Company Accounts & Corporation Tax
A company must prepare and file accounts each year for both
Companies House and HM Revenue & Customs.

Statutory Accounts

  Your company's annual accounts are called 'statutory accounts' and are prepared from the company's financial records at the end of the company's financial year. As a company director, you have a legal responsibility to send accounts to the shareholders, Companies House and HM Revenue & Customs as part of the Corporation Tax Return.
 
The accounting reference date is the period to which the accounts are drawn up, the first set of accounts are usually made up to the end of the month which is twelve months after the date of incorporation, for example, if a company was incorporated on 10th January 2017, its first accounting period would be from 10th January 2017 to 31st January 2018, then the next accounting period would be 1st February 2018 to 31st January 2019 and so on.
 
You can change accounting reference, if for example you wanted it to tie into the self-assessment tax year (or as near as possible) then you could change it to 31st March, this would mean either shortening or extending the period so the accounting reference date ended on 31st March, however you cannot shorten or extend the accounting period by more than six months.
 
The accounts will contain a Profit & Loss, Balance Sheet and various notes to the accounts, there is a full set of accounts and an abbreviated set, small companies are exempt from having their accounts audited and can also file abbreviated accounts at Companies House, although a full set of accounts must always be filed with HMRC along with the Corporation Tax Return.
 
If you want to apply for a business bank loan or some form of credit, the lender will most certainly want to see a full set of accounts.
 
As a Chartered Management Accountant, we can include an accountants report in your accounts, which gives the user the comfort that they have been prepared and signed off by a professional accountant.

Contact us now to discuss if you need to file company accounts.

Corporation Tax

  Individuals pay income tax and companies pay corporation tax. The current corporation tax rate effective from 1st April 2017 is 19% and this is charged on the company taxable profits for a period of account. This is important as there is often a difference between the accounting profits and taxable profits. This is because the accounts can include expenses that are then disallowed for calculating the taxable profits, the most common example is entertainment expenses, while these are deducted in calculating the accounting profits, they are added back when calculating the taxable profits, hence known as "disallowable expenses".
 
In addition to disallowable expenses, there are various other adjustments, such as capital allowances, annual investment allowances and other reliefs, such as carried forward loss relief, that can make the taxable profits considerably different to the accounting profits.
 
As discussed above, the accounting period can be extended or shortened by up to six months but the period of account to which corporation tax is calculated can never be more than twelve months. For example, if you extend your accounting period by six months to make an eighteen-month period, you would then need to prepare and file two corporation tax returns, one for twelve months and another for six months to cover the one accounting period.
  

Corporation Tax Rates

Rate                                                                                                            2018                    2017                   2016

Main rate (all profits except ring fences profits)                                 19%                       19%                    20%


Current legislation has set the Corporation Tax main rate to 19% from 1st April 2017 and for years starting 1st April 2018, 2019. Then the Summer Budget 2016 reduced the rate to 17% from 1st April 2020.

Business Expenses

  There is not one single list of what is classed as business expenses, however they must be incurred wholly, exclusively and necessarily in the course of carrying out your trade, profession or business.

There are however common business expenses, which are as follows;

·         Goods bought for resale (retail business)
·         Accountancy fees
·         Legal fees if relating to business activity and not capital expenditure
·         Bad debts
·         Office Rent, Rates, Heat & Light
·         Business Insurance
·         Business travel, subsistence and accommodation
·         Postage, printing and stationary costs
·         Business landline telephone calls
·         Mobile telephone and calls
·         Website, marketing and advertising costs
·         Salaries & Wages
·         Staff recruitment costs
·         Staff Training - as long as it relates to their work.
·         Health & Safety costs
·         Staff Welfare
·         Employer's N.I. contributions
·         Contributions to workplace pension
·         Business entertainment*
·         Equipment purchased for business purposes
·         Motoring expenses using fixed rate allowances
·         Computer software including anti-virus
·         Technical books and journals
·         Certain professional subscriptions
·         Use of home as office
·         Company bank charges and interest

*Business entertainment is not tax deductible although the company may still cover this cost if it is strictly of a business nature.

This is not a definitive list and the general rule should always be applied in each case.
  
  
Contact us if you would like to discuss your business expenses

Capital Allowances

  You can claim capital allowances when you buy assets that you keep to use in your business, for example, equipment, machinery and business vehicles, these are referred to as plant and machinery.

