What do you wish you had known before becoming a LTD Co?

happyandcontented

As the title says really.

Moving into the contracting arena with a Ltd Co. We have retained the services of an accountancy firm who seem very good and have answered all our questions so far. However, they can only answer what we ask and we may not be asking the right questions, enough questions or complete questions.

We know about IR35 and the contract is deemed to be outside it.
We know about the lack of desirability now of a "company car" but we don't know what we don't know!!

Any pointers welcome.

Pennywise

Never dip into the taxman's money. Ring fence the monies accruing on each sales invoice that belongs to HMRC in the form of both VAT and Corporation tax. Never be tempted to "borrow" the taxman's money for other things like your own withdrawals in the hope that next weeks' or next months' sales will cover the tax - it's very hard to catch up once you start robbing Peter to pay Paul.

motorguy

I do a spreadsheet out with a TAB for each week, then plug in to it any expenses claims i am making - subsistence, mileage, hotels - then keep the receipts in an envelope for that week and then start a fresh TAB / envelope for the next week. Depends on your spending of course.

phill99

I have been through both ST and LTD Co. The only thing I would say is that you need to be squeaky clean on your record keeping and make sure you account for all money going out of your account.


Also you need to get it in to your head that you and the company are two different things. Money in the LtdCo accounts is not yours to dip into whenever you want. The company is a completely different legal entity to you as an individual. A lot of people really struggle with this.

happyandcontented

phill99 wrote: »

I have been through both ST and LTD Co. The only thing I would say is that you need to be squeaky clean on your record keeping and make sure you account for all money going out of your account.


Also you need to get it in to your head that you and the company are two different things. Money in the LtdCo accounts is not yours to dip into whenever you want. The company is a completely different legal entity to you as an individual. A lot of people really struggle with this.

Thanks, is that still the case if you have accounted for all your liabilities first and annexed an amount for them?

Pennywise

happyandcontented wrote: »

Thanks, is that still the case if you have accounted for all your liabilities first and annexed an amount for them?

Yes, you can't just dip in when you want. Withdrawals from a limited company have to be properly documented, i.e. if payroll, then PAYE should be applied and reported to HMRC the same day payment is made. If dividends, then you need a director's meeting minute to approve the dividend and a dividend voucher. If a loan, then you need a directors' meeting minute to evidence approval. Etc.

happyandcontented

Excuse me if I seem really ignorant, but if we decide to take say £3.5k per month as living expenses from the business receipts how do we do that?

motorguy

happyandcontented wrote: »

Excuse me if I seem really ignorant, but if we decide to take say £3.5k per month as living expenses from the business receipts how do we do that?

Write yourself a cheque from the company account.

I let my accountant sort out the tax, etc.

happyandcontented

Thanks, that is what I understood from our accountant but the above seems to contradict that.

00ec25

happyandcontented wrote: »

Excuse me if I seem really ignorant, but if we decide to take say £3.5k per month as living expenses from the business receipts how do we do that?

The practical matter of taking the cash out of the company bank account. Fine, you are the real person who controls the company bank account so take money out, but the real question is.... the company has paid out money, what therefore is the company going to record that payment as?

happyandcontented wrote: »

Thanks, that is what I understood from our accountant but the above seems to contradict that.

as others hinted at above, you have failed to understand that ....

The company is not you. The company does not have "living expenses".

You are not the company, you have living expenses, but you need a source of income from which to pay them.

So, no contradiction, as explained, there are 3 options for how you get the money you need

a) the company pays its employee (you) a salary via the company payroll (less PAYE and NI). You then spend the money on your own living expenses.

b) the company pays a dividend to its shareholder (ie you). You then spend the money on your own living expenses.

c) the company repays money that its director (you) loaned to it. You then spend the money on your own living expenses.

your company accountant will advise you on how to balance a) and b) in a tax efficient manner.

If c) is applicable your accountant should have already explained that to you as the implications of you making a loan to the company should have been completely understood from the outset

Note if the company pays your bills directly on your behalf (ie money goes from company bank account direct to the utility supplier's bank account) then that counts as your own personal taxable income (ie it would be a "benefit in kind") just the same as if you had received the money as a salary via payroll in the first place and so will be reported by the company as a payroll transaction (option a) but one upon which you have not yet paid the tax you owe (HMRC will then collect that tax from you later on either by adjusting your tax code or you physically paying it to them - again speak to your accountant if you don't understand how personal tax works)

trailingspouse

That we would be successful.