VAT adjustment for private use

VAT adjustment for private use is to be made when calculating your VAT payable to or refundable from HM Revenue and Customs (HMRC). The rule for claiming all VAT input tax paid on your business expenses are that the expenses must be incurred solely exclusively for your business.

The VAT input tax on the private use cannot be reclaimed and therefore VAT adjustment for private use must be made in your VAT return.

An example of this would be telephone charges where the business is run from home. If a telephone bill was received for £100.00 plus VAT, one third of this would be considered private use. Accordingly, one third of the VAT input tax cannot be reclaimed from HM Revenue and Customs.

The easiest way to account for VAT adjustment for private use is to reclaim all the input tax in the VAT records and when preparing your VAT return make a deduction from the total input tax, disallowing for the private use proportion of the tax that the business is not entitled to reclaim. Do keep a clear record of how the disallowed amounts are calculated. HMRC may ask for the breakdown.

Seek accountants help or contact HMRC directly if you have any questions about VAT return compliance.

Avoid LLP late filing penalty

Avoid LLP late filing penalty by submitting your LLP accounts with Companies House on time.

Your LLP’s accounts filing deadline

Companies House website publishes your LLP’s accounts filing deadlines. The filing deadline is nine months after your accounting reference date. The accounting reference date is your LLP’s year end date.

If you do not remember your LLP’s account filing deadlines, you may contact Companies House directly or ask your accountants.

Mark in your diary or calendar to remind you in good time of your LLP’s accounts filing deadlines and also factor in the time to gather all the information and accounting records for your accountants to prepare your LLP accounts.

Reminders from Companies House

Companies House send reminders to your LLP’s registered office address to remind you of your LLP ‘s accounts is due. It is important that you can access to mails send to your registered office address.

If you are no longer able to access mails sent to your LLP’s registered office, it is time to change that address to a new registered office address. You must inform Companies House of the change.

Send LLP accounts by post

Allow enough time to ensure that your LLP accounts reach Companies House before the filing due date. If your filing deadline expires on a Sunday or Bank Holiday, the law still requires accounts to be filed by the due date.

If you are using UK post office or Royal mail service, please note that First-class stamp does not guarantee next day delivery, so please consider guaranteed methods of delivery to ensure your accounts arrive on time. Your LLP is liable to pay late filing penalty even if your accounts is delayed by the post service.

Alternatively, seek accountants help with your LLP accounts.

Starting a business guide

Starting a business guide to help you to get started with your business.

Starting a business is an exciting journey to embark on and it gives you a sense of total freedom. You tell yourself what to do and you are in control of your business and your time.

Here are the questions to help you get started with your business.

Step 1 : What business structure is suitable for your business?

Choosing the right form of business structure when starting out your business is important. Considerations should include the legal, tax, and business administration aspects of the legal entity you are going to use.

  • Sole Trader or Limited company – suitable for one man business
  • Conventional Partnership or Limited Liability Partnership – if more than one person jointly interested in business

If you decided to use a limited company for your business, you may incorporate your company directly with Companies House or use an accountant’s service. Your company registration is usually can be completed within one business day.

Step 2: How are you going to finance your business startup?

Financing your business is another important thing in starting your business. The startup capital required is dependent on your business.

For example, if you can use your personal computer for the business you may not need to buy new computer equipment.

However, if your business required you to have an office then obviously bigger sum of startup capital is required as signing up for serviced office lease required at least 3 months rent deposit and 3 months rent in advance. Some commercial property agents may willing to negotiate the lease terms but you still have to prove that you are capable of paying the office rent.

You may consider to use own cash/savings, loans from friends and family and you may sell your surplus personal assets for cash.

Borrow from banks and financial institution is another option. You will need to prepare a business plan to outline your business commercial viability.

Step 3: Who can help your business

Accountants can assist you to setup your accounting records system right from the beginning and advise on your business related financial matters.

Solicitors could advise you on your business contracts and preparing legal documents for you.

Business Link. It is a UK government supported organisation that provides useful information to businesses of all sizes.

Step 4: How much would it costs? – Accountants’ fee

Traditionally accountants charge their fee by the hour. There are also accountants offer fixed fee accounting services.

Whether fixed fee or charge by the hour, ask for couple of quotes to compare. Understand what included in the quote and what is extras.

If you intend to use limited company for business, it may be a good idea to seek accountants’ advice as soon as your company have been setup.

Step 5: Do you have to register for VAT?

You are not required to register for VAT if your sales are below the VAT registration threshold or if you only make “exempt” or “out of scope” VAT products and services.

However, you may opt to register for VAT voluntarily if it is beneficial to your business.

Step 6: Should you rent an office or work from home?

Many startup businesses are run from home. There are benefits working from home.

May be, consider taking up an office when your business can take care of itself – start generating sales and have sufficient cash.

Now that you are ready to start your own business, may good luck and good fortune be yours way. If you require any help please do not hesitate to contact us.

