Articles - Emma Stevens Accountancy

What are a Director’s responsibilities?

10/10/2016 By Emma Stevens

When you become a company director it is essential you understand what your Director’s responsibilities are.

New statutory directors’ duties were introduced as part of the Companies Act 2006, and this means that among other things, as a director you have legal responsibilities towards your company – not just the shareholders.

The new statutory duties that were introduced in 2006 are very similar to the previous legal obligations for company directors, but if you’re not sure about what your obligations are, it’s worth familiarising yourself with them to avoid any breaches.

In general, as a director of a limited company, you must:

Do your best to make the company a success, using your own skills, experience and judgement. For a trading company, this means that you’re expected to show an increase in the value of the company as one measure of its success.

The government also suggests that it’s up to the company directors to decide what success actually means for their own company, and The Companies Act specified a list of factors the directors must take into account in order to show that they are promoting the success of the company, including:

the likely long term consequences of any decision they make
the interests of the company’s employees
the need to nurture the company’s business relationships with customers, suppliers and others
the impact of the company’s operations on the community and the wider environment
the appeal of the company upholding a reputation for high standards of business conduct.

Make decisions about the company for the benefit of the company and not yourself.
Act within the company’s constitution and powers
Consider the interests of other stakeholders like company employees and creditors along with the interests of shareholders. So, if there was a cash flow problem, you would need to think about making sure that other people were paid what they were owed, and declaring a large dividend would be unwise.
Make sure that the company complies with all the relevant legislation
Be transparent and make sure that shareholders know if there’s any possibility that you’ll benefit personally from a company transaction.
Keep accurate and up to date company records and report any changes to Companies House and HM Revenue and Customs (HMRC) You also have to make sure that the company’s accounts are a ‘true and fair view’ of the business’ finances
File your accounts with Companies House and your Company Tax Return with HMRC on time.
Pay the correct amount of Corporation Tax
Register for self-assessment and send a personal self-assessment tax return, unless you’re director of a non-profit organisation or charity, and you weren’t paid or given any employee benefits as part of your directorship (gym membership, company car etc.).

There’s nothing to stop you outsourcing some of your responsibilities, but you are still responsible for making sure that they are carried out.

It’s essential that you know what the rules are if you become Director of a company, because you can be held personally liable for any breaches of legislation, leading to a fine, prosecution or disqualification from being a company director.

For more advice – contact Emma at Emma Stevens Accountancy Limited and I’ll be happy to help.

All data and information provided in this advert is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. Emma Stevens Accountancy Ltd makes no representations as to accuracy, completeness, correctness, suitability, or validity of any information in this ad and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.

The importance of knowing your financial situation – all the time!

10/08/2016 By Emma Stevens

Did you know that according to research from the Forum of Private Business (FPB) in 2012, around 50 per cent of accountants surveyed by ABN AMRO Commercial Finance believed that small businesses aren’t really in control of their finances? The survey revealed that many small businesses appear to plan only for the short term and weren’t prepared for emergencies and cash flow problems. This survey really highlighted the need for all business owners, however small, to keep an eye on how their business is doing on a regular basis. If you don’t know what’s going on, how can you deal with problems?

It doesn’t take a lot of effort to get your business finances under control, and spot any issues before they crop up.

All in the plan

Do you have a plan for your business? A well set out business plan with clear financial targets will help you stay on track, and you can measure your progress against the goals you set yourself over the course of six months, a year, and five years.

Planning also helps you deal with issues as they come up instead of having to fire-fight when something goes wrong. Make a record of all your business’s financial targets, budgets, profit and loss and cash flow forecasts and review them regularly against progress.

Know where you are – right now

It’s so vitally important that you always know the financial health of your small business. Make a habit of checking your business bank account often, daily if possible, and the same with sales and stock records. Review your results against your targets on a monthly basis and see how you’re performing.

Is there enough in the account to cover rent, payroll and bills? Do you have a minimum amount that you need available in the bank to cover the essentials? Have you got enough for stock? Work out exactly what your business needs to survive, including a bit extra for unexpected expenses, and never let what’s in the bank account fall below that level.

Don’t neglect the paperwork – it’s not just a case of keeping receipts and tracking expenses but invoicing needs to be carried out regularly, and if you miss an invoice that’s money you’ve wasted through not being on top of the accounts.

