Category: PAYE

What’s the most tax efficient way to pay myself through my limited company?

Posted on | by Jessica Weston | Leave a Comment on What’s the most tax efficient way to pay myself through my limited company?


???? The most tax-efficient way to withdraw money from your limited company in the UK will depend on your specific circumstances. However, here are some commonly used methods:

1️⃣ Salary (????): Paying yourself a salary from the company can be tax-efficient. You’ll need to register as an employee, set up a payroll system, and deduct income tax and National Insurance contributions (NICs). However, you’ll also benefit from personal income tax allowances.

2️⃣ Dividends (????): If your company has sufficient profits and you’re a shareholder, you can take dividends. Dividends are subject to different tax rates and thresholds, and you’ll have a tax-free dividend allowance. Remember to consider any tax implications, such as the dividend tax and potential higher tax rates for larger dividend amounts.

3️⃣ Pension contributions (????): Making pension contributions can be tax-efficient, as they can be deducted as a business expense, reducing your corporation tax liability. Personal contributions may also qualify for income tax relief.

4️⃣ Director’s loan (????): You can take money out as a director’s loan, but it should be repaid within a specific timeframe (usually nine months and one day from the end of the company’s accounting period). Failure to repay the loan can result in additional taxes.

5️⃣ Capital gains (????): If you sell or transfer assets owned by the company, such as property or investments, you may trigger capital gains tax. Proper planning and advice are crucial to ensure tax efficiency.

Get in touch with us today for personalised advice based on your specific circumstances and the latest tax regulations. ????????‍????

www.sunnysideaccountancy.co.uk/contact-us

Startup Tips – Setting up the foundations

Posted on | by Jessica Weston | Leave a Comment on Startup Tips – Setting up the foundations

To trade as a business, you need to meet the right compliance requirements. It’s certainly not the most exciting part of creating a business, but setting up the right legal, accounting and tax compliance foundations ensures that you’re doing everything by the letter of the law.

Here are the main compliance steps to think about, and why they’re so important to the smooth running of your business.

Decide on a legal structure for the business

First off, you’ll need to make a decision about the legal structure of the company. There are two key choices here – incorporated (a limited company) or unincorporated (usually either a sole trader or a partnership). The key difference here is around liability. In other words, do you want your business to be a limited company, where you and the business are treated as separate legal entities? Or do you want to be unincorporated, like a sole trader, where you and your business are seen as one single entity.

Open a business bank account

To trade, take payments and pay your suppliers, Ltd companies need to have a business bank account that’s separate from your own personal current account, this is also highly recommended for all businesses. This helps to create a tangible divide between the money you’ve generated from the business, and your own personal cash.

Most high-street banks won’t let you use a personal current account for business purposes. Banks will offer a variety of different business accounts, with varying levels of fees, overdraft levels and additional business features. Set up the business account and then use this account for ALL transactions going in or out of the business.

Set up a bookkeeping and accounting system

It’s a legal requirement for your limited company to keep adequate records and to submit annual statutory accounts. To be able to meet these requirements, it’s essential that you have a bookkeeping process and a reliable accounting system in place.

There’s a dazzling choice of different cloud-based accounting platforms aimed at the ambitious startup owner. Xero, QuickBooks, MYOB and Sage are big names in this space, and all offer easy-to-use systems that make the accounting process relatively straightforward. It’s a good idea to engage an accountant, right from the start, to get the best possible accounting advice.

Register for the relevant business taxes

Tax is an unavoidable part of running any business. It’s mandatory for you to register for the relevant business taxes, and you’ll also need to factor in that a certain percentage of your profits will end up going to the tax authorities at the end of each financial year.

If you’ve opted for the limited company route, you must register for corporation tax. Corporation tax is paid based on a percentage of your year-end profits, once reliefs and other allowances have been taken into account. Approximately a quarter of your end profits will end up being paid over in tax, so it’s imperative that you put this money away in a separate tax accounting, or ring-fence it in your accounts, so you have the money to pay the bill at year-end.

