Wednesday, March 29th, 2023
If you have a Limited Company, you will probably have heard us referring to your directors’ loan account. But what is a director’s loan account?
A director’s loan is defined as funds a director deposits or withdraws from the company that isn’t salary, dividends, or expenses repaid.
A record of the deposits and withdrawals are dealt with through the loan account and will result in either an overdrawn loan or a loan that is in credit.
If the loan account is in credit, then it means that the director has paid in more than they have taken out – the company owes money to the directors.
If the loan account is overdrawn, then the director has taken out more money than they have paid in – the directors owe the company money.
Loan account in credit at year-end:
Where a loan account is in credit, the balance is available for the directors to withdraw from the company without any further tax implications.
The company may also pay interest on the loan to the director. This is an allowable tax deduction in the company but is taxed as personal income of the director.
The company will pay the interest to the director net of 20% tax. The tax will be reported and paid over to HMRC using a form CT61.
Loan account is overdrawn at year-end:
Where the loan account is overdrawn at the year-end, and this cannot be taken as a dividend, there may be extra tax implications:
- If you repay the loan within 9 months of the year-end – there will be no further tax to pay. It should be noted that there are certain rules in place to prevent a director from repaying the loan and then taking it back out again within 30 days.
- If you do not repay the loan within 9 months of the year-end – S455 tax is payable at 32.5% of the outstanding balance. This is paid as part of the annual corporation tax bill. The S455 tax can be reclaimed once the loan has been repaid.
Where a loan is more than £10,000, and the director paid the company interest below the official rate, then this will be treated as an interest-free loan and will also be taxed as a benefit in kind.
How can we help?
If you are unsure how much you can take from your company without resulting in an overdrawn loan account or would like further information on any of the points mentioned above, then please get in touch.
Wednesday, June 8th, 2022
Getting your children to help in your business is a useful way of getting an extra pair of hands for you and can earn them some extra pocket money. The money that you pay them will also be a tax-deductible expense in the business.
There are strict rules you must adhere to when employing your children (someone below the age of 18).
A permit is usually required from the local council’s education department before you can employ someone below the age of 16.
- Under 13:
- Can work part-time depending on local by-laws. There may be restrictions in place regarding working hours, conditions of work & type of work they can do.
- You should check first before employing your 13-year-old
- Can work part-time in areas considered ‘light’ (e.g office work, shelf stacking etc.)
- Can work in a café or restaurant but not in the kitchens.
- Children cannot work during school hours (except during weekends and school holidays) and can only work between 7am and 7pm
- They can work up to 2 hours per day on school days and Sundays and up to 5 hours per day on Saturdays and during school holidays
- They cannot work more than 12 hours per week during term time or 25 hours per week during school holidays.
- 15 – 17-year-olds:
- The same rules apply as above except for the following:
- They can work up to 2 hours per day on school days and Sundays and up to 8 hours per day on Saturdays and during school holidays
- They cannot work more than 12 hours per week during term time or 35 hours per week during school holidays.
How much can you pay?
- 13 – 15-year-olds:
- Not entitled to the minimum wage
- Do not pay National Insurance so they only need to be included on your payroll if their total income is over their personal allowance
- The rate paid must be commercially justifiable. It should be no more than you would pay a non-family member with the same level of skills and experience.
- 16- & 17-year-olds:
- Entitled to the national minimum wage
- If you are a registered employer, then you need to include them on your payroll.
- If you are not a registered employer but they earn above the Lower Earnings limit (currently £123 per week for 2022/23) then you will need to register as an employer and submit payroll reports to HMRC.
Employing your children can provide a financial benefit for both your business and your children. Please get in touch with us today if you would like any guidance on this subject.
Wednesday, September 15th, 2021
In general, tax-deductible expenses in a Limited Company must be wholly and exclusively for the use of the business.
If an expense has a dual purpose for both personal and business, you can only claim for the business element.