Know your tax situation

You absolutely must make sure that you’re on top of the tax situation at all times, so file your accounts regularly and as early as you possibly can so that you know well in advance that your return is filed, how much you have to pay and when you need to pay it by. That way, there will be no nasty surprises. If you miss a deadline for filing returns or payments you’ll incur fines and interest on those fines, all of which can easily be avoided.

Follow up late payments

It’s a bind but if you manage your invoicing you should be able to spot late payments early on, and deal with them accordingly. Don’t feel bad about chasing late invoices, it’s your money, and you have every right to expect invoices to be paid promptly. Keeping a close eye on when your invoices are due to be paid gives you a head start in spotting problem payers and hopefully enables you to get your payment sooner rather than later.

Control your stock

If you have stock as part of your business, managing it effectively and keeping a close eye on what you have can do a lot to improve your cash flow. Look at what’s selling and what isn’t. Don’t over stock, get into the habit of buying in only what you need so that your business capital isn’t tied up in stock you might not be able to sell. Shop around for good deals and look out for discounts and special offers from wholesalers to make the most of your money.

Do you need help managing your finances?

A good accountant can support you in knowing your financial position at all times. Knowledge is power and having control of your business finances allows you to make the right decisions to drive your business forward. Check out our Gold package for all your business needs.

Pension auto enrolment for small companies

01/03/2016 By Emma Stevens

If you’re worried about the new legislation that’s recently made it compulsory to set up a workplace pension scheme for your staff, and have been putting it off – stop worrying and take action now. It’s actually a reasonably straightforward process, but if you don’t take action soon you could find that you’re in receipt of a hefty fine.

If you employ even one member of staff, you’re now responsible for enrolling them, if they are eligible, onto a pension scheme, and contributing towards it, depending on their salary. The legislation has been in place since 2012 for larger firms, but since 2015 it applies to all employers, however small.

Auto Enrolment

Although the law calls this ‘automatic enrolment’ it’s only automatic for your staff members, it’s not automatically done for you. As an employer, you’ll need to get organised and take the steps necessary to make sure that anyone employed by you is enrolled onto the scheme, if they are eligible.

If you’re already ahead of the game and have been paying into a pension scheme for your employees, you’ll now have to check that it’s suitable for the automatic enrolment scheme.

What do you need to do?

The first thing you need to do is find out your staging date. This is the date your pension duties come into force and it depends on how many employees you had on 1 April 2012. You can find this information out from the Pensions Regulator website.

Your next task is to assess your staff and work out who needs to be enrolled. This table shows you who has to be enrolled and who has the right to opt in.

Monthly gross earnings	Age			Weekly gross earnings
	From 16 to 21	From 22 to SPA*	From SPA to 74
£486 and below	Has a right to join a pension scheme ¹			£112 and below
Over £486 up to £833	Has a right to opt in ²			Over £112 up to £192
Over £833	Has a right to opt in	Must be enrolled ³	Has a right to opt in	Over £192

Figures correct as of 2015/2016. *SPA = state pension age

¹ Has a right to join a pension scheme If they ask, the employer must provide a pension scheme for them, but the employer doesn’t have to pay contributions into a pension scheme.

² Has a right to opt in If they ask to be put into a pension scheme, the employer must put them in a pension scheme that can be used for automatic enrolment and pay regular contributions.

³ Must be enrolled The employer must put these members of staff into a pension scheme that can be used for automatic enrolment and pay regular contributions. The employer doesn’t need to ask their permission. If a member of staff gives notice, or the employer gives them notice, to leave employment before the employer has completed this process, the employer has a choice whether to enrol them or not.

Make sure that all of your staff records are accurate so that you have the right information to start with; National Insurance numbers, dates of birth and salary details are all essential for working out contributions and eligibility.

Provide the Pensions Regulator with contact details for the person in charge of auto-enrolment for your business. This can be you, someone in your company, or your financial adviser/accountant.

If any of your staff members want to opt out of the scheme, they can do so, but you must give them the option to enrol and the onus is upon them to opt out of they choose to do so.

The Pensions Regulator should write to you and let you know when your staging date is; or you can work it out for yourself using the calculator tool on their website. Generally, the fewer employees you had in April 2012, the longer you have to set up your scheme, but it pays to be well prepared.

Choosing a Pension Scheme

Once you have all the information, you can find a suitable pension scheme, if you don’t already have one in place. You should do this at least six months before your staging date, and if you already have a pension scheme, ensure it’s eligible beforehand. You can check eligibility on the Pensions Regulator website:

Once you have a scheme set up, you should write to all your employees and let them know about auto-enrolment and what it means for them

How much will it cost?

