Our most frequently asked questions:
To save on national insurance you advise us to pay a wage of £7,000, but isn’t this less than minimum wage?
Minimum wage is around £11,000 a year for a full time worker in the UK. However it does not apply to you as a director. Many business owners work long hours for small reward, and even losses. So it would be absurd to apply minimum wage rules to owners and directors of small businesses.
How often can I pay myself dividends?
You can pay dividends as often as you like. It is your company’s profits, and you are able to distribute them as you see fit, as long as you leave enough cash in the company to meet your future tax obligations. Your Live Tax Return will keep you informed of how much money you need to have in your company at all times.
How does the Live Tax Return Work?
You submit your income and expenses via the Submit Income and Expenses button on this website. Based on what you submit, and what you have submitted for the year to date we calculate your likely profit for the year, and your likely total tax bill for the year. We then let you know how much of your income for your last submission should be left in the company for Corporations Tax, how much you should keep in your personal account for your individual tax and how much you can spend. We also tell you on a year to date basis how much you should have set aside, as well as what your likely final tax bill will be if you keep on going the way you have been.
How often will I receive a Live Tax Return and Live Company Accounts?
Every time you submit your income and expenses you will receive a Live Tax Return and Live Company Accounts. If you submit monthly you’ll receive monthly, if you submit weekly you’ll receive weekly. There is not much point in submitting any more frequently than weekly but we would suggest a minimum of monthly.
How accurate is Live Tax Return?
Whether you are a regular employee or a contractor or a businessman your tax bill is based on your earnings for the entire financial year. So at the start of the financial year it is impossible to know with certainty what your final earnings and final tax bill will be. Therefore the same as a regular PAYE employee certain assumptions must be made about your earnings, based on the information available. However over the course of a year any discrepancies are self correcting, so come the end of the year you should always have approximately the right level of tax provisioning.
The other thing to realise is that in order to keep your Income and Expense submissions simple we do not ask you for every single piece of information that will affect your final tax bill. For instance we don’t ask you about your bank interest or dividends from listed corporations. These will affect your taxable income, and could have an effect on your final tax bill. However because they are taxed as source the impact is not likely to be too great.
How do live company accounts work?
Live Company Accounts are essentially management accounts which are basically in the format of the statutory accounts that need to be submitted to HMRC and Companies House at the end of the year.
The only differences are that we do not include a balance sheet, or any balance sheet notes in your Live Company Accounts. This is because there is not much point in including balance sheet information, and it saves you the hassle of giving us the information all the time. Your assets will most likely just be your bank account and any unpaid invoices will be trade debtors. Your liabilities will just be any unpaid tax creditors, which you will be aware of anyway from your Live Tax Return.
We do also include some extra information in your Live Company Accounts that is not required for your statutory accounts. This is to make it easy for you to read your accounts and know that everything that is in them should be in them, and we haven’t missed anything. If you disagree with anything please let us know. This means you will always know exactly how your business is going, and come the year end you will have timely and accurate statutory accounts to lodge with HMRC and Companies House.
Isn’t weekly management accounts a bit much for a contractor?
As a business owner it is important to always be fully abreast of your company’s financial performance. Granted there may not be a lot of additional information on a week to week basis that you are not already aware of anyway. But if you ever have an IR35 review the fact that you are receiving regular performance reports on your business will strongly point to it being a genuine commercial enterprise, not an employee in disguise.
Why should I chose LCCS over other limited company accounts providers?
LCCS are the foremost provider of limited company accounts and tax returns for a number of reasons.
Number one, we are the cheapest. Because we specialise purely in accounts for professional contractors who work through a limited company we have been able to develop super efficient systems for dealing with all of your needs, and therefore keep our overheads low.
All our accountants are chartered. You will never receive advice from anyone other than a chartered accountant an no one will ever work on your accounts or tax return who is not a chartered accountant.
We provide the most comprehensive service included in our package fee. Things that we include for free that many others will charge you extra for include:
- Set up and register your limited company with companies house
- Register you for VAT
- Register you for flat rate VAT
- Calculate your quarterly VAT liability
- Submit your companies house annual return (everyone else passes on the companies house fee)
- Provide weekly management accounts
- Complete your simple personal tax return
However the main reason you should chose LCCS is not because we are the cheapest. It is because we provide the best service. The most important thing a contractor needs to know is “how much of this payment can I spend, and how much do I need to keep to pay my taxes?” With our Live Tax Return you will know instantly with one simple report exactly what your tax liabilities are and exactly how much you can spend on yourself. This also means at the end of the year there is no waiting months for your accountant to do your tax return so you can find out what your tax bill is. You know it instantly. And not just your company tax, your personal tax as well.
