New Limited Company - what benefits can I utilise?

terryhouse

Hi, I recently set up a family limited company to buy property and rent it out.  As it's coming to the end of my first tax year and we have regular rental money coming in now, what can I utilise this year before I lose the benefit?

So I'm charging the company interest on the Director's loan my husband and I put in. The loans so far are £125,000 and I'm thinking of charging 5% interest.

I've not claimed my expenses and mileage yet for this year which is about £1,600.  Should I claim this year

Should my husband and I take a dividend for this year?

My three kids are shareholders, should they get a dividend?

Anything else I can claim?  My accountant isn't very forth coming with advice, they seem more interested in double book keeping than advising me on the most efficient way to do things.  Or am I not being realistic?

MattMattMattUK

terryhouse said:

Hi, I recently set up a family limited company to buy property and rent it out.  As it's coming to the end of my first tax year and we have regular rental money coming in now, what can I utilise this year before I lose the benefit?

So I'm charging the company interest on the Director's loan my husband and I put in. The loans so far are £125,000 and I'm thinking of charging 5% interest.

Remember that you have to declare that interest and pay tax on it on your self assessment.

terryhouse said:

I've not claimed my expenses and mileage yet for this year which is about £1,600.  Should I claim this year

You have to claim legitimate expenses in the year they are incurred, a business can pay these at up to 45p per mile before they become taxable. For expenses to be recoverable they need to be necessary and exclusively for business use. Are the expenses all legitimate business expenses?

terryhouse said:

Should my husband and I take a dividend for this year?

My three kids are shareholders, should they get a dividend?

Dividend is paid on a per share basis, not per shareholder, all shares must receive equal dividend, barring different classes. You cannot pay some shareholders and not others. You can only pay dividend from retained profit so the company will need to have made a profit and remain fully solvent to pay out a dividend.

terryhouse said:

Anything else I can claim?  

You seem to be mixing up various things. There is maximising the profit within the business, then there is extracting that profit in the most efficient way. One involves minimising corporation tax, the other involved personal tax which can involve dividend, PAYE, interest, pension payments etc. which all have different allowances, tax rates and implications. 

terryhouse said:

My accountant isn't very forth coming with advice, they seem more interested in double book keeping than advising me on the most efficient way to do things.  Or am I not being realistic?

That depends what kind of accountant you have or indeed just a bookkeeper, what does your letter of engagement or contract with the account say, is it just to bookkeep, to do full company accounts, to offer business tax advice, to offer personal tax advice, if personal tax advice for how many people, personal tax returns?

Nomunnofun1

terryhouse said:

Hi, I recently set up a family limited company to buy property and rent it out.  As it's coming to the end of my first tax year and we have regular rental money coming in now, what can I utilise this year before I lose the benefit?

So I'm charging the company interest on the Director's loan my husband and I put in. The loans so far are £125,000 and I'm thinking of charging 5% interest.

I've not claimed my expenses and mileage yet for this year which is about £1,600.  Should I claim this year

Should my husband and I take a dividend for this year?

My three kids are shareholders, should they get a dividend?

Anything else I can claim?  My accountant isn't very forth coming with advice, they seem more interested in double book keeping than advising me on the most efficient way to do things.  Or am I not being realistic?

How are you taking income - solely dividends? You can’t claim expenses against that income? 

terryhouse

Thanks for your input.  

I'll try and answer where I can.

Yes my accountant said that I would have to pay tax on the interest each year, even though I will not draw down on it till later on.

Yes all of those expenses are legitimate.  2.5k of mileage at 45p a mile and some things I had to pay cash for, i.e. freezer from gumtree, etc that I couldn't use the business account for or before we got the business account set up.

The kids have 10% each in class A, B and C share.  My husband and I have 35% each.  I don't mind everyone getting a different amount of dividend as long as it's the most efficient way to take it out.  

Yes I know I'm getting maximising profit and extraction confused.  We set the company up to build a future for our kids and an income for when we retire.  So not sure which way to do things for the better.

The accountant engagement letter is for submission of accounts, etc.  He did say any additional chargeable piece of work will be discussed beforehand so I suppose I'm picking his brains/company brains on the cheap.  My queries do cross over tax planning, inheritance, etc so I probably want more than I am paying for to be fair.  

I have no idea how I am taking income.  The company is additional to our day jobs, so dont need an income as such for now.  We are happy to plough the money back into the company for future properties, but want to utilise tax efficient extraction each year.  So if we can take a dividend this year if that's a good thing to do.

Hoenir

terryhouse said:

So I'm charging the company interest on the Director's loan my husband and I put in. The loans so far are £125,000 and I'm thinking of charging 5% interest.