To begin with, your contribution towards the scheme is 1 per cent, but this will rise over the next few years, and from October 2018 you can expect to be contributing a minimum of 3 per cent for every employee.

The exact amounts can be calculated with another tool on the Pensions Regulator website.

There are different types of pension schemes and providers available – look for a scheme run by a specialist provider and make sure that it’s compatible with any accounting/payroll software you’re using.

After the staging date

You’ll need to make sure that your records are kept updated to keep track of new staff members, salaries and contributions. You might want to invest in payroll software to help with this. Within five months of your staging date you must complete a declaration of compliance – don’t forget to do this or you could be fined.

Every three years you’ll have to go through the auto-enrolment process again, with a re-declaration of compliance – but if you’ve kept everything up to date this should be relatively easy to do.

The New Business Checklist – Setting up a New Business

16/11/2015 By Emma Stevens

Once you’ve made the decision to start your new business, the next decision is what type of business you’re going to be. Whether you opt to be a sole trader, set up a partnership or incorporate your business as a limited company, there are steps you’ll need to take to ensure everything is properly set up from the start.

Setting up as a sole trader

Step one is to register yourself as self-employed for tax and National Insurance purposes with HMRC (Her Majesty’s Revenue and Customs). They can send you a form to do this or you can complete the information online.
If your business is likely to be liable for VAT registration (the current threshold is £82,000), register with HMRC and file any information. You can also register voluntarily if you want to reclaim VAT on business expenses.
If you will be employing anyone else, register with HMRC for PAYE.
Set up a bank account. There’s no obligation to have a separate account for your business income and expenditure but it will make things easier. It doesn’t have to be a specialist business account.
Check out an accountant – you might feel you can undertake your tax returns yourself but it is always worth checking you are doing everything correctly. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.
Contact your local council to find out which permits, certification or inspections you need for your type of business.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Make sure that your insurance covers you – you’ll need employers’ liability insurance if you employ anyone else, and if you intend to offer any form of professional advice you will also need to take out professional indemnity insurance. You could also need public liability or product liability, depending on your type of business.
Don’t forget your domestic insurance if you will be working from home – if you have to claim and you haven’t told your insurer, you may find that your policy is invalid.

Setting up a partnership

Every partner should register with HMRC as self-employed.
Draw up a ‘Deed of Partnership’ – this specifies the amount of capital every partner will put in, how any profits or losses will be split between partners and what each person’s role is within the partnership.
Set up a bank account for the partnership. You’ll need a separate account to make accounting simpler.
Decide if you are liable for VAT (as for sole traders) and register with HMRC if necessary.
Register for PAYE with HMRC if you will be taking on any other employees.
Obtain any permits, certificates or inspections necessary as for sole traders.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Make sure that you have the appropriate insurances, employer’s liability, professional indemnity, public liability, buildings insurance and any other.
Make sure that any business stationery or software displays the names of all of the partners.
Consider investing in accounting software and/or an accountant. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.

Setting up a Limited Company

Register your company with Companies House. You can do this yourself if the company meets certain criteria (check the Companies House website for details) or use an agent/accountant to organise the paperwork for you.
Inform HMRC that you’ve set up a limited company and create an online account at the same time on the HMRC Website.
Set up a business bank account. By law this must be separate for limited companies. You’ll need your certificate of incorporation and other documents to do this.
Register for VAT if appropriate, as above.
Get insured – you’ll need employers’ liability insurance if you employ anyone, plus professional indemnity if you offer advice as part of your business services. Some occupations use specialist insurers so it’s worth finding out about that, as well as public or product liability insurance.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Find an accountant – yes you could do it yourself, but a good accountant will take the stress out of the details that can keep small business owners awake at night! Invest in bookkeeping software to make it easier to keep track of finances, payroll and pensions. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.

With all new businesses it is always useful to prepare a business plan and cash flow estimate. This will help you be clear on what you want from your business and what you need to achieve it.

PAYE Responsibilities – Becoming an Employer for the First Time

09/11/2015 By Emma Stevens

It’s a big step, taking on your first employee. If you’ve only ever worked for yourself in the past, or even been employed by other people, the rules and regulations surrounding PAYE, NIC and other important aspects of employment law may be new to you, so make sure that you know exactly what you need to do.

The basics

As an employer, you’ll be responsible for calculating and deducting PAYE and National Insurance contributions from your employees, and making sure it’s paid to HMRC on time. You’ll also have to pay any statutory payments like Statutory Sick Pay and Maternity Pay.

