A complex tax system in this country can make it difficult to understand your liability as a company director. Failing to register for VAT for example, or submit your tax payments as an employer, could result in HM Revenue and Customs taking action against you, including issuing a range of financial penalties.
Keeping up with current and new legislation as a director is crucial to your company’s success, so here we look at five of the most common types of tax that you should be aware of as a company director.
Corporation tax is paid on the taxable profits of your company, and currently stands at a rate of 20%. As soon as the company was formed you should have registered to pay this tax, which is applied to all profits, as there is no equivalent to the personal allowance for limited companies.
Corporation tax becomes due nine months and one day after the end of your accounting year, and you have an obligation to complete a CT600 which is the annual corporation tax return.
So what might taxable profits include? Profits made during normal trading activities, most investments, and profits from the sale of assets are generally included in the figure. You may be entitled to claim reliefs and capital allowances to reduce your corporation tax bill.
If you are director of a limited company, you may be liable to pay income tax on the dividends and salary you take out of the business. The lower threshold is currently £11,000, so any income above this amount will be taxed under the Pay As You Earn scheme, and deducted at source by your company’s payroll system.
A new dividend taxation regime came into force on 1st April 2016, whereby individuals have a tax-free dividend allowance of £5,000 in addition to the personal allowance mentioned above.
New dividend tax rates have also been introduced:
- Basic Rate: 7.5%
- Higher Rate: 32.5%
- Additional Rate: 38.1%
If you are paid a salary of £8,060 or more from your company, then you’ll be liable for Class 1 National Insurance contributions as an employee. The company itself will also need to pay Class 1 employer’s contributions to HMRC.
The New Employment Allowance was introduced in 2014, however, which means that you can claim back up to £3,000 of employer’s Class 1 National Insurance contributions in a tax year, if you are the director and you employ other staff.
From 1st April 2016, the threshold to register for VAT is £83,000. If your turnover exceeds this figure at any point during a rolling 12-month period, you must inform HMRC. Failing to register for VAT, non-payment of the tax, or sending late payments, will all incur financial penalties.
VAT is paid on many goods in the UK, and your company collects it on behalf of HMRC. The difference between how much you receive in VAT, and how much you pay, is the amount sent to HMRC.
The standard rate of VAT is currently 20%, but schemes are available to make the collection and reporting process easier for eligible companies. For example:
- Cash accounting: helps eligible companies with their cash flow, as VAT is only paid out once the money has been received by the business.
- Flat rate scheme: this simplifies the calculation process, and makes administration easier.
Business rates are similar to the council tax you pay on your home, so if you operate from business premises you will probably be liable to pay this type of tax. The money received from non-domestic properties is used to pay for local services, including education and social care.
The amount you pay is based on the rateable value of your premises multiplied by the government-set business rate multiplier, which is reassessed every few years. Two different figures are used – the ‘standard’ multiplier and a small business multiplier which takes account of lower turnover levels.
Rateable values are generally reassessed every few years, and there are various reliefs available to eligible businesses. Some premises such as farm buildings receive automatic exemption from business rate liability, and there are various other reliefs available depending on the size and nature of your business.
Home-based companies are not always subject to business rates, but this depends on whether you employ staff to work from your home, and also the nature of the business.
Ascendis can ensure you comply with all your tax liabilities as a company director, and avoid the hefty penalties imposed by HMRC for late or non-payment.
Call if you want to discuss any of the above on 0161 359 4227/0845 054 8560
If you have decided to start to build a residential property portfolio then you may be wondering whether to do this in your own name i.e. personally owned or whether to do this through a Limited company.
Below we have set out a brief summary of the pros and cons of holding buy-to-let residential properties in personal and company hands:
- No additional reporting requirements (all income and expenditure reported on the individual’s Tax Return)
- Possibly more choice with regards to mortgages albeit lenders are now much more willing to lend to companies.
- Mortgage Interest relief restriction being phased in from April 2017 reducing the effective rate of relief down to 20% by April 2020
- All profits taxed at the owner’s marginal rate of tax (i.e. up to 45%)
- Unlimited risk i.e. not limited liability protection
- There is no restriction on mortgage interest relief and so the full value of any interest paid is set against income when calculating profits.
- Profits are currently taxed at 20% with this rate falling to 19% from 1st April 2018 and then to 17% from 1st April 2020. Additionally, the Chancellor has indicated that rates may well come down to below 15%.
- Commercial protection should anything go wrong with the business i.e. the protection of limited liability.
- Potential additional tax should profits be taken out of the company.
- The additional filing requirements for the company (Companies House, HMRC).
- Possibly slightly less choice in terms of lenders albeit this is changing.
