Penn Accounts

•  
• Back To Home
• Back To Corporate Services
•  

•  
• Introduction
• Setting Up a Company
• Types of Company
• Forming a Company
• Definitions
• Company Officers
• Company Administration
• Directors Responsibilities
• Annual Accounts
• SMB Exemptions
• Audit Exemptions
• Dormant Companies
• Format of the Accounts
• Taxation
• Contact the Team
•  

Taxation

If your company is liable to pay corporation tax on your profits, there are several things you must do:

If you don't let HM Revenue & Customs know that you are liable for corporation tax, file your Company Tax Return incorrectly, or pay your corporation tax late, you may incur a financial penalty.

To avoid penalties and interest charges you should know your:

Corporation Tax Liability

If your company is liable for corporation tax, you must work out how much is owed and supply that information to HM Revenue & Customs on a self-assessment Company Tax Return form (CT600).

In order to calculate how much is owed, you need to know how much taxable profit you made in the accounting period covered by your Company Tax Return.

Chargeable Gains

Chargeable gains are the profit you make when you sell or otherwise dispose of any asset owned and used by the business, not being items which are bought and sold as part of the normal trade.

Companies are not generally liable to capital gains tax. Instead they are liable to corporation tax on their net chargeable gains.

Capital Allowances

When calculating the profit chargeable to corporation tax you can claim capital allowances for certain items of equipment and apparatus purchased for use in the business.

There are three rates of corporation tax. They are:

Corporation tax rates 2005/06

1. Starting Rate

On profits below and up to £10,000 - 0 per cent

Note: from 1 April 2004 a minimum rate of 19 per cent is charged when profits are distributed to non-company shareholders. The zero rate remains if profits are reinvested in the business.

2. Small companies' rate

On profits of £50,001-£300,000 19 per cent

3. Main rate

On profits of £1.5 million and above 30 per cent

For companies that have profits that fall between the three corporation tax rates, marginal relief is available to ease the transition from one rate to the next. Marginal relief is also explained in our guide on corporation tax rates and types of allowances. These rates have remained unchanged from the tax year 2004/05.

The government announced in the Pre-Budget Report 2005 that the 0 per cent starting rate will be abolished from April 2006. The starting rate will be replaced with a single small companies' rate of 19 per cent.

Penn Accounts will prepare and submit your Corporation Tax Return, once they have prepared and agreed your Company Accounts with you.

They will also advise you on the most appropriate methods to minimse your Corporation tax liability.

Corporation Tax Deadlines

Your company is responsible for calculating how much corporation tax it owes and for paying corporation tax on time. Failure to do so can incur a financial penalty.

A company can send in its company tax return at any time after the end of its accounting period but must do so no later than the statutory filing date.

This is the later of:

Payment of the corporation tax itself is due exactly nine months and one day after what is called your normal due date. For most companies, the normal due date is the last day of the accounting period. So if a company's tax return covers the accounting period 1 January 2004 to 31 December 2004, then the corporation tax should be paid no later than 1 September 2005.

If corporation tax is paid late, interest will be charged and a penalty for late payment may be charged. Read about rates of interest chargeable for late payment of corporation tax on the HM Revenue & Customs website. www.hmrc.gov.uk

Accounting Records

In addition to the requirements of the Companies Acts, HMRC require a company to keep ''sufficient'' records of your outgoings and income to make a complete and correct Company Tax Return.

Sufficient records include:

The precise records your company needs to keep will depend on the type and size of your business, but the records must be adequate to enable you to send in a correct Company Tax Return.

For tax purposes, HMRC requires any organisation treated as a company to keep its records for at least six years from the end of your accounting period.

In certain circumstances, such as a late tax return or an HMRC enquiry, your company may need to keep records longer than the six-year period.

If your company does not keep records, HMRC can charge a penalty of up to £3,000.

If you want to set up a basic record-keeping system, what should it include ?

There are four basic sets of financial records that will help you run a tight business - the cash book, the sales ledger, the purchase ledger and the wages book.

Although the level of record keeping required may vary from company to company , it should include details of:-

There are no rules about the format you must use to record your figures - those kept on paper are just as valid as those stored on computer.

What's important is that you keep accurate, relevant financial records and update them on a regular basis. You may have to pay a penalty if you're unable to back up the statements made in your VAT and income tax returns.

Small companies may be able to take advantage of the simplified record keeping requirements afforded by the VAT flat rate scheme. See our guide on how to VAT accounting schemes.

Your Name And Your Word

When you set up your company , you cannot choose any name that you want. There are some restrictions on your choice of company name. Companies House produces a booklet, 'Company Names', which explains how those restrictions may affect your choice of name.

