Company limited by guarantee: What it is and its benefits

When registering your company, you need to know that there are two types of limited companies. If you are about to set up a new charity, society, membership organization, or a club, then a company limited by guarantee will be the right choice. So what is a company limited by guarantee? “Companies Limited by Guarantee are an alternative form of company entity to the usual one of share capital.” Their members are guarantors rather than shareholders. They retain profit or use it for some special purposes. Advantages There are several main reasons why you may find a company limited by guarantee more suitable for your organization: The risk of personal liability is reduced: personal assets of its members are not held liable. It is arranged through a nominal guarantee to cover a company’s liability. A company should have a management committee or a board to act with “due care and diligence.” A company serves a certain purpose and encourages its members’ involvement and commitment. Its profits are not distributed but rather reinvested to serve its purpose. It has a democratic structure where members and directors are elected and can be removed by the board. Disadvantages This form of a company has also disadvantages you need to be aware of: It is not possible to raise finance by issuing shares. This limits its options to community funding such as donations and grants or debt finance. A company limited by guarantee is subject to statutory requirements of submission to HMRC. Directors of this company need to prepare a specialized memorandum and articles of association. A company limited by guarantee serves a... read more

Buying goods for your clients? A guide to disbursements

  Use our short guide to disbursements to ensure you avoid common mistakes when calculating your VAT turnover (disbursements are not included in the VAT turnover calculations). Let’s take a look at an example: The Scenario: Mr Bilsby is a heating engineer and plumber. He is always meticulous in his calculations, making certain he does not exceed the threshold for VAT registration. However, one error in judgement in relation to his disbursement calculation, meant Mr Bilsby incurred penalties by HMRC. What did he do wrong? By buying parts from a wholesaler, and including them with labour costs on the invoice (without a mark-up), Mr Bilsby thought it would fall under being a disbursement. HMRC thought otherwise, citing the fact the expenses on the invoice were not itemised, and that his VATable turnover calculations should have included these expenses. Thus, Mr Bilsby now has VAT and penalties to pay. How to avoid this mistake: If you find yourself in a similar scenario to Mr Bilsby, do make sure you know if you are an agent or principal in the transaction. Only if you are acting as an agent (acting on behalf of a client), and you meet the eight requirements as per the VAT guide, can you claim the costs incurred as a disbursement. This is applicable when the following conditions are met: – You fulfil the criteria of being an agent –  The item(s) you are claiming for is of no personal use to you – You do not mark-up the item As well as these three key points, always arrange with the client, an agreement whereby the client agrees... read more

Making a success of small businesses: Invoicing

It might sound obvious, but one of the quickest ways to make a success of your business is to keep the money rolling in – that means remembering to invoice for your services or products. You might be surprised to learn that as many as a fifth of SME owners report forgetting to invoice at some point in the past and this disrupts cash flow. Developing a reputation for deferring on payments or failing to pay your staff because of poor cash flow will do nothing to help your business prosper. Ensuring you invoice for your services is a manageable way of minimising that risk. If you don’t stay on top of things, your clients will see no need to either and estimates suggest that this simple act of forgetfulness is costing UK business billions — so it’s worth doing properly! With so much to keep an eye on we understand if can be difficult to keep track of, but with a tiny bit of added communication between you and your accountant, together you can ensure your business is kept in a good place. If you’d like some assistance to keep things in check or some tips on invoicing efficiently do give us a call, we’d be glad to... read more

Purchasing equipment but not sure whether to buy, lease or hire?

At some point every business owner needs to think about purchasing equipment. There are three common options: buying outright, leasing, or renting. So what is the best option for you? It depends on how much cash your business has at the moment and how this equipment would be used in the long run. We’ve reviewed these options and come up with a list of key points so that you can make the right decision depending on your situation. Buying Equipment Outright Buying equipment has several advantages from a tax point of view but it comes at a cost. It is the most appropriate option when equipment is expected to have a long and useful life like office furniture or production machinery. Benefits       Equipment will be included in a capital allowance so you can write off its cost against the taxable income of your business.       If you finance your equipment with a loan, then your finance charge is allowed against tax. You can claim VAT on most equipment, excluding cars. Points to consider       It requires a high up-front payment. There is a risk of cash shortage in the short run, especially if your business is relatively new.       The value of your equipment will depreciate over time. You cannot claim tax on depreciation. Hire Purchase of Equipment Hire purchase is a type of borrowing where you do not own goods until you pay in full. This is a great option if you cannot raise cash. It is more expensive as there is interest and a fee to be paid to complete the... read more

Rental income: How to avoid being stung by HMRC

Being a landlord can be a time-consuming job, but don’t forget one of the most important tasks: telling the HMRC about your rental income. HMRC are currently running a Let Property Campaign, urging landlords to come forward and disclose past undeclared rental earnings, in order to reduce possible penalties and the risk of criminal proceedings. Over recent months, we’ve had a number of clients asking about letters they have received from HMRC on this subject – and you could be next. Don’t be fooled into thinking you’re safe if you haven’t received anything yet – HMRC have ways of finding you. They are using data from land registry records, local authorities and letting agents to track down the one million buy-to-let and other private landlords who are failing to declare their rental income. And it’s little wonder that they have extended the campaign from the initial 18 months to three-four years, with an estimated £550m missing tax per year. Most of those who owe tax are small-scale and/or accidental landlords who owe only a few hundred pounds a year and the HMRC have said that those who have made honest mistakes may be treated more leniently. Whether you didn’t realise you were liable to pay or just haven’t got round to telling the taxman, this is an opportunity to come clean to the HMRC about any rental income before it’s too... read more

What is “income shifting”?

“Income shifting” is a tax avoidance technique aimed at using the allowances and thresholds applicable to limit your tax costs. If you or your partner operates through a limited company you might not be taking advantage of this to reduce your tax liability. Let’s use an example to explain: Karl and Katy are married. Karl works as a web designer through his own Ltd. company, of which he is the sole director and shareholder. Katy looks after their daughter and works part-time. Occasionally she does some admin for Karl. Karl pays himself a salary and annually takes a dividend. To take more money out of the company Karl’s accountant suggests that he gives some of his shares to his wife so that she can also take dividends. Since Katy does some work for Karl, the accountant suggests she receives a salary as well. However, we would urge caution if you consider this method yourself. Though legal under current regulation, should the transfer of shares be regarded as a ‘settlement’ it may not be allowed. HMRC has been clamping down on possible breaches. It’s certainly worth a discussion with a chartered accountant. Take note of this example: Garnett vs Jones (re: Arctic Systems) [2007] Mr Jones bought Arctic Systems Ltd and the gave one of his two shares to his wife. Mr Jones worked as a consultant while his wife did admin tasks. Though both received low salaries they took large dividends. HMRCs argument was that Mr Jones’ wife’s remuneration was out of line with her contribution to the business and was in fact a settlement and taxable as part... read more