Other taxes to register for include:

  • Self-assessment income tax – although you’ll pay corporation tax on your company’s profits, directors are also taxed on their own personal earnings too. If you’re an unincorporated sole trader, this is also the way you’ll be taxed on your business profits, as your personal and business income are treated as the same thing.
  • VAT – is an indirect value-added tax for goods and services. If your turnover is over £85,000 or you opt in, you’re responsible for collecting these taxes and paying them to the tax authority on a quarterly basis.
  • Pay-as-you-earn(PAYE)– if you have employees or CIS subcontractors, you’ll need to make income tax deductions from your employees’ wages and pay these taxes directly to the relevant tax authority. This is all done via your regular payroll or CIS run.

Get in touch to talk through your compliance needs. We’ll help you understand which taxes apply and how you register for them.

6 Benefits to Help Retain Employees for Your Small Business

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The covid-19 pandemic sparked The Great Resignation, as many employees chose to resign from their jobs. As a consequence, small businesses are currently having a difficult time retaining employees. Since smaller companies typically cannot afford to offer the same benefits as larger enterprises, it’s essential for business owners to do what they can to keep their employees as satisfied as possible. Fortunately, there are several benefits that small businesses can offer to help keep their employees happy and make them feel appreciated.

#1 – Health & Wellness

One way to show your employees that you care about their well-being is to offer them health and wellness subscriptions. This could include access to online fitness classes or access to an app. Not only will this help your employees stay healthy, but it can also improve morale and encourage team camaraderie.

If your team works remotely, then even access to a mindfulness or meditation app can go a long way in terms of supporting their mental health and wellbeing. 

If this all sounds abit expensive, there are lots of free apps you could promote. You could also encourage a more active lunch break, this could be a walk, yoga or anything to raise the heart rate. Alternatively try swapping a tea break into a mini workout or desk break.

#2 – Remote Work Options

The pandemic has led to an increased demand for remote work options. Employees prefer the flexibility that comes with being able to work from home or elsewhere. Therefore, it is important for small businesses to make a firm commitment to offering flexible and remote working opportunities. This can include allowing employees to take their laptops home, allowing them to work from home a few days a week, or offering access to co-working spaces.

#3 – Flexible Hours

Many employees prefer working flexible hours. For example, they may want to work from home in the morning and then come into the office later in the day or vice versa. In general, people like having more control over their schedules instead of sitting at a desk for nine straight hours each day.

This is especially true for parents who need to take their kids to and from school or childcare. Offering flexible hours can help them better manage their work-life balance so they do not feel overwhelmed with having to juggle too many responsibilities at once.

In addition, flexible working hours will allow your employees the opportunity to have a life outside of work by allowing them time for personal projects, errands, and social engagements.

Offering flexibility also demonstrates to your employees that you trust them.  This could make them more likely to go the extra mile for you and your company.

However, it is important that employees who work flexible hours are still committed to finishing their projects on time so they do not fall behind or negatively affect other members of the team.

#4 – Personal Development

Continued Professional Development can boost staff morale and help employees feel like they are moving forward. Giving your team the opportunity to learn new skills or attend workshops or courses makes you team feel like you are really invested in them, their development, and a long career with your business.

You could organise group training, or simply provide information on opportunities that employees can take advantage of independently.

#5 – Partnership Discounts

If your small business has partnered with other local businesses, then consider offering your employees discounts at those establishments. This could include restaurants, bars, or even stores. Employees will love the opportunity to save money on their everyday expenses, and it can help to strengthen relationships between businesses in your community.

#6 – Employee Recognition

Recognising employee accomplishments is a great way to boost morale and make your employees feel valued. You could acknowledge individual achievements with an email or even announce them at the next staff meeting.

Rewarding employee achievements can encourage others to do their best, as well as maintaining high standards of performance throughout the company.

Final Thoughts

Small businesses often struggle with retaining employees. However, by implementing some of the strategies listed above, you can create a workplace that your employees will love and want to stick with for years to come.

Hiring your first employee – things worth knowing

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Hiring your first employee is a big step as a business owner. It’s great that you’re ready to grow your business and delegate some responsibility in order to narrow your focus, but it’s also natural to be nervous about the process. We’ve compiled a list of the most important things to bear in mind when hiring your first employee so that you can prepare and make the right decision for your business.

#1 – Payroll

When you hire an employee, you need to put a payroll system in place to make sure that employees get paid the right amount at the right time. Otherwise, your staff won’t be with you for very long.

You will need to submit National Insurance contributions and PAYE tax where applicable. And may also need to set up a Pension Scheme.

