Limited Company Accountant in North London

Annual accounts go to Companies House within nine months of your year end. The corporation tax return goes to HMRC within twelve months, but the tax itself is payable at nine months and one day — before the return is even due. Companies House penalties escalate on a fixed scale and double if you are late two years running. HMRC charges interest from the payment date whether or not anything has been filed.

We work to a schedule that puts the accounts well ahead of both, because the tax figure is only useful if you know it before the money is due.

Company money is not your money until it has left the company properly. Salary goes through PAYE. Dividends can only be paid from distributable profits and need to be declared, with a dividend voucher and a board minute — retrospectively labelling drawings as dividends does not survive scrutiny if the profits were not there. Anything else is a director's loan, and if the balance is still outstanding nine months after the year end the company pays a tax charge on it that is only refunded once the loan is cleared.

• Salary set against the current National Insurance thresholds
• Dividends planned across the year rather than declared in a rush
• Employer pension contributions, often the most efficient route remaining
• Directors' loan account monitored so it does not drift into charge

Directors have statutory duties: to act within the company's constitution, to promote its success, to exercise reasonable care and skill, and to avoid conflicts. In practice the one that bites is continuing to trade when the company cannot pay its debts, because that can make a director personally liable. If cash is tightening, the time to take advice is well before it becomes urgent.

Money taken out of a company that is not salary, dividend or an expense reimbursement is a loan from the company to you, and it is the single most common source of unexpected tax bills for owner-managers.

If the account is overdrawn more than nine months after the year end, the company pays a charge on the balance. It is refundable once the loan is repaid, but the refund is slow and the cash goes out in the meantime. An overdrawn balance above a modest amount also creates a taxable benefit unless interest is paid at the official rate.

None of this is a problem if it is watched. It becomes one when drawings are taken through the year without being classified and the position is only discovered at the year end, by which point the nine months are already running.

A dividend can only be paid out of accumulated realised profit after tax. Cash in the bank is not the test — money owed to HMRC for VAT and corporation tax is sitting in that balance and belongs to somebody else.

A dividend paid when there is not enough profit is not a dividend in law. It is treated as a loan to the director, with everything that follows above, and in an insolvency it can be reclaimed personally.

The safeguard is ordinary: management figures during the year so you know what profit exists, and minutes and vouchers for each dividend. Both take minutes. Neither can be created convincingly afterwards.

Most small companies pay corporation tax nine months and a day after the year end. Above a profit threshold that changes: the tax becomes payable in quarterly instalments, and the first falls due during the accounting period rather than after it — before anyone has prepared the accounts that calculate it.

The threshold is divided between associated companies, so a group of small companies can be caught where none of them individually looks close. Crossing it for the first time is a cash-flow event as much as a tax one, and it needs to be seen coming.

• Compliance
• Contractors and IR35
• Accountants in Hendon

Companies end — a retirement, a change of direction, a business sold, a venture that did not work. How you close it decides how the remaining money is taxed, and the difference is large enough that it is worth deciding rather than defaulting.

Strike-off, for a company with little left in it

A solvent company with modest reserves can be struck off the register by application, which is cheap and simple. There is a limit on how much can be distributed this way and still be treated as capital rather than income: above £25,000 of distributions, the whole amount is generally taxed as a dividend instead. For a small residual balance, strike-off is usually the sensible route.

Liquidation, where there is more

Where reserves are larger, a members’ voluntary liquidation allows the distribution to be treated as capital, which is normally taxed at lower rates than dividend income — and Business Asset Disposal Relief may reduce it further where you qualify, subject to a lifetime limit. It requires a licensed insolvency practitioner and costs more, so it is a calculation: the fee against the tax saved. Above a certain size it is not close.

The anti-avoidance rule that catches people

You cannot wind a company up for the capital treatment and then start another doing much the same thing. There is a targeted rule that recharacterises the distribution as income where a similar trade is carried on within two years and the arrangement has a tax advantage as a main purpose. If there is any prospect of you returning to the same activity, say so before the liquidation rather than afterwards.

Finish the housekeeping first

Before either route: final accounts and corporation tax return filed, PAYE scheme closed, VAT deregistered, the bank account emptied. Money still in the account when a company is dissolved passes to the Crown and recovering it is slow, expensive and sometimes impossible. It is an entirely avoidable way to lose money at the very end.