Limited company or sole trader

The advantages and disadvantages of whether to use a limited company or sole trader to start a business is important consideration.

First of all, there are two types of limited company. A private limited company and a public limited company. Registration of a private limited company is relatively straight forward. You only require one person to setup the company. You can be the director and shareholder of the company. In addition, your share capital can be as little as £1. That’s all you need to get started.

On the other hands, incorporation of a public limited company has more legal administration requirements to it such as you cannot trade until you get a trading certificate. Furthermore, a public limited company requires minimum share capital of £50,000. It is a bit expensive.

Whereas, comparing to setting up a sole trader business, the setup is more simpler. You only need to register your business with HM Revenue and Customs. Then you are good to go.

Limited liability

In terms of business liability, your company shoulders all the liability as opposed to the person running the business. This is because the company and the owner of the company are considered a separate legal entity. Your liability is limited to the amount you invested in the share capital of your company. This includes any guarantees you gave when raising finance for your business.

For example, if you invested £10,000 into your company as share capital and your lost would be limited to this amount in the event of your business failed. In other words, your maximum lost would be £10,000. That’s it.

As with a sole trader or proprietorship, you are exposed to unlimited liability. In other words, your personal assets can be auctioned to pay off your business debts if your business fail.

For instance, when your sole proprietorship business failed and you have a business debt of £100,000. You would have to satisfy this debt using your personal assets no matter what. You may risk being sued bankrupt if you cannot settle the debts quickly. In this respect, sole proprietorship is a bit risky compared to trading using a company. There is no safety net. Basically you can lose everything at once.

Continuity

Moreover, trading as limited company also provides continuity of the business. The ownership of the company can be transferred easily. In this circumstance, you only have to transfer your share to your next of kin by filing the relevant Companies House forms to that effect.

Whereas for sole proprietorship business normally ceases when the business owner wants to retire or death. However, there may be away to keep your sole proprietorship business continuity by incorporation.

Company Law

Besides, the Companies Act 2006 have made the requirement to appoint a company secretary for a private limited company is optional. This means that a single person can setup a limited company by himself as discussed above. You can be the sole director and also the sole shareholder of your company if you wish. Except that you must not be an undischarged bankrupt or disqualified by a court from holding a directorship.

On the other hands, as a sole trader you do not need to comply with the company law. Less hassle for your business.

Stability

Also, many financial institutions, banks and suppliers viewed limited company as being a form of more stable business entity compared to a sole trader. This is partly because the company accounts, shareholders and directors details are available for public inspection independently at Companies House. This provides more reliable information to creditors about your company history.

On top of that limited company must follows company law when comes to filing Companies House forms and accounts with the Registrar. There is a set of standards maintained.

Administration

For administration purpose, limited company must deliver confirmation statement and company accounts to Companies House every year. Also, you must maintain statutory books for your company. This includes notify Companies House when there is a changes in the registered office or director etc. You can notify Companies House by filing the correct forms online or on paper. You would require your authentication code to file online. The authentication code is the electronic equivalent of your director and secretary’s signature. Keep it safe.

Additionally failure to fulfill the legal obligations mentioned above, your director is risk being prosecuted and are subject to fines. There is a late filing penalty for delay in filing your accounts to Companies House too. However, Companies House send reminders to your registered office to help you (as the director) to comply with the law. Just make sure your registered office address is up to date. Do not worry too much.

To top it up, your company must submit corporation tax return with HM Revenue and Customs. Your accounts must comply with the Companies Act. In some instances, you must submit audited accounts.

For sole proprietorship, you only required to file self assessment return with HM Revenue and Customs. And the accounts are also much simpler compared to that of a company accounts. The administrative side of thing is relatively simple.

Conclusion

It seems that whether to use a limited company or sole trader to start a business, a company is more attractive. It gives professional image and project stability to the public. Most importantly, using a company to trade limit your liability and debts in the event of winding up.

Seek advice on complex tax affairs

However, if you have complex tax affairs seek advice from the specialist tax advisers. They would assess your personal tax affairs thoroughly and present you to the best solution that would minimize your tax liability overall.

For example, whether to buy an asset under your personal name or under your company name; or you have income from oversea or inheriting assets all these may have an impact on your overall tax liability. For this reason, you would only gain by getting a specialist tax advice and nothing to lose.

Good luck with your business adventure.

Redeem shares

Redeem shares is allowed if your company have issued redeemable shares with the agreement that your company will buy them back at the option of your company or your shareholder after a certain period of time.

You can only redeem paid up redeemable shares.

Your company directors may, if authorized either by your company’s articles or by a resolution, set the terms of your shares redemption.

The terms of redemption of shares must be stated in your company’s articles.

Your company must submit the Companies House form SH02 together with a statement of capital to the Registrar of Companies within a month of your redemption.

The form SH02 can also be used to give notice of consolidation, sub-division and re-conversion of stock into shares.

The changes in your shares capital as a result of your shares redemption must be included in your confirmation statement.

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