Once you have chosen a name, It is important to check that the name you want is acceptable to Companies House before you complete the company formation documents.

Briefly, the restrictions are that:

It is also important to check whether your chosen name is similar to any other names already on the Register. If your chosen name is too like another name, an objection could be made within the 12 months following the incorporation of your company and you could be directed by the Secretary of State to change the company's name.

Names cannot be reserved and formation applications are not processed strictly in order of time or date of receipt. In the unlikely event that we receive more than one application to register the same name, only one will be registered. The second will be refused because the name would then already be on the names index. There can be no guarantee which application will be processed first. In general, company incorporation applications delivered electronically are processed more quickly than other applications delivered on paper.

Under the Companies Act 1985 your company must state its name (as it appears in its memorandum of association) in certain places and on its business stationery. Your company must also give certain information on all its business letters and order forms.

Every company must paint or affix its name on the outside of every office or place in which its business is carried on - even if it is a director's home. The name must be kept painted or affixed and it must be both conspicuous and legible.

The company must state its name, in legible lettering, on the following:

Addtionally , the company must display its name on all its business letters and order forms the company must show in legible lettering:

A company does not have to state the directors' names on its business letters but, if it chooses to do so it must state the names of all its directors. In other words a company cannot be selective about which directors' names it shows - it must show all of them or none of them.

Certain categories of company must also state the following additional information on their business letters and order forms:

There are special rules for charitable companies and for overseas companies. For further details, see our links.

Moving Up

The growth of your company presents you with many challenges.

You will need to share responsibilities and delegate tasks to others, which previously you had carried out yourself. You will need to hire people with more expertise, so that you can expand and develop your business.

As time goes on, you may well find yourself spending all of your time managing people and less and less time in your core skills. This can be is OK, and it is quite usual.

How can Penn Accounts help you at this stage?

Systems Development

One of the major difficulties with larger companies, is the requirement to make decisions based upon up to date and accurate information. The larger the company, the harder it is to gather this information accurately and quickly.

Penn Accounts have the necessary expertise to change and develop your management systems and procedures. We work with you to take the best of your existing procedures and programmes, and take them further.

Staff Recruitment

When the time arises , we are able to help you sift through the CV's you have received. Recruitment is a difficult and time consuming process. It is important to ensure that you fill the vacant positions efficiently and effectively.

When considering taking on new employees, you may wish to review and update your terms of employment. Our sister law practice, Penn Legal has an employment department, with valuable expertise at your disposal.

You will also be considering the remuneration package that you intend to offer. These days, future employees will be looking for a package which offers them remuneration in a tax efficient manner. We can assist you to take full advantage, both for your company and employees, in all the tax saving opportunities that are available.

And Moving Out?

Whether your company takes off or not, you will be faced with making major decisions about your company's future.

The company that survives is the one that plans ahead. We at Penn Accounts aim to be with you every step of the way. We will be there when you need us.

If your company becomes unable to pay its debts and no arrangement or period of administration is likely to save it then you, as director, can propose a creditors' voluntary liquidation (CVL).

In a CVL you must pass a resolution that the company cannot continue and then call a meeting of the creditors. The creditors will appoint a liquidator who will carry out the winding up of the company. Contact our Insolvency Team in our sister law practice - Penn Legal for further information in that regard.

Your company can also be wound up by compulsory liquidation under a court order. You can apply for the court order yourself but usually it will be made by a creditor owed more than £750.

In a compulsory liquidation the Official Receiver is appointed to wind up the business. View a guide for directors on compulsory winding up on the Insolvency Service website www.insolvency.gov.uk.

Companies House publishes guidance on winding up for companies in England and Wales. The Accountant in Bankruptcy (AiB) is responsible for liquidation and receivership in Scotland. Get further information about liquidation and receivership in Scotland on the AiB website. You can find information about insolvency in Northern Ireland on the DETI Insolvency Service website www.insolvency.gov.uk. In general, directors aren't liable for company debts. Shareholders' losses are limited to the value of their shares. Therefore, the insolvency of a company doesn't always lead to personal bankruptcy unless any personal guarantees you have given are called in.

When your company is insolvent the accounting date is reset to start a new accounting period at the date the liquidator or administrator is appointed. Check the guidance on changes to tax rules during insolvency procedures on the HM Revenue & Customs website. At the end of a winding up a company is struck off the register and ceases to exist.

© Penn Accounts. Please read our Terms of Use.
Penn Accounts is the trading name of Penn Accounts Limited
Registered in England No. 06242360, Registered Offices: 77A Baker Street, London, W1U 6RF.