UK Starting Business

I recently formed a new company and needed some accountancy and tax advice on some matters following the incorporation. I did receive from good free advice from a website and thought that it would benefit other visitors in the same situation.

The text of the correspondence is outlined below with certain non salient details changed to protect any sensitive or personal information.

Question 1: The first area where I need advice is regarding signing up for an accountancy service. Do you act as a financial agent for the company, handling all VAT and other business tax matters on my behalf?

Response 1: In most cases we would act of the intermediary between H M Revenue and Customs and the company. This ensures that all tax related correspondence relation to the business is seen by us so that we can advise you of any required actions which need to be taken.

We should point out that the responsibility for ensuring that all matters are dealt in a timely manner and with the correct treatment remains with the company except where we have received correspondence and failed to provide notification to you.

Question 2: I have received a letter and form from HMRC which was titled “new company details for corporation tax”. I have various queries relating to this form such as the business start date I should enter (it is a dormant company at the moment and for the foreseeable future).

It will be some time before my online site has been set-up with ecommerce facilities and is ready to start business. I have however already begun ordering some products from suppliers and so am confused whether the first date I begun sourcing supplies should be entered or the date which I intend to start trading.

Response 2: The business trading date may not necessary be the same date as the company’s accounting period. Generally, either the date of the first sales invoice, or date of the bank account being activated are being used as the business starting date. You may alternatively provide a future start date as the one where you are reasonably confidence that the website will be ready to commence business operations.

As guidance the following may help you: Question number 1 question - fill in the date on which the company’s first accounting period began. Your Company’s first accounting period is from 23/09/2008 to 30/09/2009.

Question 3: Do I also require financial reports at next fiscal period to the end of March? At this time the company will be less than one year old. I think I read somewhere that I will not be required to prepare accounts until the company has been trading for at least a year, is this correct?

Response 3: The Company is not required to prepare financial statements to March 2009. The first financial statements of the company are for the accounting period from 23/09/2008 to 30/09/2009 unless a Form 225 is used to extend or shorten it.

The financial accounts are then required to be submitted to Companies House nine months after the financial year end which would be 23/06/2010.

Question 4: Regarding expenditure of the company, from what date would ant payments be treated as recordable in the accounting records of the business? Also, at the moment both the company director and shareholder is my wife, but I will be organising suppliers and making payments to them from my own pocket. Will this type of expenditure be acceptably as costs to the business?

At the moment I do not have any official involvement in the business and am considering putting my name down as the company secretary, otherwise, I can not prove that I am related to or working for the business. If I do not do this would it cause any difficulty to prove that the expenditure I make is related solely to the company?

Response 4: For VAT purposes, the company is eligible to claim input VAT on expenditure or invoices issued under the company name. Your wife or your name can still be on the bills as long as the company name also present and that it is reasonable that a particular expense would be incurred by your business.

There is no requirement or obvious need to appoint yourself as company secretary although this would not do any obvious harm. It is important that you keep a record of all payments you make and the invoices and bank statement which support them.

Question 5: I am considering purchasing a company car and am wondering whether I can reclaim the VAT which the company will be charged. Is this permissible?

Response 5: You may only claim input VAT on a company car that is for sole use of the business. Any private use which is planned for the car would disallow any claim.

Revenue and Customs are likely to view the nature of the vehicle which is purchased. The purchase of a Mercedez Benz M-class car for example is likely to be judged as contain some personal use or enjoyment and therefore likely to be disputed as a purely commercial vehicle.

A delivery van, on the other hand would not pose such an obvious risk.

Question 6: If either myself or my wife were to draw some money from the company bank account, do these sums then become subject to PAYE?

Response 6: If you or your wife draws out a monthly salary then you would have to pay PAYE. Alternatively, she may opt to pay herself dividend instead of salary provided she is also the shareholder and the company earns enough profit for the year to cover the dividend payment.

Money which have been paid to the company from private funds which essentially serve as a loan to the company can be withdrawn without the need to apply tax. Such amounts should be included on a P11D submission for that tax year.

Question 7: I recently opened an account at HSBC but have a problem. The bank will not open up an internet merchant account which would enable us to accept the credit card payments via internet. Even though I explained that my business would be internet based and so the credit card payment functionality is essential, they still would not move.

Anyway do you think it would be worth trying with another bank e.g. Barclays?

Response 7: An alternative means of accepting internet based payments is through either WorldPay (www.worldpay.com) or Paypal (www.paypal.co.uk). They provide online payments processing services and are widely used by internet merchants.

Please do not hesitate to contact me should you have any question.