A summary of the rules for typical costs incurred by a company include:
- Staff expenses – As well as the salary and National Insurance contributions you pay to your employees the following costs are also allowable:
- Annual staff party – You can claim for the costs of hosting an annual staff party as long as the following conditions apply:
- The cost does not exceed £150 per head
- The main purpose of the event is to entertain your staff i.e., the majority of the guests should be employees
- The event must be open to all staff.
- It does not have to be a single function, it can be several functions over the year, but the total cost of all the events must not exceed £150 per head.
- Gifts and Trivial Benefits – You can buy small gifts for your employees, which will be fully allowable with no further tax and NIC implications provided the following conditions are met:
- It costs £50 or less to provide
- It isn’t cash or a cash voucher
- It is not a reward for their performance
- It is not included in the terms of their contract
- Eye tests and glasses – You can claim the cost of an eye test, only if you are required to use visual display equipment as part of your everyday job. You can also claim the cost of glasses only if the prescription is for screen-based work, not for a general prescription.
- Travel costs – You can claim for travel-related expenses for any business trips that you make. You cannot claim for the costs of your general commute (i.e. travel from home to your permanent place of work). Costs you can claim are as follows:
- Mileage – You can claim mileage for any business trips you make in your personal vehicle. HMRC approved mileage rates are as follows:
- Car or van – 45p per mile for first 10,000 and 25p over 10,000 miles
- Motorcycle – 24p per mile
- Bicycle – 20p per mile
- Transport fares – train tickets, flights, taxi fares etc.
- Parking charges and toll fees
- Accommodation for overnight trips – You can claim for the costs of accommodation for overnight business as long as the costs are reasonable and not excessive.
- Meals – You can claim for the costs of meals while working away in one of two ways:
- Actual costs incurred – you can claim for the costs of any food or drink purchased whilst on a business trip. You must keep evidence of the costs incurred.
- Using HMRC benchmark scale rates. These are approved rates set by HMRC that you can pay to cover the cost of subsistence while working away. You do not need to keep evidence of every cost incurred but there must be some evidence of checking that the employee did incur a cost. The rates are as follows:
- Minimum journey time – 5 hours – £5
- Minimum journey time – 10 hours – £10
- Minimum journey time – 15 hours (and ongoing at 8 pm) – £25
- General office costs – Postage, stationery, printing costs and other consumable office supplies are all allowable costs
- Use of home as office – You can claim for costs for using your home for business in one of two ways:
- Claiming a flat rate expense using HMRC approved rate of £6 per week
- Claiming a portion of your home expenses such as utilities. The calculation will be based on the number of rooms used for business and how long you use the rooms for
- Equipment – Purchases of equipment such as computers, printers and other office furniture like desks and chairs are subject to tax relief by way of claiming capital allowances.
- Protective clothing:
- The costs of protective equipment required for the business such as hi-visibility jackets, safety boots and safety helmets are an allowable expense.
- Uniform that is required to be worn by you and your employees is also an allowable expense
- The cost of normal clothing purchased for business, such as a new suit for a meeting, is not an allowable expense.
- Mobile phone:
- You can claim the full costs of a mobile phone bill as long as the contract is in the company name.
- If you pay for a mobile phone bill in your personal name, or your employees name, then only the business-related calls are allowable.
- If you pay for the full cost of a personal mobile phone bill, then this will be taxed as a benefit in kind.
- Landline and Broadband:
- If the landline and/or broadband is used solely for business, then the costs are fully allowable
- If landline and/or broadband is used for both business and personal, then you can only claim for the business portion. This will need to be broken down separately, for example using an itemised bill.
- Insurance – You can claim the cost of insurance as long as it is taken strictly for business purposes. Common types of business insurance include professional indemnity, public liability and employers’ liability insurance
- Relevant life cover – Relevant life cover is an allowable business expense. It must be a relevant life cover policy; standard life insurance policies are not a tax allowable expense.
- Professional fees – Payments for professional services such as accountants or solicitors’ fees are an allowable expense as long as the service is carried out solely for business purposes.
