Frequently Asked Questions

Company formation is the process of registering a business as a limited company at Companies House. As a result, the business becomes a distinct legal entity. The process is also referred to as ‘company incorporation’ and ‘company registration. The charges for setting up a limited are generally cheap and around £15. At the point of incorporation, you would be issued with an incorporation certificate as well being welcomed as a director. The main steps of formation are highlighted below:

▪ Unique company name.
▪ Registered office address in England and Wales, Scotland or Northern Ireland.
▪ Minimum of one director (manager).
▪ Minimum of one shareholder or guarantor (owner) – can also be the director.
▪ Memorandum and articles of association (governing documents).
▪ Share capital of at least one issued share (limited by shares companies only).
▪ Up to four Standard Industrial Classification (SIC) codes to describe what the business does.

You should always remember, whether you freelance through your own limited company or an umbrella you are always personally responsible for your own tax affairs. Do not fall victim to many umbrella companies out there offering huge take home pays through their “expert structuring and claims” as you may fall foul of the rules with HMRC issuing you a notice for backdated taxes.

We at Dumaxa Accountancy offer clear, honest, expert and transparent advice so you are covered for all eventualities. You know exactly what you’re claiming and why.

All costs must be wholly, exclusively and necessarily for the purposes of trade and actually incurred as evidenced by a receipt. Where there is dual use, we apportion these costs. The clains below will differ depending on whether you are a limited company, sole trader or self-employed. A short list of some of the common claims we make are listed below:

▪ Rent – for business use
▪ Subsistence – costs for lunches when on business travel (non-permanent place of work). These can vary from £5 to £25 per day depending on the number of hours you work
▪ Mileage – the current rate is 45p/mile for cars. You can claim these to and from a non-permanent place of work. The rates will vary if you are using a motorcycle or bicycle
▪ Utilities – gas, electric, water, waste etc. Alternatively, if you are using your home as office, you can claim a fixed weekly rate
▪ Trivial benefits – these are per head yearly entertaining expenses at a fixed rate for a director plus a spouse
▪ Employee entertaining – up to a limit per head
▪ Writing down allowances/capital allowances – for an fixed assets used in the business e.g. computer equipment, machinery
▪ Office expenses – fixtures and fittings, desks, chairs, sofas
▪ Travel expenses – trains, taxis and airfares
▪ Entertaining – although client entertaining is not allowed, a venue that is hired for such an event may be allowed
▪ Accomodation – in the ordinary course of business
▪ Training – any training relvant to you performing your job
▪ Profesional subscriptions – if you are a member of a professional body and it’s relevant to your job
▪ Mobile phones – for use in business under the company name (or an apportionment)
▪ Broadband fees – for use in business
▪ Professional fees – accountancy, advisory, valuation or any advice sought or used in the normal course of business
▪ Pre-incorporation expenses – any expenses incurred prior to incorporation for the purposes of trade in the last 7 years
▪ Interest on loans – note the interest on property loans deduction is now changing

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.

We take into account a variety of factors influencing your tax bill with a brief list below:

▪ Your choice of salary versus dividend
▪ Level of salary and the tax band it sits in
▪ Level of dividend and the tax band it sits in
▪ Level of corporation tax
▪ VAT registration – is the flat rate scheme appropriate for you
▪ Level of pensions contributions
▪ Level of employers NIC above the £3000 small employer relief
▪ Number of employees in company
▪ Number of directors in company
▪ Frequency, level and timing of pay
▪ Number of shareholders in company
▪ Expense and benefit claims
▪ Personal circumstances – other employment, level of benefits if any etc.
▪ Director loan accounts
▪ Benefits in kind (P11D)

As a sole trader, you are your business are both the same entity. With a limited company, a clear distinction is made between you as an individual and the company as an entity itself – they always remain separate. Each have their advantages and disadvantages from a liability and tax perspective.

