Accounting FAQs
What are Retained Earnings and how can I Access Them?
Retained Earnings are company profits (after tax) that have not been paid out to you as a dividend.
When you set your salary levels, you may elect to keep some money in the Limited Company.
After tax is paid on company profits, currently at 21%, the distributable funds, or retained earnings, can be distributed as dividends.
Here are two examples of how you can access these funds:
- Dividend Payment: You can request these funds to be paid to you as a dividend. This payment will be added to your personal income for that tax year.
- Capital Gain Payment: On the closure of your Limited Company, these funds can be paid to you as a Capital Gain. Capital Gains below £10,100 are taxed at 0% in the UK. This is the most tax efficient option. Amounts in excess of £10,100 can be paid as a Dividend Payment, or a Capital Gain, and may attract extra tax.
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Am I A UK Resident?
Below are some guidelines only on UK Residency Rules. Your UK income will be taxable in the UK if you are either:
Resident and/or
An individual becomes resident of the UK if they spend more than 183 days of the tax year in the UK.
Ordinarily Resident
An individual becomes ordinarily resident of the UK as soon as one of the following events occurs:
- if an individual has been in the UK for 3 full tax years, that person will be ordinarily resident from the 4th tax year onwards.
- if an individual decides during the 3 year period that they intend to stay in the UK for longer than 3 years, then they will be deemed to be ordinarily resident from their date of arrival
In dealing with residency cases, the UK government treats the status of ordinarily resident more severely than just resident.
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How Does Being A UK Resident Affect Me As A Contractor?
You will become non resident and non-ordinarily resident in the following cases:
- Non-resident: An individual becomes non-resident the day after they leave the UK, as long as they do not have any intention of returning to the UK within the next 5 years.
- Non-ordinarily Resident: An individual becomes non-ordinarily resident only the day after the end of the tax year in which they leave the UK (the following 6 April), as long as they have no intention of returning to the UK within the next 5 years.
If an individual is non-resident and non-ordinarily resident, any income received from a UK source is unlikely to be subject to the UK tax regime. However, this may be subject to the tax legislation of the country s/he is going to.
Important: If you consider yourself to be non-resident and non-ordinarily resident of the UK, and you choose to receive your final payment from your Limited Company outside of the UK tax regime, we strongly recommend that you seek advice on the treatment of that payment in the country you are going to.
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When Do I Become A Non-Resident And Non-Ordinarily Resident?
You will become non resident and non-ordinarily resident in the following cases:
- Non-resident: An individual becomes non-resident the day after they leave the UK, as long as they do not have any intention of returning to the UK within the next 5 years.
- Non-ordinarily Resident: An individual becomes non-ordinarily resident only the day after the end of the tax year in which they leave the UK (the following 6 April), as long as they have no intention of returning to the UK within the next 5 years.
If an individual is non-resident and non-ordinarily resident, any income received from a UK source is unlikely to be subject to the UK tax regime. However, this may be subject to the tax legislation of the country s/he is going to.
Important: If you consider yourself to be non-resident and non-ordinarily resident of the UK, and you choose to receive your final payment from your Limited Company outside of the UK tax regime, we strongly recommend that you seek advice on the treatment of that payment in the country you are going to.
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Company Accounts and Tax Returns – What Do They Entail?
By law, your Limited Company is required to file its Balance Sheet & Income Statement (Annual Financial Statements) to HM Revenue & Customs and Companies House once a year. These financial statements can be prepared by 1st Contact Accounting.
The financial statements to be submitted to each authority are as follows:
HM Revenue & Customs:
- Annual Accounts
- Company Tax Returns OR CT600’s (sometimes there may be two)
- Dormancy Letter (if applicable)
Companies House:
- Annual Accounts
- Dormant Accounts - DCA Form (if applicable)
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When Are My Company Accounts and Tax Returns Due?
The financial statements to be submitted to each authority are due as follows
- Corporation Tax payments are due 9 months after your year-end date
- Annual Accounts and Company Tax Returns are due 12 months after your year-end date
Companies House:
- Annual Accounts are due 9 months after your year-end date (Please refer to your certificate of incorporation for this date)
What Happens If My Accounts are not submitted on Time?
If your Annual Accounts (Financial Statements) and Company Tax Returns (CT600’s) are late, HM Revenue & Customs and Companies House will issue penalties. Penalties vary from £100 to £5,000 depending on how late your documents are submitted.
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What Is Corporation Tax and when Do I Have to Pay It?
Corporation tax is company tax, which is charged on the profits of the company. Corporation tax is calculated on your company profits. We can assist you with these calculations as well as advise you on how to make Corporation Tax Provision.
The amount of corporation tax to be paid to HM Revenue & Customs is calculated on your Annual Accounts (Financial Statements) and Company Tax Returns (CT600).
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What Happens If My Taxes Are Not Paid On Time?
HM Revenue & Customs will charge you interest on any outstanding tax and may institute legal proceedings to recover any outstanding funds.
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Do I Need To Submit A Personal Tax Return (SA 100)?
You are required to submit a Personal Tax return if you:
- Work for yourself. (i.e. if you are self-employed or in a partnership)
- Are a company director
- Earn income above the high income threshold (£43,875 for 2009/2010)
- Are working under the CIS Scheme (Construction Industry Scheme)
- Have income from letting property you own
- Receive other untaxed income and the tax due on it cannot be collected through a PAYE tax code
- Year on year, receive (or can be treated as receiving) income from a trust or settlement or any income from the estate of a deceased person and further tax is due on that income
- Have taxable foreign income even if you are claiming that you are not normally resident in the UK (and including non-residential landlords)
- Are requested to submit a personal Tax Return by HM Revenue & Customs
- Are a minister of religion (of any faith or denomination)
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What Are The Tax Rates For The Current Tax Year?
PAYE:
- £0 to £6,475 – 0%
- £6,475 to £43,875 – 20%
- £43,876 to £150,000 – 40%
- £150,001 and up – 50%
Employee NI:
- £0 to £5,715 – 0%
- £5,716 to £43,875 – 11%
- £43,876 and up – 1%
Employer NI:
- £0 to £5,715 – 0%
- £5,716 and up – 12.8%
VAT:
Corporation Tax:
Capital Gains Allowance:
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