You can also claim computer equipment and office furniture. If however you use some of this equipment outside the business, take a laptop that you use 50% for work and 50% for personal, then only 50% of the cost can be used for capital allowances.

You have to be careful when it comes to capital allowances as some items are classed as capital but do not attract capital allowances, for example items relating to a building such as doors, gates, shutters and gas systems. The asset must also be own so cannot be leased.

Annual Investment Allowance - is an allowance to claim the full value of the item that qualifies for the annual investment allowance.

Company Cars (excluding commercial vehicles) do not qualify for the annual investment allowance and the rate you can claim depends on the CO2 emissions and the date your first bought it.
  

Director's Loan Account

  As most small business directors are also the owners (shareholders) this means they often withdraw funds from the company for various reasons, the payment could be for a salary, dividend, expenses are a loan. When the director withdraws more cash out of the business then is entitled to then this is known as an overdrawn director's loan account.

The first £10,000 of the director's loan account can be interest free without any tax implications, however go over £10,000 and the entire amount would become a beneficial loan if interest was not charged by the company, this means the director would be subject to income tax on the beneficial loan on the amount of interest you have saved had you taken this loan out with a bank. 

The problem occurs when this overdrawn balance exists on final day of the company's accounting period, i.e. as at the year end the director still owes funds to the company.

HMRC requires that all outstanding loans be reported in the Corporation Tax return even if they have been fully repaid by the time the return is being prepared and filed, which could be months after the accounting period ended.

HMRC will levy a tax charge on the outstanding amount, which is currently 32.5% of the outstanding balance, this is payable nine months and one day after the period of account and referred to as S455 tax. However, if the loan is fully repaid prior to the date the tax is due for payment, then the director can claim relief against this tax charge.

If, the loan cannot be repaid and the S455 tax is paid, then reclaiming it once the loan is finally repaid is a long and winding process with HMRC stating that repayment of the S455 tax is deferred until nine months after the end of the period of account in which the loan was repaid, in short you will eventually get your money back but it can take over a year.
  

Paying HMRC

HOW DO I PAY CORPORATION TAX?

Corporation Tax is usually payable nine months and one day after your period of account and you must use your company's corporation tax unique tax reference (UTR) which is a 10 digit reference number.

For further information on how to pay HMRC Corporation Tax, please visit the GOV.UK site  HERE

HOW DO I PAY PAYE?

PAYE (Pay As You Earn) is pay by employers usually each monthly but can also be paid quarterly. When you pay PAYE you must include your Employer PAYE Accounts Reference Number or HMRC may not be able to allocate your payment to your PAYE account.

For further information on how to pay HMRC PAYE, please visit the GOV.UK site  HERE

HOW DO I PAY VAT?

VAT (Value Added Tax) is usually payable every 3 months but could also be payable annually, when you pay VAT you must include your VAT Registration number on the payment. You can also setup a direct debit if you do not want to make manual payments.

For further information on how to pay HMRC VAT, please visit the GOV.UK site  HERE


HOW DO I PAY MY SELF-ASSESSMENT TAX BILL?

Self-assessment relates to income tax, national insurance (for the self-employed) and if relevant student loan repayments. This is not paid by companies but by individuals and is usually payable on the 31st January following the tax year the return relates to. You may also be subject to payments on account , in which case you will be required to make a payment on the 31st July also.

For further information on how to pay HMRC Self-Assessment, please visit the GOV.UK site  HERE
  

HMRC Investigations

  HMRC have various powers to check your tax returns and accounting records to ensure the correct amount of tax has been paid. Most tax investigations into individuals and business are handled by local compliance officers.

Section 9A Enquires

These are made under section 9a of the taxes management act 1970 and give HMRC the power to enquire into any personal tax return, which could be at random, including those in which everything appears in be in order but most are selected according to risk, on the basis that there is significant tax at risk or suspicion that something is wrong.

HMRC must issue the notice within 12 months of the filing date of the tax return under query.

Usually these enquires can be resolved by the production of supporting records and if needed paying an adjusted tax bill along with a penalty if found to be the fault of the taxpayer, however it could also be the prelude to a more serious investigation under the COP 8 or COP 9 procedures of HMRC suspect there is evidence of tax avoidance or tax fraud. 
  

All our clients are covered by our HMRC investigation fee protection provided by  Croner Taxwise  this means you will not be charged any fees for assisting you with a HMRC investigation (excluding investigations into the use of a tax avoidance scheme).

Contact us if you are subject to a HMRC investigation and need help