New contractor guide to Corporation Tax

New contractor guide to Corporation Tax

Corporation Tax is a levy on taxable profits which is applicable to active Limited Companies incorporated in the UK. If you’re a contractor who has recently set up as a Limited Company it’s helpful to be aware of how this tax works and how it applies to your own company. As a director of your company – under the companies Act 2006 – you are ultimately responsible for ensuring that your company is fully compliant with HMRC regulations. This means that your company must pay the correct amount of Corporation Tax and file an accurate Company Tax Return. Failure to do so can, at the least, result in undesirable fines and penalties.

In many cases a contractor accountant is appointed to help with this which makes this area much easier. A contractor accountant will be able to assist with preparing and filing your Company Tax Return as well as offering expert advice on how to make legitimate tax savings through your company.

Registering for Corporation Tax

HMRC will send you a newly formed Limited Company form – Corporation Tax: Information for New Companies – within a few days of your company being registered at Companies House. Even if you don’t receive this, you must register for Corporation Tax with HMRC within three months of beginning to contract through your company; otherwise a substantial penalty could apply. Registering can be done by post using the form HMRC sends you or online at HMRC’s website. This can be done by you personally or by your contractor accountants on your behalf.

How Corporation Tax is calculated

Your Corporation Tax bill is calculated as a set percentage of the net profit of your business. The net profit is calculated as gross profit less allowable expenses.

Gross profit in a business includes:

  • Ordinary trading profit – profit from your usual contracting activities.
  • Profit made from any investments.
  • ‘Chargeable gains’ – profits from the sale of assets like property or shares.

Deductable expenses can include items such as:

  • Communications, stationery and other general office costs.
  • Allowable business travel including car and public transport expenses.
  • Accountancy, legal and other professional fees.
  • Wages, salaries and other staff costs (including any salary you pay yourself).

The Corporation Tax percentage chargeable varies according to the size of the net profit of the business. Currently, the main rate of Corporation Tax applicable to the majority of the bigger mainstream businesses is 23% (which will be falling to 21% in 2014). However, most contractors will qualify for the small profits rate of 20%, which applies to qualifying companies with profits of up to £300,000.

How to file and pay for Corporation Tax

Corporation Tax, unlike other forms of tax, can only be paid electronically and the payment must be made before the Company Tax Return is filed. Also, HMRC specifies that the supporting tax calculations and accounts which form part of the Company Tax Return must also be filed. This means its vital that all your contractor accounting and records are in good order to ensure all relevant information is readily available for you or your contractor accountants to work with.

The payment deadline date for your Corporation Tax depends on the size of your taxable profit. For contractors who have profits of up to £300,000 (or if higher, less than £1.5million) payment must be made by the ‘normal due date’. This is 9 months and one day after the end of the company’s Corporation Tax accounting period.

The filing deadline date for your Company Tax Return and supporting information is within 12 months of the end of your company’s Corporation Tax accounting period. This date is known as your ‘statutory filing date’.

Getting expert help

There’s no doubt that Limited Company accountancy can become complex and getting tax calculations right is an important part of running your business successfully. This is why the majority of contractors appoint a specialist contractor accountant to take expert care of this. Contact us at Intouch Accounting to find out more about our Monthly Service package and how it can help ease the pressure of running your contractor Limited Company.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Choosing a company name – what to avoid, what’s allowed and how to change it

Choosing a company name

If you’re a contractor in the process of setting up your own Limited Company one of the first things to think about is what to choose as your company name. You may think that this is easy and you can basically choose any name you like. This isn’t quite the case though as in fact there are several factors to consider when choosing the name to ensure that it complies with the rules set out by Companies House.

What’s in a name?

The first thing to note is that all private Limited Companies in the UK must have either ‘Limited’ or ‘Ltd’ at the end of their name.  Although there are exceptions to this, for the majority of contractors this will need to be included.

What kinds of names should I avoid?

There are several company naming elements that are either not allowed or are strictly controlled by Companies House including the following:

  1. The name must not be the same as (or amount to the same as) any other name on the Companies House index of names. The exceptions to this are if express permission is given to have a similar name, or the company is one of a related group of companies.
  2. The name must not contain a ‘sensitive’ word or expression although in some cases you may do so if you are granted permission by the relevant party. In general the name must not imply business pre-eminence, a particular status, or a specific function. An example of this is the word ‘Bank’. If you wished to use ‘Bank’ in your company name you would need to get permission to do so from the Financial Conduct Authority.
  3. If you intend to use any national words – such as British, Great Britain, United Kingdom or International – check carefully with Companies House first as these are very strictly controlled.
  4. The name must not suggest a connection with government or local authorities where no connection exists.
  5. The name must not be offensive.
  6. There are also controls on the use of certain characters, signs, symbols and punctuation appearing within a company name.