What is the difference between an umbrella company and a limited company?
An umbrella company is a company owned and run by a third party that contractors can work for and receive their remuneration as salary or dividends. Since the 2007 federal budget made changes to the IR35 legislation umbrella companies are all caught by IR35. As a result we do not provide an umbrella company service. There are still some umbrella company providers around, but the benefits are rarely likely to outweigh the costs.
What is IR35
IR35 is legislation that came into force in April 2000 to stop genuine employees from working through an intermediary such as a partnership or limited company and thereby avail themselves of the tax advantages that being in business has over being an employee.
HMRC believed that there were a number of employees who were working through limited companies simply as a means of avoiding national insurance tax. Unfortunately contracting is somewhere on the borderline between being a genuine employee and being in business for yourself. As a result it pays to be aware of IR35 and to take steps to ensure that you are not caught by the legislation.
What if I am caught by IR35
We work under the assumption that you are not caught by IR35. If you are caught by IR35 then the advantages of working through a limited company are greatly reduced. There are still some deductions that you can claim that you wouldn’t have otherwise been able to, but the advantage of paying yourself through dividends rather than wages is lost.
If you have been working through a limited company and HMRC subsequently deems that you are caught by IR35 your dividend payments will be deemed to have been wages and you will have to pay the additional PAYE and NI that would have been owing on them.
What is looked at and how can I minimise my IR35 risk?
To avoid IR35 you have to be able to show that you are genuinely in business for yourself. HMRC looks at a number of factors to determine if you are really in business. Factors such as:
The ability to make a loss HMRC looks at whether you can make a loss on a contract. However we would argue that few businesses and no well run businesses make a loss on their contracts. It is when you are out of work, or do not have enough contracts that you make a loss. Just by virtue of having a limited company you have annual fees to pay, so if you don’t get a contract for the year you will make a loss, therefore you have the ability to make a loss.
Advertising HRMC argue that genuine businesses advertise for business. We recommend that you have a linked in account and post your CV on websites of employers to find. Also having your own website is a good idea too. This all counts as advertising and shows that you are actively looking for business.
Provision of own equipment HMRC argues that genuine businesses use their own tools. Therefore it is a good idea to have a laptop. You can therefore argue that you are equipped to provide your own tools even though in reality for security reasons no client will ever want you to use it.
Ability to substitute someone else. If you can send somebody else in your place to do the work then that is a good indication that you are genuinely in business for yourself. Have a look at the contract that your recruiter has provided for you. Although you will never actually send someone else to work for you most contracts have a provision stating that this is possible. This is an excellent way to determine if it is an IR35 friendly contract or not.
Ability to terminate immediately Another clause that IR35 friendly contracts have is the ability for either party to terminate the contract at any time.
VAT registration. Not only can you save money through the flat rate VAT scheme but VAT registration is also looked at as a good indication that you are in business for yourself. This is why we register all of our clients for VAT.
Control. This is quite a tricky one. HMRC will argue that if the client controls how you work then the points to you being an employee. However under any contractual arrangement the contractor must deliver what the client wants, so the client must always have some control. However ultimately you must have some level of autonomy. The client can’t tell you exactly how and what you should be doing for every second of your contract. Otherwise they may as well just do the work themselves.
The hours you work If you work a set number of hours, like you would working the register at Tesco then you are likely to be an employee. If you are employed to do a job, like most professionals, and work the hours that are required to get the job done then you are more likely to be in business.
Company stationary HMRC argue that you are more likely to be in business if you have company stationary. My suggestion would be to design yourself a company logo and letterhead and maybe stick it at the top of a word document. You then have your own company stationary. Use it for all of your business related correspondence.
Training Any kind of training that might help with your business is considered a good indicator. And is generally a good idea anyway. Keep a record of any training you do, even if it is self taught.
An office Not only is a home office a good tax deduction but it is also a good indicator that you are in business for yourself. The more organised and business like it is the better. A proper filing system, perhaps some spreadsheets with budgets and projections all help.