You need to ensure you keep accurate records of all payments you make. These can be requested at any time by HMRC for inspection.

Registering with HMRC

The first thing to do if you’re taking on staff is to register as an employer with HMRC. If you have already registered yourself and/or your business for self-assessment, PAYE, corporation tax or VAT you should already have a government gateway account, so registration should be fairly easy. The HMRC website has a Business Tax Dashboard which is handy for bringing together all the information from the services you use online, and you can nominate someone else to handle it for you if you prefer, whether it’s a business partner, accountant or financial adviser. All you need to do is inform HMRC of your chosen person.

You register with HMRC for PAYE up to four weeks before you have to pay your new staff members.

You do not need to register with HMRC if you pay your new staff member under £112 a week provided your new employee does not have a second job, receive any benefits or have a pension income. You still need to keep accurate payroll records and you will need to register with HMRC as soon as you pay your employee more than £112 a week even if it is a one off.

Setting up a payroll

It’s your responsibility as a new employer to set up a payroll. You’ll need software that is compatible with HMRC if you’re running the payroll for your company yourself, so that you can send the information across in real time, every time an employee is paid.

There is free payroll software available from HMRC for businesses employing fewer than nine people, or you can use commercial software. You might prefer to hand everything over to a specialist payroll bureau or an accountant if that’s easier. As long as someone is giving the correct information to HMRC, it’s fine, but as the employer, it’s legally your responsibility to make sure the information is sent, whichever method you choose.

You’ll also have to decide how much you intend to pay employees – and make sure it’s at least the current National Minimum Wage.

Employed or self-employed?

Before you take someone on, check whether the new employee will actually count as ‘employed.’ Some people, such as freelance contractors, are responsible for their own tax and National Insurance so you don’t need to include them in any PAYE calculations.

There’s a useful interactive employment status indicator on the HMRC website.

Checking up on your employees

It’s important to make sure that your intended employee(s) are legally entitled to work in the UK, and if the position they are applying for is one the requires a Disclosure Barring Service (DBS) Check, formerly known as a CRB check, make sure this is done before he or she is formally employed.

Get Insured

All employers need to have employers’ liability insurance before they can become an employer. If you already have professional indemnity or third party liability insurance check with your insurer to see if you are covered.

Paying HMRC

You are legally responsible for making all the correct deductions from your employees pay and paying them to HMRC on time. There are monthly deadlines for paying deductions, as well as Student Loan repayments or tax that has been deducted from payments you’ve made to subcontractors.

Need help with your payroll responsibilities?

Emma Stevens Accountancy offer a payroll service to customers. You can check our rates here.

Bookkeeping basics for small businesses

19/10/2015 By Emma Stevens

Bookkeeping is one of the areas of business that many business owners struggle with, and unfortunately, some people find it all too daunting and end up getting into hot water with HMRC as a result. Getting yourself organised and staying on top of the paperwork doesn’t have to be such an onerous task, if you start with a good system and make sure you have all the right information in place.

Keep accurate financial records

It’s worth talking to an accountant to make sure that you’re keeping the records you need for your specific type of business, but in general, all businesses need to keep records of:.

Sales Invoices – You need to keep a copy of every invoice you send, either in Word, using an online accounting tool or computer package. Each invoice must have a separate reference number and you’ll probably find it’s easiest to store them in chronological order
Purchase orders/invoices – Keep notes of how and when all invoices are paid, and either print them off or keep them electronically in chronological order.
Bank statements – See at a glance which payments have come into your account and keep an eye on what’s going out. If you update this regularly it soon becomes second nature, and you can also use it to help forecast peaks and troughs

Keep your receipts

Any business can be subjected to a VAT or tax investigation, and the better your paperwork (and accountant) the less you have to worry about.

If you buy something online, save or print the invoice, and keep your receipts for anything you buy in person.

Keep your accounts clean – and keep your business and personal expenses separate.

(Also remember that if you run a limited company, technically the business’s money is not your own, and even if you’re the only director you can only spend company money on legitimate business expenses.)

If you’re self-employed, it’s advisable to keep a separate bank account, and keep your personal finances separate. This doesn’t need to be a business account, a separate standard current account is sufficient.

Check your business bank statements regularly

Ideally, go over your business bank statement every month. It’s a great habit to get into, and not only do you spot any errors straight away, it also gives you an idea of the general cash flow, which helps if you need to give financial forecasts or apply for finance.