If after incorporation the company name is found to breach any of the above, or objections to the name are received, you may be required to change it. This will also be the case if any misleading information was given relating to the name at the time of incorporation. This could potentially cause a lot of hassle and stress, so it pays to think through these points first when deciding what name to go for.

What kinds of names are generally allowed?

As long as the name is unique and is within the rules set out above there’s a wide range of choice available to you.
Some people choose random words or phrases as they are not intending to use the company name as a brand to trade on. If this is the case for you then you’ll probably be less concerned about what the name sounds like or if it has marketing potential which gives you even greater choice.

If you do intend to incorporate the company name in your marketing strategy then just bear in mind that more often than not the most obvious choices have already been taken, so you may have to get a bit creative with it.  Even if you can’t find something that you really like it’s still possible to use a ‘Trading Name’ that fits, as long as this doesn’t infringe on anyone else’s name or trademark. To do this you will still need to display your registered company name on all documentation and your website but you can add something like ‘Stellar Computing Genius is a trading name of Xylo 2013 Ltd’.

If you are professionally qualified, such as a Chartered accountant, then you may be able to obtain permission to use this in your company name if you want to, but obviously check thoroughly that the full company name remains entirely unique.

What do I need to do if I want to change my company name?

If you want or need to change your company name you can do so in two ways:

  • Special resolution – if you change the name using a special resolution you must file a copy of the resolution, a completed form NM01 and the appropriate fee with Companies House.
  • Provision in the company’s articles – if you change the company name by means provided for in the company’s articles you must file a form NM04 and the appropriate fee with Companies House.

At Intouch we help make forming your first Limited Company a smoother process all round. With our experience and professional expertise you’ll be eased into Limited Company ownership knowing that the name, information requirements and paperwork are fully complaint and have been appropriately filed with Companies House.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Companies House – what is it?

Companies House – what it is, what it does, director duties and obligations

Companies House is the official UK Registrar of Companies, operating within the remit of the Department of Business, Innovation and Skills (BIS). It keeps records of all UK private and public Limited Companies. All new companies must register with Companies House and provide details as required under the Companies Act 2006.

What it does

The key duties of Companies House are:

  • Incorporation and dissolution of UK Limited Companies
  • Maintenance and scrutiny of company information as specified in the Companies Act 2006
  • Keeping up-to-date Limited Company information available for the general public

All Limited Companies must file an annual return to Companies House at least once a year.  If a company fails to file their annual return the Registrar may assume the company is no longer in business and begin the process of striking it from the companies register.

Deadlines and penalties

For a private Limited company’s first set of accounts, if they cover more than 12 months, they must be filed with Companies House within 21 months of the date of incorporation, or 3 months from the accounting reference date, whichever is longer.

From then on a private company must file accounts by 9 months from the end of the accounting reference period. Late accounts incur an automatic penalty with increasing amounts payable the later they become, as follows:

Length of delay    Private company penalty

Not more than 1 month   £150

More than 1 month but   £375 not more than 3 months

More than 3 months but  £750 Not more than 6 months

More than 6 months   £1,500

In addition, if you file your accounts late for two consecutive years, the penalty will double.

Limited Company director duties and obligations

If you are Limited Company contractor as director of your company you have a range of duties and legal obligations which are set out in the Companies Act 2006.

The key director duties centre on operating in the best interests of the company and include elements such as exercising reasonable care, skill and diligence and actively promoting your company.

The principle financial duties focus on ensuring that all accounting and tax matters are in order and are filed in good time to Companies House and HMRC. Many Limited Company contractors have an accountant to do this for them, but as director it is your responsibility to make sure this happens.

The main legal responsibilities focus on the details of the running of the company. These include completing and submitting an Annual Return (Form AR01) to Companies House and informing them of any personnel changes. Also included are areas such as ensuring compliance with all relevant employment, health and safety and company legislation and acting in the best interests of the company’s shareholders.

For most Limited Company contractors the day-to-day impact of these responsibilities is likely to be minimal, none the less an awareness of these roles and responsibilities is important.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.