▪ Switching from a sole trader to a limited company structure could save you tax
▪ The limited company may offer you protection against the companies liabilities and claims
▪ As a sole trader you can claim or apportion all costs that you have used for your business, for example a mobile phone, whereas you can only claim the cost of a mobile if it’s registered in the companies name or for what you actually used for a limited company
▪ More tax relief is available through a limited company in certain circumstances
▪ Limited companies pay out dividends at a lower rate than income tax as a sole trader, however, they don’t get any personal allowances like an individual

The choice between incorporation and remaining a sole trader is not always clear-cut (although in the instance of freelancers and contractors it’s usually a ‘no-brainer’ to go limited!). Speak to one of our accountants who can advise you accordingly based on your individual circumstances.

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.

You must register when you go over the threshold, or know that you will based on a rolling 12 month basis or any single 30 day period. The threshold is based on your VAT taxable turnover – the total of everything sold that isn’t VAT exempt. The threshold for 2017/18 is 85,000

The flat-rate scheme was also introduced to simplify tax matters and will be based on the industry you operate in. To keep things simple, you pay a fixed percentage (lower than 20%) on your gross receipts (inclusive of the 20%) and don’t claim any input VAT. For example:

You sold goods for £100 and added on VAT at 20% giving gross receipts of £120. Your industry flat-rate scheme may be 15% which means you pay across 15% of £120 to HMRC and keep the remainder as profits for yourself or your limited company. Whether this works well for you or not will depend on the level of VAT’able expenses and revenues you incur.

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.

You may get a dividend payment if you own shares in a company.

You don’t pay tax on the first £5,000 of dividends you get in the tax year (from 6 April to 5 April the following year) regardless of any other non-dividend income you receive.

Above this allowance the tax you pay depends on which Income Tax band you’re in. Add your income from dividends to your other taxable income when working this out. You may pay tax at more than one rate.

We list below the current tax bands above the first £5,000 in dividends:
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

It is important to note that the £5,000 dividend is reducing to £2,000 in the following year. An element of forward planning will, therefore, be required when looking at combination of salary, expenses and dividends in order to stay tax efficient.

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.

On top of the business expenses, you can also claim the following:

▪ Salaries – for each employee on the payroll, we utilise the current tax free band of 11,500 (2017/18)
▪ Employers NIC – we make the small companies claim so no employer NIC is suffered up to the first £3000
▪ Writing down allowances – for any fixed assets/other assets for use in the business

There are a whole host of other claims we can make on your behalf which will again depend on what your circumstances are.

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.

As a smaller more specialist firm, we give you tailored advice that fits your individual circumstances rather than a “one size fits all” approach. We keep you updated with regular calls and e-mails and perform regular reviews with you over the phone at no extra cost. Other firms will normally bill you for this at their hourly rates upwards of £50/hour.

Going further we also ensure you are being advised accurately and on-time, and take away all the stress and burden of ensuring compliant accounts, deadlines and expense claim assessments.

IR35 is the short name used for the ‘intermediaries legislation’, which is a set of tax rules that apply to you if you work for a client through an intermediary – which can be a limited company or “personal service company” which is how many contractors operate.

IR35 is a legislation that was introduced in April 2000 as a way of preventing Limited Companies from taking a dividend where they acted as an employee, thus forcing people who were caught by IR35 to pay PAYE tax and class 1 National Insurance.

Absolutely yes. Any costs that is wholly, exclsuively and necessarily for your business can be claimed whether you’re a limited company or sole trader.

There are essentially two methods of doing this:
a) Claim £4/week as a flat rate
b) Claim the actual expense which can be apportioned based on the level of use. For example, if there are 4 rooms in your house and you are using 1 for business, you would generally claim a 1/4 of all electricity, heating, water etc. However, always maintain a level of personal use for every room to protect yourself from any capital gains tax issues.

Disclaimer – the above does not constitute advice nor must it be relied upon. You must seek full and proper advice that is applicable to your individual circumstances and correct at the time of your enquiry. Rules are always subject to change so you must never assume the information stated is the latest/most up to date.