Do your bookkeeping regularly

Try and set aside a half day or few hours a week to sort out invoices, receipts and cash records. If you need to do this outside of your normal working hours, make it a regular day and get into a habit of doing it. Don’t just put it off…it only gets harder the longer you leave it!

Consider investing in bookkeeping software to make life easier – some online systems let you store invoices and receipts in the Cloud so you never have to worry about losing paperwork.

Think about hiring a bookkeeper or an accountant. A good accountant will save you time and money in the long run. An expert bookkeeper will be able to get to grips with your business finances in no time, and while they are sorting the numbers out for you, you can be earning money doing what you’re good at.

The Institute of Certified Bookkeepers has a list of qualified bookkeepers, or you can find someone suitable via word of mouth recommendation. When you’re looking for an accountant, look for someone who is registered with the ACCA.

Budgeting Tips for Small Businesses

12/10/2015 By Emma Stevens

Budgeting is a vital skill for all small business owners; it helps you see whether you have enough money coming in to cover every day and larger expenses, whether you’re in a position to expand your business, or whether you need to look at ways of generating more income.

Here are a few tips to make sure you don’t lose sight of the money situation and find yourself in a difficult financial position.

Always keep up to date with cash flow

If you don’t know what’s going on with your business accounts, you could find that your business venture is short lived, even if your business idea is brilliant. Keep actively involved in the cash management, and keep a close eye on the books, even if you have a book keeper or accountant doing all your paperwork.

The main thing to stay aware of is the basic cash flow – keeping an eye on the money that comes in and goes out of your business on a weekly, monthly or even a daily basis. If the cash flow is positive, it means that your business is in good financial health, but if you notice that there’s more going out than there is going in, you can take action before the situation gets out of hand.

Being aware of what’s owed, and owed to you is also useful knowledge – you can see if there are any outstanding debts that need to be chased or plan in advance for big bills and purchases.

Keep an eye on your businesses balance sheet and list all the assets and liabilities – it’s useful to be able to see what your business owns and what it owes creditors at any given time.

Don’t be afraid to chase bad debts

At some point, all businesses will have a bad debt or two to deal with. Familiarise yourself with the procedure for chasing unpaid invoices – standard reminder letters, interest rates, letters before action and court action are all things that can be done online and don’t necessarily need a solicitor’s advice or representation.

Keep personal expenses separate

Despite the temptation to dip into the business accounts to pay personal bills, don’t do it. Mixing the accounts can cause all sorts of headaches for you, and any book keeper or accountant you employ. It can also cause problems when it comes to your tax returns.

There’s no obligation for sole traders to have a separate business account, but it really does help keep things in order. If you have set your small business up as a limited company, you absolutely should not take money from the business to send on personal bills, as legally the money doesn’t belong to you.

For sole traders, the temptation to combine the personal and business accounts can be tempered if the personal accounts are treated with as much importance as the business accounts. If you anticipate needing credit in the future, keep your personal accounts in order and make sure your personal credit is good, with all bills paid on time. Keeping an eye on the personal finances will set you in good stead for making sure the business accounts are spotless.

Stay on top of your taxes

This can prove to be one of the most difficult parts of being self-employed and running your own business. Being responsible for your own tax bill is something many business owners neglect and then when it’s time to file a tax return and pay the dreaded bill, it can come as a surprise.

If you’re not sure how much you should be paying or can’t tell one end of a tax return from another, it pays to ask for the help and advice of a professional. Some small businesses handle the day to day accounts themselves, but ask an accountant to calculate and file their tax returns so that they claim everything that’s owed to them and pay all the necessary tax and national insurance on time.

A good accountant may also be able to help you save hundreds and sometimes thousands of pounds of tax by advising you on the most tax efficient structure of your business.

Get into the habit of keeping a percentage of your income in a savings account to cover your tax bill and you shouldn’t get any nasty surprises at the end of the tax year. As a guide around 15-20% of your income should be reserved towards your tax bill.

Why go limited? The pros and cons of becoming a Limited Company

28/09/2015 By Emma Stevens

One of the most common questions accountants are asked by small business owners is whether it’s worth forming a limited company, and if so, how to go about it.

The two most popular trading options for small businesses are sole trader and limited company, and which one suits you best will depend very much on the type of small business you run. It’s also worth remembering that if you start out as a sole trader, it’s relatively simple to change your trading status to limited company – but not as easy to change it back again.