There has been a definite trend in the past year or so for buy to let investors to use companies and the main drivers for this are the restriction of mortgage interest relief for individuals and the much lower tax rates for companies. As a result, more and more mortgage lenders are prepared to lend to companies.
In addition to structuring your property business in the most tax efficient manner we are also able to assist with funding & mortgage requirements
To discuss your specific circumstances then please do not hesitate to contact us.
Call us on 0161 359 4227/0845 054 8560
You may have heard over the last few days that three major property investment funds operated by Aviva, Standard Life and M & G have been suspended, as investors seek to quickly withdraw funds. This indicates that the fund managers concerned are going to have to sell parts of their portfolios fairly quickly to restore sufficient liquidity to meet investors withdrawal demands.
The impact of this on the wider market remains to be seen. The property held by these huge funds is likely to be large quality property holdings with strong tenant covenants in good locations, and the quantum of such likely to be at a level that mostly institutional investors will seek to acquire rather than the smaller investor. Nevertheless, as the effect of this “offloading” cascades and transmits to the smaller/lower levels of the market, we think we will see some impacts on yields and values over the coming months i.e. likely increase in real yields & reduction in prices & values.
It is also possible (some might say) that there is going to be a reduction in Bank of England base rate – to 0.25% or lower. The ten year swap rate and therefore fixed interest rates have already fallen below 1% as the government’s 10 year gilt yields collapse. The real return to many property investors is the difference between rental yield, and the cost of debt for their property acquisitions. The combination of increased yield and lower Bank lending rates may therefore create some great opportunities for Savvy investors to make acquisitions using ultra low borrowing costs.
Here at Ascendis we would be delighted to consult with any property investors who would like to discuss matters and in particular the opportunities to borrow money at some of the lowest rates available.
In addition, if you are looking to purchase property as investments then please contact us to discuss the most tax efficient way to do so.
Call us on 0161 359 4227/0845 054 8560
Preparing for a sale, attracting investment and measuring progress are just three reasons it’s useful to have an accurate and up-to-date valuation of your business.
However, as handy as a definitive figure can be, it can be incredibly difficult to determine. There are many methods of calculating the value of a business, each with its own set of complexities.
What makes a business valuable?
To understand how worth is calculated, consider tangible and intangible assets of a company.
The tangibles are those which can be measured, counted or otherwise have a reasonably concrete price applied. That includes recent revenue, profit and cashflow, as well as stock levels, property, machinery and equipment, fixtures, fittings and vehicles.
The intangibles are the aspects of a business which are useful, valuable (or perhaps the opposite), but don’t have an obvious pounds and pence price tag.
Examples include the longevity of the business and its reputation, relationships with suppliers and goodwill with customers. It also includes the quality of products, services and employees, any licenses and patents the business holds, as well as the level of competition and the market’s barriers to entry, in addition to any perceived opportunities and threats in the near future.
There are a variety of methods of calculating the value of a business, for the purpose of this guide we’ll look at the four most common.
When valuing a business for sale, the buyer will have an interest in how much profit they can expect to make.
The price-to-earnings ratio takes previous post-tax profit and multiplies it by a figure usually between 5 and 10. This multiplier depends on a variety of factors, such as the size of the business, growth potential including the ability to enter new markets or introduce new products, the value of the brand, and the uniqueness of the operation. The multiplier will be reduced, for example, where an organisation is too reliant on its owner.
While a useful tool, this ratio is imperfect as it uses historical data to predict the future.
How much would it cost to start a new business and build it to the level you’re at? That’s the entry cost of your business. Useful, as a potential buyer or investor can evaluate whether it would be easier to start from scratch. But again, this method doesn’t take into account such aspects as growth potential.
Great for an established business that’s heavy on tangibles. This valuation simply calculates the total value of all assets and subtracts current liabilities. This, however, pays no heed to the intangibles, and all their associated value or cost.
Useful for valuing new, growing or service-led organisations where there are few tangibles to take into account but plenty of brand value, growth potential and so on. This calculation values a business simply as an estimation of projected future cashflows. The price a buyer will pay is usually this figure, minus a certain percentage based on the risk that the cashflow may not materialise
Which method is best?
Each of these four methods has merits as well as drawbacks. In truth, placing a value on an organisation is an incredibly complex matter, not least the valuation of a plethora of intangibles.
While it’s possible for owners to value their own business, it is highly advisable to engage the services of an expert, especially if the value will be used in the negotiation of a sale, or try to attract equity investment. There are simple too many variables, uncertainties and what ifs for inexperienced owners to obtain a true and accurate value.
If you’d like to value your business for a sale, to attract investment or simply to get a current market valuation for investigative purposes, speak to us for impartial advice and assistance.
Call us on 0161 359 4227/0845 054 8560