#2 – Contracts

It’s important to have a written contract in place with all employees. This document should outline the employee’s job duties, hours of work, pay rate, and benefits. It’s also a good idea to include an exit clause in case the relationship between employer and employee doesn’t work out.

#3 – A Code of Conduct

When you’re operating solo, you don’t really need a code of conduct – you know how to behave. However, when you have employees, it’s important to have a code of conduct in place that everyone is expected to follow. 

This document should outline the company’s expectations for employee behaviour, both on and off the job. It should also include disciplinary procedures for employees who violate the code of conduct.

#4 – Management Skills

If you’re not used to managing people, it’s important to learn the basics of good management before hiring your first employee. This includes setting expectations, providing feedback, and creating a positive work environment.

This is an important part of your growth as an entrepreneur. Learning great management skills as early on in your journey as possible will set you up for success.  Especially as your business grows and you add even more employees to your organisation.

#5 – Hire Based on Attitude

You can teach new skills and provide experience, but you can’t change a bad attitude.

That’s why it’s important to take attitude into account when hiring your first employee. 

Look for someone who is positive and enthusiastic about their work, even if they don’t have a lot of experience. Employees who are keen to grow and develop their skills will prove immensely valuable to you and your company.

Of course, you may well be keen to hire an experienced employee, but still be sure to screen candidates carefully and pay close attention to their attitude.

#6 – Ensure That You’re Financially Ready

Hiring employees is a great way to grow your business, but you need to make sure that the timing is right.

In other words, make sure that you’ve got enough money in the bank before making this big decision. Once you have an employee on board, it’s important not to let them down by being unable to pay their wages on time.

If you’re not sure whether your business is ready for its first employee, consult with your accountant or financial advisor to get their opinion.

Final Thoughts

When it comes to hiring your first employee, there are a few things you need to keep in mind. The most important of these is getting everything set up so that they get paid correctly and on time. You’ll also need contracts for both the employer and the employee, as well as a code of conduct for all staff members who work with you.

If you’re not sure whether or not your company is ready for its first employee, consult with an accountant or financial advisor who can help guide you through the process of hiring employees, managing all their associated responsibilities and ensuring that your operations remain cost-effective.

What business taxes will your new company need to pay?

Posted on | by Jessica Weston | Leave a Comment on What business taxes will your new company need to pay?

As the founder of a company, there’s a long list of compliance tasks to get your head around – and one of the key tasks will be registering your company for business taxes.

Once you’ve registered as a limited company, you become liable for paying taxes on the profits you make. These taxes are collected by HM Revenue & Customs (HMRC) and provide the funds used by HM Treasury to pay for the running of the country. Paying your taxes isn’t just a compliance task – it’s part of your social and community responsibility as a business.

But what business taxes are there? And how do you know which of these taxes to pay? 

Understanding the main business taxes

Despite HMRC’s motto of ‘tax doesn’t have to be taxing’, the UK tax code can be a complex thing. 

If you’re not a trained accountant and have limited experience in financial management, understanding the rules around business taxes can be confusing. So, to start with, let’s look at the main business taxes you’re likely to register for.

Key business taxes include:

  • Corporation tax (CT) – corporation tax is a tax that’s levied on your profits as a limited company. At the end of your accounting period, you must submit a corporation tax return, and pay the CT that’s due. At present the CT rate is 19% but it’s worth noting that the UK CT rate will rise to 25% in 2023.
  • Value-added tax (VAT) – VAT is a consumption tax that’s levied on goods that have had value added at each stage of the supply chain. When you buy these goods, you’ll pay VAT. And when you sell these goods, you will collect VAT. At the end of each quarter, the VAT funds that you’ve collected must be paid to HMRC. You can also claim back the VAT you’ve spent on certain qualifying goods and services too. The standard rate of VAT is 20%, the reduced rate is 5% and certain goods can also be zero-rated.
  • Pay-as-you-earn (PAYE) – PAYE is a way to collect income tax and National Insurance Contributions (NICs) from your employees. If you have employees and run a payroll, then you’ll need to collect the required amounts of income tax and NICs from your employees’ wages as part of your payroll process. Then you must report on these deductions and pay the tax and NICs to HMRC, either monthly or quarterly after the pay period, depending on the amount involved. In addition to the income tax and NICs you deduct from your employees, the company may also have to pay Employer’s NICs as a business expense.

Get in touch if you have any questions about tax.