What are the advantages of converting your business to a limited company?

It can seem more official to people you want to do business with – the term ‘limited’ gives the company a bit more weight. If you’re looking for investors, they will be more likely to oblige if you are a limited company, as their investment is protected, whereas if you are a sole trader or partnership there’s nothing to protect any money they put into the business.

Banks also prefer limited companies when offering loans and finance, as they can take out extra security so that if the terms and conditions of the loan are broken the bank can take some of the company’s assets.

The costs of setting up the limited company will probably be outweighed by what you save in tax, as you pay tax as an employee and can set quite a low salary. You also pay tax on ‘dividends’ the company pays you as a shareholder, but not any National Insurance.

The disadvantages of converting to a limited company

Your money isn’t technically your own any more. You can’t just make withdrawals from the business as you can if you’re a sole trader, and although it might be better for you in terms of paying tax, it does make your finances more complicated. As well as this banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company’s debt.

As a result, your accountancy fees are likely to go up, as the accounts for a limited company aren’t as simple as those of a sole trader.

When you start trading as limited company all of your accounts are made public, and you must keep and file accurate records of everything because if you don’t there can be penalties.

How to make the change

The process of changing to a limited company is relatively straight forward – you can do it yourself or go through an accountant/agent. The paperwork is more daunting than the cost (it’s perfectly possible to set up a limited company from as little as £4.99 online).

If your business makes a profit of at least £20,000 a year it could be worth converting it to a limited company. You should allow for costs of about £500 to £800 in your first year after setting up a limited company, and you’ll have to remember to file your accounts and send an annual return every year (which you can also do online). You can hire an accountant to take care of all the paperwork for you if you want to be absolutely sure you don’t miss anything.

Tax and National Insurance Contributions

This is where a limited company finances can start to get confusing. Once you convert to a limited company, you become a director, a shareholder and an employee of the company, and you have to set up PAYE to pay yourself as an employee.

As a director and shareholder, you enhance your basic salary with dividends, which is where your tax advantage comes from, as you won’t pay National Insurance Contribution (NIC) on dividends. Tax and NICs have to be deducted via a company payroll, which you will have to set up. You also have to pay tax and NIC’s for other staff members if you employ them.

The amount of income tax you have to pay depends on what you pay yourself as a salary as an employee of your company, and the tax bands are the same as an employed person’s income tax, including the personal allowance of £10,600 (2015-16).

Corporation tax of 20 per cent also has to be paid on any of your company profits. You (or your accountant) will have to work out how much Corporation Tax you owe and pay HMRC within nine months of company year-end.

Dividends

If your limited company makes a profit, the money can be shared out equally among the shareholders. This is called a dividend. Technically, even if there’s only one shareholder, and that’s you, you have to hold a board meeting to agree any dividend declaration, and record the minutes of the meeting in company records. It’s more a paperwork exercise than anything else but you still need to do it. It’s this sort of paperwork that can put sole traders off, but a good accountant will be able to advise you what to do.

You must keep paper records of all the board meeting minutes, as you may need to produce them if you’re subject to an HMRC investigation.

Emma Stevens Accountancy is a chartered certified accountants based in Bovingdon, Hemel Hempstead, Hertfordshire and covering Hemel Hempstead, Chesham, Kings Langley, Watford and the surrounding areas in Hertfordshire & Buckinghamshire. If you are looking for a friendly informative approach to your business and accountancy needs I am the accountant for you!

Starting a new business – sole trader vs limited company

01/04/2015 By Emma Stevens

As a new business one of the first choices faced is whether to run as a sole trader or a limited company.

Sole trader

You maintain complete control over the business and all profits after tax belong to you. However, there is no legal distinction between yourself and your business, so you will bear legal and financial responsibility as an individual.

You must inform HMRC of your new business activity on commencement of trading. You will then be required to complete and file a personal tax return detailing your income and expenditure for the year. Tax will be charged at 20 per cent of profit after deduction of your personal allowance and you will also have to pay nine per cent class 4 National Insurance Contributions.

Limited Company

A limited company is a separate legal entity from its directors and shareholders, therefore limiting liability should the business face any financial or legal issues. However, setting up and running a limited company is more restrictive and requires more administration.

A limited company can be more tax efficient. The company’s profits are taxed at 20 per cent and the profit belongs to the company. You as the director are paid as an employee and then in addition can withdraw dividends as a shareholder. These are taxed at a more favourable rate on the individual. You will still be required to complete a personal tax return.