Limited Company - consistent answers required!

thegeneral76

Forgive me if this is posted in the wrong area.

I have now spoken to three accountants while looking for the best deal, and all have given different amnswers to questions within the following scenario.

I am in the process of setting up a limited company as a secondary source of income. I am in no doubt that this is the way forward as I intend to draw no salary from the business with payment (if any) via dividend.

What I need to know is how I minimise the amount of tax that the company is liable for (21% corporation tax).

It is a realistic projection that the ltd company will have income of 20k in the first year. There are no stock outgoings, only income.

I know this sum isn't huge, but I still want to minimise tax payable.
My question is, what realistically can the company purchase to minimise this corporation tax:

1. Computer equipment? (this is essential in the line of business of the company)
2. Car? I currently have a private car that I need to change anyway, would it be better to purchase through the company? Also, it is highly unlikely to be a brand new car, more likely at least three years old.
3. Fuel?
4. Road tax?
5. Car insurance?
6. Utilities (the company will be registered at my home address - do I get relief on utilities)?
7. Flights, accomodation, expenses? - I travel to London/mainland Europe with this venture.
8. Corporate entertainment? Is this deductable?
9. Marketing materials and event participation? Deductable?
10. Diversification into the property market, using current revenue streams to purchase buy to let properties for the ltd company - would this (and the mortgage payments) reduce corporation tax
11. VAT Registration? Given that the turnover is so low, is there really any point registering for VAT at this time - three accountants answered yes, no and don't know (that guy got binned right away) respectively!!!

I would appreciate the thoughts of anyone on these forums that has been through a similar business situation and could shed some light on what the answers are.

Regards

thegeneral76

chappers

May I ask where is your income from that will help the VAT question

1 yes
2 probably better to claim milage this can then be offset as an allowable expense to the company, capital expenses against cars can be difficult unless you can catagorically show it is only for business use.
3 , 4, 5 depends on the staus of your vehicle ie whether it belongs to the company or not.
6 you can offset some for using your home as an office
7 yes
8 yes but can be dependant on what and how much
9 yes
10 yes
11 personally I would keep away from VAT registration unless you are very disciplined with your cashflow or your services are zero rated .

Basically anything you genuinely buy to run your business is allowable as a business expense.

fengirl_2

However did you manage to get 3 different answers to this?
As chappers says, the company needs to account for all its outgoings in earning the income it receives. The outgoings you have described are the company's liability. Otherwise, the accounts would not give a true and fair view of its profitability.

thegeneral76

Thanks for that.

My services aren't be zero vatable. Unfortunately, every client and potential client will be VAT registered, so I may be forced to register for VAT, if nothing else they may not deal with me otherwise.

However, this will impact on my decision how to run the car, as if I expense the mileage, I cannot reclaim the VAT on expenses paid through the company, right?

If I do VAT register though, would it be better to try for the flat rate VAT - in my case, computing, IT Consultancy and Data Processing (all boxes ticked) falls into a 13% flat rate with a 1% discount in the first year.

I suppose it depends on the amount of purchases I will make. These are small volume as most, if not all of my activity is the service/software I provide.

The only thing that puts me off flat VAT is, taking business mileage aside, I do tend to travel a bit with this, so claiming the full VAT relief on flights, accomodation and meals may work to my advantage and mean proper VAT reg would be better.

In addition to this, the portions of ultilities of my 'office' would receive VAT relief, yes - these being council tax (Scotland, no separate water bills on domestic property), gas, leccy etc? How on earth do you calculate how to aportion between business and personal?

I'll be honest, I should have stuck to one accountant as I've now got myself in a right head f**k of a knot, and independent reading is just making things worse.

Why oh why would anyone work for themselves!

chappers

You are correct some companies may not deal with you unless you are VAT registered.

If you claim mileage the car stays as your personal possesion not the companies and the company therefore can not use insurance, petrol etc as an allowable expense.

With regards to flat rate it all depends on expenditure versus income -I think there is acalculator somewhere on the HMRC website that tells you if you are better off on the flat rate scheme.

Using your home as an office is a grey area, depends really on how much time you spend there if for example your business involved you working from home for lots of hours then you would claim more than if , say like me the main core of your work is away from home but you do some admin there.
I am no expert on this but I would say that it would be fair to claim the relevant proportion so say you use one room out of four to run your business and you work for a quarter of the day on work stuff at then you could claim an eigth of your bills mortgage etc remember you can claim for certain household items too such as toilet rolls etc but again they have to be proportional however you couldn't say claim for a proportion of your shopping bill.I expect there is some guidance on HMRC.

Cook_County

chappers wrote: »

You are correct some companies may not deal with you unless you are VAT registered.

If you claim mileage the car stays as your personal possesion not the companies and the company therefore can not use insurance, petrol etc as an allowable expense.

With regards to flat rate it all depends on expenditure versus income -I think there is acalculator somewhere on the HMRC website that tells you if you are better off on the flat rate scheme.

Using your home as an office is a grey area, depends really on how much time you spend there if for example your business involved you working from home for lots of hours then you would claim more than if , say like me the main core of your work is away from home but you do some admin there.
I am no expert on this but I would say that it would be fair to claim the relevant proportion so say you use one room out of four to run your business and you work for a quarter of the day on work stuff at then you could claim an eigth of your bills mortgage etc remember you can claim for certain household items too such as toilet rolls etc but again they have to be proportional however you couldn't say claim for a proportion of your shopping bill.I expect there is some guidance on HMRC.

A company does not have a home so cannot use it.

You could give the company a license to use part of the premises - but this would of course need to be a fair measure and have a true license agreement drafted. The license fee wold of course be taxable on you personally but would be another way of drawing a small part of the profits free of NIC. Your insurers would need to know you have granted a license. If there is a mortgage the lender would also need to be notified.

This may of course have CGT implications.

cash99

Just a few points

You should also consider paying yourself a small salary. Up to the NIC primary threshold of £105 / week you there is no employers contribution, so the overall tax liabilitiy is no different to paying a dividend, and my be marginally less.

You may be able to claim more costs by running a car through your company but you need to factor in the personal tax liability of having a company car.

Entertaining anyone apart from staff is not tax deductible.

There is no Vat on flights or overseas hotels etc so this does not impact the decision to use a flat rate scheme. The flat rate scheme used where you have low costs which attract vat i.e. a typical consultancy save you money.

You cannot claim vat on your home utilities.

As an employee of the company then the expenses you can claim for working from home are limited. I think the limit is £2 per week tax free. You can claim more but you need to justify it. If the company if paying you rent then this is taxable income in your hands. If you are running a company the apportionment of home costs does not apply in the same way as it does to a self employed person.

I would get specific advice on the BTL situation.

Any even remotely competent accountant ought to be able to address these issues very quickly and effectively.