The company must deduct 20% income tax on interest paid and pay this across  to the HMRC on a quarterly basis. 

terryhouse

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

Nomunnofun1

terryhouse said:

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

Yes my accountant told me about this.  Is it better to not charge the interest and leave it as profit in the company and take the 19% corporation tax hit instead?  But then would I be taxed at my 40% rate as it would be additional income?  I liked the interest charge route so I could draw down when I needed to cash.

You definitely need more assistance from your accountant. As I said earlier, unless you have an income against which to claim your expenses they can’t be claimed. Dividends are not income in this regard. 

Hoenir

Seems your Accountant has explained your options. Choice is yours. 

Bookworm105

terryhouse said:

I have no idea how I am taking income.  The company is additional to our day jobs, so dont need an income as such for now.  We are happy to plough the money back into the company for future properties, but want to utilise tax efficient extraction each year.  So if we can take a dividend this year if that's a good thing to do.

then find out what your total income is right now and establish where that leaves you in relation to basic, higher and additional rate tax bands because you are going to be taxed on withdrawals of whatever nature. Also bearing in mind loss of PA if >100k

decide if NEED extra income ?
if you do not then, as you are looking to the future, let the company pay into pension pots for you and the wife. Gets full corporation tax relief and obviously has no personal tax 

there are many other things you could do but without a full and frank disclosure of your personal finances on here the best you can do now would be to pay your accountant for extra advice.

Grumpy_chap

Nomunnofun1 said:

You definitely need more assistance from your accountant. As I said earlier, unless you have an income against which to claim your expenses they can’t be claimed. Dividends are not income in this regard. 

AIUI, the OP can claim expenses (so long as genuine business expenses) from the Ltd Co., even if the Ltd Co. has inadequate income against which to claim.  They are paper transactions only and show the Ltd Co as making a loss, but that loss can be carried forward against future profits (corporation tax).

Consider it as a start up:
On day one the company has to pay for printing some flyers.  This is a genuine business expense.
On day two the company drives around to deliver the flyers to targeted potential customers.  This mileage is a genuine business expense.
On day three the company attends a meeting to present their capabilities to potential customer one.  This mileage is a genuine business expense.
On day four the company attends a seminar to promote the business by having a stand in the foyer.  This is a genuine business expense.
On day five, the company presents an offer to potential customer one and secures a first order.  This mileage is a genuine business expense.
So, at the end of one week, the company has a loss on the balance sheet but relies on the first order to recover that position.
Obviously, real world timescales and events are much more complex, but the principal that the Ltd Co. can incur expenses against no income still stands.

I do agree, though, that the OP needs far more and complete advice from their Accountant, especially as a complex company structure has been created with the use of "alphabet shares" which are typically frowned upon by HMRC when there is no reason for such complexity other than minimising taxation liabilities.
It is not clear how old the children are (but described as "kids" so I assume still at school).  Any dividends paid to the children are the children's and cannot be influenced in how they are spent by the parents.  It can create difficulties later on when the children have a dividend income and shareholding assets yet may have limited employment income.
The parents can't simply change the rules on the alphabet shares - this 30% of the business is now owned by the children and can't be simply taken back.

Interest on loans from Shareholders / Directors usually has to be set at a rate that is comparable to market rate borrowing.

Nomunnofun1

Grumpy_chap said:

Nomunnofun1 said:

You definitely need more assistance from your accountant. As I said earlier, unless you have an income against which to claim your expenses they can’t be claimed. Dividends are not income in this regard. 

AIUI, the OP can claim expenses (so long as genuine business expenses) from the Ltd Co., even if the Ltd Co. has inadequate income against which to claim.  They are paper transactions only and show the Ltd Co as making a loss, but that loss can be carried forward against future profits (corporation tax).

Consider it as a start up:
On day one the company has to pay for printing some flyers.  This is a genuine business expense.
On day two the company drives around to deliver the flyers to targeted potential customers.  This mileage is a genuine business expense.
On day three the company attends a meeting to present their capabilities to potential customer one.  This mileage is a genuine business expense.
On day four the company attends a seminar to promote the business by having a stand in the foyer.  This is a genuine business expense.
On day five, the company presents an offer to potential customer one and secures a first order.  This mileage is a genuine business expense.
So, at the end of one week, the company has a loss on the balance sheet but relies on the first order to recover that position.
Obviously, real world timescales and events are much more complex, but the principal that the Ltd Co. can incur expenses against no income still stands.

Yes - I’m probably talking cross purposes- looking at the individual claiming tax relief for the expenses as opposed to directly from the company. 

Can’t argue with any of your points!