Minerva Accountants Bristol and Somerset
Fully digital Xero accountants taking the hassle out of your business
EIS/SEIS refer to the (Small) Enterprise Investment Scheme. This can be a tax efficient way to invest in a small business or for other people to invest in your business. The idea is to help early stage start ups to raise capital.
Individuals can invest up to £100k per year in qualifying companies and receive up to 50% back in tax relief. There are also benefits for capital gains and inheritance tax relief.
You can save a great deal of tax by avoiding an overdrawn director’s loan account (DLA). In other words don’t take more money out of the company than the dividends and expenses that have been allowed (see previous tips).
If your DLA is overdrawn at the end of the year and not repaid within 9 months of the year end the company will have to pay S455 tax at 33.75%. This can be reclaimed on the next tax return if the loan has been repaid (but you can’t repay it then taken out again!)
If your DLA is more than £10k overdrawn at any time in the year you will incur a personal benefit in kind (unless you pay the company interest on the loan). The company will also pay class 1A national insurance on the notional interest. The rate of interest is set by HMRC each year.
We want you to pay the right amount of tax and not waste your hard earned money on unnecessary penalty taxes like these. Regular, up to date bookkeeping will ensure that you keep track of your DLA.
We’ve been busy doing Clarity Business Reviews for new clients. But what is a Clarity review?
Clarity is software that will connect directly to Xero or Quickbooks (or we can enter figures manually from other software). We can then look at 7 key indicators that reflect the profitability, value, and efficiency of your business. And how we can improve those 7 figures and your business as a whole.
Over zoom we discuss your business and identify actions within 5 areas so that you go away with an action plan.
The whole thing takes about an hour.
Then there are three options:
-Work through the actions on your own
-Join our Minerva Mastermind group on Facebook and a monthly Zoom call to check in on how you’re doing and maybe book an annual Clarity review
-Book monthly or quarterly coaching to help you to work through your action plan (Della is a qualified business coach and mentor as well as a chartered accountant)
Why we love Xero (Quickbooks online and Freeagent are quite good too)
Xero is user friendly (according to our clients) software for small businesses. It sits in the cloud rather than on a single PC so that it can be accessed at any time by the business owner (that’s you) looking for management information, the bookkeeper (that may be you, Minerva, or somebody else) to input data, and your accountant (that’s us) to prepare your accounts or to give advice at any time.
You can put the Xero app on your phone to raise quotes and invoices on site. You can buy a small card payment machine such as Square or Zettle for around £20 and, with the app on your phone, you can take payment on site.
You can include a Stripe payment button on your invoices (although bank transfer is the cheapest method) to make it easy for customers to pay you by card.
You can forward electronic invoices directly to Xero (or to Dext if you have the app) or upload them manually to attach to your transactions. Once you have attached a digital copy you can get rid of your paper copies although we recommend that you keep them somewhere until we have completed the year end. If you ever need to check an invoice it is easy to search the supplier in Xero to find it.
Xero multi-currency version handles all your foreign currency purchases automatically.
As long as your Xero is up to date we can estimate how much tax you will expect to pay at any time.
Paperwork (or the digital equivalent) is important
If you are running a limited company it is important that you don’t take any money out of the business without the correct paper trail. The company is a separate legal entity from the director/shareholder. It’s a bit like taking money out of your mother’s purse without permission.
The sort of paperwork you would need is:
– Salary needs a payslip
– Dividends need a minute and a tax voucher (contact us if you need a template)
– Interest payments (if appropriate) need a form CT61 filed with HMRC
– Expenses should be accompanied by receipts and a mileage log
– Pension payments should be paid directly to the pension provider
How to take dividends
I see too many directors helping themselves to company cash and calling it ‘dividends’. But every payment out of the business should be accompanied by some sort of paperwork (or digital equivalent). For dividends you will need:
We have templates for the last two and we can advise you on whether your bookkeeping is good enough for the first. Hint: if it’s not up to date then it can’t possibly be adequate.
Director’s responsibilities
Whilst it might feel good to be the director of your own company you have several responsibilities as directors under the Companies Act 2006:
Higher income child benefit charge (HICB)
If you are receiving child benefit this may be restricted from £50,000 and withdrawn completely from £60,000. With two cliff edges to avoid here are a few things that you can do to legitimately reduce your income.
Dividend paperwork is important.
There should be a board minute each time dividends are approved as well as a tax voucher for each shareholder.
In small owner managed businesses it is common to run a DLA (director’s loan account) throughout the year and to clear it with a single large dividend at the end of the year. With MTD coming in this will need to be done quarterly.
Before declaring any dividend the board must ensure that the company will still be solvent after the dividends have been declared. It is hard to do this without some sort of management accounts or financial review so keep a record of these too.
6 July is the deadline for employers (or their accountants) to submit P11D benefit in kind information to HMRC. Unfortunately we’ve spotted some benefits due on company vans that could have been avoided.
The van is exempt if it is only used for business journeys which are trips made as part of work or to a temporary workplace. As a surprisingly generous move ‘insignificant’ private journeys are exempt, for example making a slight detour to pick up a newspaper on the way to work.
What is NOT exempt is journeys between home and a permanent workplace such as a builder’s yard. Vans should be left in the yard overnight to avoid a benefit in kind.
Similarly company vans do not need to be declared if they are pool vans. In order to be classed as a pool van ALL of the following conditions must be met:
• available for use and used by more than 1 employee
• available to each employee because they need it to do their job
• not ordinarily used by 1 employee to the exclusion of others
• not normally kept at or near employees’ homes (this is the one that catches people out)
• used only for business journeys – limited private use is allowed, but only if it’s incidental to a business journey, for example driving home to allow an early start the next morning