- Financial costs – bank & credit card charges and interest on loans and hire purchases are an allowable expense
- Marketing and Advertising – These costs are an allowable expense as long as they are incurred solely for business purposes
- Training – Training costs are an allowable expense as long as the content relates to your trading activity. Training courses to learn a new skill are not an allowable expense unless you can show that it will improve your business.
- Professional subscriptions – Subscription costs are an allowable expense as long as they are directly related to your trading activity.
If you are unsure if a cost is tax allowable or would like further advice on any of the above, then please get in touch with us.
Wednesday, May 12th, 2021
Why Cloud Accounting?
9 Reasons Why Cloud Accounting is the FUTURE of accounting!
- Automatic Bank Feeds
Cloud accounting software has a feature that allows bank transactions to be downloaded into your software daily, therefore there is no longer a need to spend hours typing out your statement line by line.
- You can view your companies’ financial position anywhere at any time!
Gone are the days of sitting at your computer to view your company financials; most cloud accounting software such as Xero, QuickBooks and FreeAgent have apps that can be downloaded straight onto your smartphone. You can even take pictures of your receipts and upload them directly to the app whilst you are on the go!
- Cloud accounting software allows multi-user access.
Multi-user access means both you and your accountant can keep up to date with your company financials. Giving your accountant access to this information puts them in the best position to advise you on your financial position throughout your accounting year.
- Cloud accounting software is SPACE SAVING software!
Cloud accounting software such as Xero allows you to store everything in one place. Invoices can be emailed straight into your Xero inbox. You can also attach pictures of your receipts to the relevant expense in the software – not only will you save on printing costs, but you will no longer need endless shelves to store all your invoices, simply snap and upload a picture of your receipts to your software and there is no need to keep the paper copies.
- You will always be logged into the most up to date version of your software.
Cloud accounting software does not need you to download updates each time there are new tax rates announced. Your software will change in line with new government finance guidelines for you.
- Allows for a ‘WORK SMARTER, NOT HARDER’ mindset
Running a business requires a lot of organisation and record-keeping, however, cloud accounting software can do a lot of the tedious bookkeeping work for you. From automatic bank feeds to sending automated reminders to customers that owe you money, there is a whole range of mundane tasks that your software will now complete for you giving you more time to focus on building your business.
- The Cost-Effective Option
In many cases, the ‘cloud’ version of the software is cheaper than their desktop counterparts. This means you’re staying on top of the latest software whilst also saving cash!
- Software that is secure and safe!
As suggested by their name, online software such as Xero, Quickbooks and FreeAgent are all stored ‘in the cloud’. Unlike their desktop friends, they do not need to have regular data backups taken and the data you enter will never be lost!
Each Cloud software allows you the option to set up 2-factor authentication to gain access to the login. This means your business data will be kept safe and can only be accessed by those you allow.
- Data Capturing Software
Software’s such as HubDoc and Receiptbank can be used alongside your software. They use OCR technology to extract the key information from your invoices and feed them into your bookkeeping software. This can save you lots of time as you do not have to manually enter each of your invoices onto your software.
If you need any help or advice on choosing the right cloud accounting software for you please give us a call on 01785 254550.
Wednesday, November 2nd, 2016
The new accounting framework for small companies will become mandatory for accounting periods starting on and after 1 January 2016, and is known as FRS 102. This new framework was introduced to provide one single set of accounting policies for businesses to follow and policies which are more in-line with international standards.
Companies do have the option to early adopt the new framework, but this depends on individual circumstances.
Once FRS 102 applies to your business, it is not just the current year that is affected. The previous comparative figures also need to be adjusted for any change in accounting policies.
Some examples of the changes to the accounting framework include the valuation of investment properties, dealing with short-term employment benefits (accrued staff holidays not taken at the year end), shortened the useful life of goodwill, dealing with lease incentives and further rules regarding the calculation of deferred tax.
It is vital that these changes be properly thought through as they could have a significant impact on the results of the business, which will be filed on the public record and used to determine credit scores.
Should you require any help and assistance with regards to the transition to FRS 102, and indeed ways to improve your credit score, please call Cheadles accountants in Stafford on 01785 254550.