

OK, so I have a few questions:

1. Sorry I know this is very stupid. Is a dividend voucher something I can draw up myself? Like an invoice? Or does it require an accountant?
2. Can the dividend be for any amount presuming some left in the coffers for general running costs? E.g my 10-15% figure? My regular outgoing is travel with is about 8% of projected monthly income
3. I have already reached my personal allowance for 15/16, having earned £15k from April - October. £12k from permanent job (PAYE so tax paid) and the remaining invoiced as a sole trader. How does this affect what dividends I pay myself?
4. I only plan to be a contractor until March next year, at which point I am likely to return to perm, with some freelance on the side. How does this affect my payment structure?
5. I have personal debt to pay off, and I'd obviously like to pay it off sooner rather than later. Therefore the idea of spreading my income for the next 5 months over, say, 12 monthly dividend payments doesn't appeal. I'd rather take 90% of my income as a dividend monthly and get the debt cleared.

Any advice appreciated. Do you take on new clients? Where are you located? (If you're interested...)

Prothet_of_Doom

greensalad wrote: »

I have just set up a limited company. I'm currently seeking an accountant who I can bother with questions. But obviously would be great if anyone could answer here.

Prior to setting up the company I incurred a number of costs that specifically apply to the new business. This included:

- Printer and office stationary
- Software to complete work duties on
- Travel to a temporary workplace

I accrued a total of £702 from 7th September to 3rd November. I only incorporated on the 22nd October. However I've read in the Corporation Tax Act 2009 Section 61 that you can claim costs pertaining to business set-up 7 years prior, so I'd hope my month-and-a-half would be fine.

Having incorporated the company on the 22nd October, but not planning to have any cash in the company bank account until this coming Friday (13th) I paid this all out of personal funds.

I also purchased a laptop for work use (required for the job) on my personal credit card to the cost of £1000.

Now I am going to be paid £2050 on Friday and am looking to withdraw that cash from business to personal. However, would this not be a dividend?

Because I spent £1702 from my personal funds, would this just be payment of an expenses claim, rather than payment of a dividend? I am confident that all the expenses do meet the strict regulations of what can be considered an expense.

I had planned to always pay a monthly dividend of almost my entire company account, leaving a buffer around 10-15% in the account to pay for expenses straight from the business account. I had then planned to stick 20% of the paid dividend in my personal ISA in order to pay my personal self-employed tax bill come January 2017.

But, because this is an expense, is it considered an income to me personally? I can't be taxed 20% on this £1702 because I've physically had to spend it, and I'll be back to £0 once it's paid, therefore not earning anything? Is this right? Just for this expense. I obviously plan to buy everything from now on directly from my business account.

Also, how do I handle paperwork for this? I was planning to keep a solid paper trail by creating myself an 'expense' form detailing the list of personal expenses from Miss Greensalad to My Company Ltd and then marking it as paid, and putting it down as a paid expense in my accounts.

This would obviously then leave me £338 in the business account with more coming every Friday, so plenty to cover future expenses.

I spent £300 in the week before setting up my limited company and £400 in the week after from my own account, and simply did an Expences Claim form, which once there was income into the business account was paid back to my account.

I now do an expenses claim form weekly, covering miles at 45p (or 25p) and food when away (which is 45 weeks of the year)
Everything else is paid with business debit card or Bacs.

As far as I understand, until you make a profit, you can not declare a dividend and you can't declare a profit until after the first year. But you can have a directors loan. To be repaid as dividend after the 1st year is up. ie in the 1st year your ltd company lends you £20K, and then this is paid back by a dividend statement (I do a directors meeting minutes for each event to document it).

The risk is that if the business goes bust you owe the business that loan and the official receiver will want it back.

The other risk is that HMRC hates 12 dividends in a year, Looks like a salary really. I tend to do 3 dividends a year and 12 salary payments. The 3 are usually a month after the ltd co year end, (August), just after christmas, and April 8th.

p00hsticks

greensalad wrote: »

I had planned to always pay a monthly dividend of almost my entire company account, leaving a buffer around 10-15% in the account to pay for expenses straight from the business account. I had then planned to stick 20% of the paid dividend in my personal ISA in order to pay my personal self-employed tax bill come January 2017.

It's been ten years since I closed my company, so things might have changed, so please double check that what I'm going to say is still the case.

If you are going to award yourself dividends, then you should only pay the dividends from the post-tax profit in your company.

So if the company earns £x, then deduct any company expenses (which can include salaries etc), and ensure that at least 20% of the remaining profit is retained in the company to pay your corporation tax bill at the end of the year. If the company doesn't have the money to meet it's tax bills at the end of the year then it's insolvent, which is not allowed.

If your personal income doesn't go into the higher rate tax band, then you personally don't have to pay any more tax on the dividend income - the fact that the company has/will pay corporation tax means that the dividend comes with a 'tax credit' that ensures that a basic rate tax-paying shareholder doesn't have to pay any more tax.

You are NOT self-employed.
You are the director and shareholder of a limited company.

WHA

Poohsticks has it right here. You're not self employed for tax purposes. I hope you havn't made the mistake of personally registering as self employed with HMRC?

greensalad wrote: »

I had planned to always pay a monthly dividend of almost my entire company account, leaving a buffer around 10-15% in the account to pay for expenses straight from the business account. I had then planned to stick 20% of the paid dividend in my personal ISA in order to pay my personal self-employed tax bill come January 2017.

Completely wrong. You've failed to account for the corporation tax of 20% paid by the company on it's profits. Dividends don't reduce a company's profit. The only personal tax you have to pay is higher rate tax on any dividends that cause your total personal income to breach the h/r threshold.

Have you checked the rules re IR35 - if you are caught by it, then you're taxed via PAYE (paying tax and NIC) not via dividends, so the difference can be huge. A very important factor to check before you go any further.

I'd say you need an accountant sooner rather than later.

chrismac1

IR35 - definitely should be considered and a robust defence plan put in place.

Dividends can be declared whenever you like as long as there is a calculation to support them being from post-tax profits. My default is quarterly, but where any client wants one sooner - or where for example a tax liability could arise if one was not declared sooner - then one will be done sooner.

Yes you can legally do all of this yourself. But on the basis of your posts in this thread you'd be nuts to in my view.

greensalad

I am registered as self-employed with HMRC and have been since April. I only moved to ltd in October. So yes, I am registered as a sole-trader.

I am still looking for an accountant, as of course I am completely confused by everything. The local one I met with I was not comfortable with. He told me it's impossible to claim back any expenses for stationary and equipment I'd incurred before the incorporation date. But the Section 61 linked in the post says the opposite, so I don't feel comfortable using his services. He also told me that HMRC only allowed one dividend a year? But everywhere else I've seen said it's fine to do several.

Having researched IR35 I don't think it's an issue. It seems to be if you work solely for one company but act as a contractor? I left my perm job in October and have been working through a particular recruitment agency for a client for a period of 3 weeks. Next week I leave, and work through another recruitment agency until January. After that, I'll end up elsewhere most likely. I have another client who keeps me in a monthly retainer (and has since May, hence why I am registered as a sole trader) and I have about 3-4 other clients who I work on short-term projects with.

Thanks for all your advice. As you can tell, I'm totally confused having received conflicting advice from many different sources.

p00hsticks

greensalad wrote: »

Thanks a lot for your advice.

1. Sorry I know this is very stupid. Is a dividend voucher something I can draw up myself? Like an invoice? Or does it require an accountant?

As I recall, the company board (probably just you) pass a company resolution to award a dividend of £x to shareholders, and the company secretary then produces the paperwork and records it in the company register

greensalad wrote: »

2. Can the dividend be for any amount presuming some left in the coffers for general running costs? E.g my 10-15% figure? My regular outgoing is travel with is about 8% of projected monthly income

AS per my previous post - you need to ensure that there is enough left to cover your tax liabilities - 20% corporation tax on your profits (and if you went down the 'employee of the company' route, enough to cover the PAYE and NI payments (employers and employees)

greensalad wrote: »

3. I have already reached my personal allowance for 15/16, having earned £15k from April - October. £12k from permanent job (PAYE so tax paid) and the remaining invoiced as a sole trader. How does this affect what dividends I pay myself?

It doesn't - again, as per my previous post, your company pays 20% corporation tax on its profits before any payment of dividends. If a shareholder is a basic rate tax payer, then they have no tax to pay on dividends awarded.

greensalad wrote: »

4. I only plan to be a contractor until March next year, at which point I am likely to return to perm, with some freelance on the side. How does this affect my payment structure?

greensalad wrote: »

Any advice appreciated.

To be brutally honest, I think it's a shame that you didn't come onto this board for advice before you incorporated a company and spent over £1000 on kit. You clearly haven't done much research on how a company works or what having a company entails, and you're going to have to jump through a lot of hoops in terms of paperwork to companies House, getting and paying for an accountant, keeping records and preparing the company accounts, all for around five months work. There were probably much simpler and cheaper ways of going about things - but that's water under the bridge now.

greensalad

p00hsticks wrote: »

To be brutally honest, I think it's a shame that you didn't come onto this board for advice before you incorporated a company and spent over £1000 on kit. You clearly haven't done much research on how a company works or what having a company entails, and you're going to have to jump through a lot of hoops in terms of paperwork to companies House, getting and paying for an accountant, keeping records and preparing the company accounts, all for around five months work. There were probably much simpler and cheaper ways of going about things - but that's water under the bridge now.

I'm aware I should have come here first. But I had to be a limited company in order to register with the agencies I now have work through. So there was really no way around it.

I'm contacting other accountants in my local area but the whole thing is very confusing mainly due to having earned income as a sole-trader prior to this, in this same financial year. The £1k of kit cost is easily recoverable so I am not concerned about 'overspending' there.

And I did research, which is exactly why I came to doubt the accountant I was about to take advice from. I had the appointment and he told me a lot of things that I presumed correct. It was only when I came back and looked into it further that I realised what he was saying was fundamentally wrong. I had planned to take his advice and I'm actually happy I hadn't because he clearly didn't know what he was talking about!

WHA

greensalad wrote: »

but the whole thing is very confusing mainly due to having earned income as a sole-trader prior to this, in this same financial year.

That's not confusing at all to any half decent accountant. It's bread and butter stuff as most people will have "split years" where they change their status mid way.

Like any service provider, there are good and bad, qualified and unqualified, and those who specialise in different business types. Your first choice seems to have been a bad one which is bad luck. Move on, talk to others and find one that meets you needs. I always say you should ask around friends/family if they'll recommend the one they use. If not, then go and talk to 3/4 qualified accountants and see how you gel with them. Most decent accountants will offer a free initial consultation, so take advantage of that.

Trying to do-it-yourself with a limited company seldom has a happy ending.