Company Dissolution

Once you have decided that a company is no longer needed, it can easily be dissolved. You must first ensure that the accounts and corporation tax return for the final period of trading have been submitted and that any tax liability has been paid.

If there is a tax repayment for the final year, you will want to have received that before you close the bank account and dissolve the company. If a company still has money in a bank account on the date of dissolution, you will forfeit that money and it is sent to the government’s Solicitor General. It is a nightmare to get a company reinstated and then recover money from the Solicitor General. So we recommend that you complete your finances first and only then, dissolve your company.

Do not close the company bank account until your tax affairs are settled!

Do close the company bank account before the dissolution form goes in!

If Proactive has prepared the accounts and tax return for the final period of trading then we will be in position to work on the dissolution for you. This normally involves a fee which might be waived in the simplest of cases.

If you want to do this yourself and have an account with Companies House then you can start the process here:

https://guidedfiling.companieshouse.gov.uk/start?t=DS01

The procedure has to allow for legal notices to be published in the London Gazette over a 3 month period. It normally takes around 4 months to have a company dissolved. Once the process has been started, no more forms should be sent to Companies House for this particular company, none whatsoever. If that happens, the dissolution process will be cancelled. You will need to start the whole thing again!

If you need further advice, please contact us.

The 50% Payment on Account Dilemma

It’s normal for some people to make tax payments on account every 6 months

If you’re self employed, or have lots of income from rent, dividends or investments, you may have become used to the pattern of making tax payments every 6 months.

However, the way the rules are structured, it normally comes as a bit of a surprise the first time you encounter the the “payments on account” regime. PoA for short. If most of your tax is paid under PAYE you won’t need to worry about this. The rule is twofold:

  • If your PAYE tax deduction (and any sundry tax deduction) is more than 80% of your total tax bill, then PoA do not apply.
  • If your total tax payment for the year comes to less than £1,000 then PoA do not apply.

In all other cases, individuals (but not companies) will have to pay an instalment of tax every 6 months, on 31 January and on 31 July. And that normally applies to people who are self employed or have lots of income from rent, dividends or investments. The best way to explain this is to give you an illustration, based around the chart below. Let’s say that. . .

  • your taxable income first arose in the tax year 2015/16
  • your 50% payments on account are based on the previous year’s tax bill
  • as the previous year’s tax bill (2014/15) was NIL, you made no PoA on 31 Jan 16 and 31 Jul 16
  • when your tax return was finalised, your 2015/16 tax bill came to £999 and you paid that on the normal due date of 31 Jan 2017
  • that amount was below the £1,000 limit and so your PoA for 31 Jan 17 and 31 Jul 17 were also set at NIL
  • and then you go and have a really good year in 2016/17

  • so good, that your 2016/17 tax bill comes to £8,888
  • now you’re caught
  • not only do you have to pay the 8,888 on the normal due date of 31 Jan 2018, but the PoA kick in at the same time
  • the first instalment of 4,444 for 2017/18 is due on the same day – 31 Jan 2018 – in this illustration that’s going to lead to a single payment of £13,332
  • and another £4,444 is going to be due on 31 Jul 2018
  • if the payments on account of £4,444 and£ 4,444 are not precisely right for 2017/18 then a TBA adjustment is made on 31 Jan 2019
  • that could mean more tax to pay, or a tax repayment
  • and the next 50% instalment will also be due on 31 Jan 2019, and so on

It sometimes looks like you have to pay 2 years worth of tax in the space of 6 months. It has often been said that “if you’re self employed you don’t pay tax for two years”. That’s sort of true, but then it all catches up with you and you end up paying two years worth of tax in the space of 6 months.

We know what you’re thinking and we’ve heard the message before. You can contact your MP here (use the search labelled “Find an MP by postcode”). We simply have to follow the rules!

The only way to keep things under control is to regularly put aside a tax reserve and to do your accounts and tax return soon after 5 April every year. Then there should be no nasty surprises.

Lettings Accounts Checklist

We prepare individual summaries for each rental property. In the case of multiple properties the figures are combined for inclusion on a self assessment tax return. Please therefore prepare a separate set of records for each of your rental properties.

Where you have a mortgage on a property it is crucial that we have accurate details. All UK lenders issue a 5 April certificate or a 5 April mortgage statement precisely for the reason that your accountant will ask you for one. They know that these figures are required for self assessment.

If this information cannot be obtained, then we cannot prepare your lettings accounts and we cannot prepare your self assessment tax return. It’s as simple as that, no ifs, no buts, in the past we have lost clients over this issue, and that’s fine by us. You need a lender who is going to help you keep onside with tax law. If you’re not happy with your lender, complain to them, and then (if you have to) refer them to the Financial Ombudsman.

Please follow this guide carefully and let us have the information and the documentation detailed below. For self assessment purposes the tax year started on 6 April (more than one year ago) and ended on the 5 April which has recently passed.

Bank/Finance House items

• A copy of a loan interest paid certificate for the whole tax year.
• If the lender cannot provide a certificate, please let us a copy of a detailed analysis from your lender showing actual loan repayments made, stating clearly how much represents a repayment of capital and how much is a payment of interest.

Income items

Records of all rents received. That could be any one of the following:

• Copies of all rental invoices issued.
• Copies of all statements from your lettings agent.
• Other records which clearly show all monies received.

Expense items

Any combination of the following:

• All supplier invoices addressed to you as a landlord.
• Copies of all statements from your lettings agent.
• Other receipts and expense vouchers which support your other rental outgoings.
• Where documents are not available please let us have a note of the nature of the expense and the amounts paid. This should apply only in exceptional cases where (for example) the tenant has left and has taken the council tax bill, and you have had to pay some later instalments of council tax yourself.

If you are unsure about any of these points please feel free to call us.

Annual Accounts Checklist

This is a checklist for annual accounts work on companies and on self employed businesses. If we perform the quarterly bookkeeping for you, then this checklist is not needed.

Please let us have the following documents covering the whole trading year.

Bank/Finance House Items

• Copies of all business statements on current accounts, deposit accounts and loan accounts. Copies of all business statements on credit cards, commercial cards and PayPal accounts etc.
• Loan agreements for any new loans taken out during the year, showing (a) a simple analysis between the loan capital and the interest due and (b) a schedule of payment dates including any variations in the first or the last payment.

Bookkeeper’s Reports

• Trial Balance
• Draft Profit & Loss Account
• Draft Balance Sheet
• A detailed analysis of all debtors and all creditors on the Balance Sheet

VAT Reports (if registered)

• Copies of all VAT returns for the quarters spanning that whole trading year
• If the VAT quarters are not aligned with the trading year end, then copies of returns for 5 quarters will be needed so that we can see the picture for the whole trading year.

Year End Planning

Can I reduce my tax bill?

Can you reduce your tax bill? It depends! What does your business plan say? Ultimately you want to be paying lots of tax, more than you can imagine, because if you were, then just think how much profit you’d be making!

So before we examine how to reduce tax, you should examine how to make more profit in the medium to long term. How is business going? How much impact do your regular planning sessions make? Do you leave things just until the year end, and only review them once a year? And if so why?

A pragmatic business will consider things more often. Anyway, here’s a “once a year” guide for those who need it. These measures may help reduce or postpone profits (and therefore taxes), but you still need to bear in mind whether this is appropriate commercially. If you are going to talk to the bank about a loan, then you might want to increase profits and not reduce them!

In order to make the accounts look good and minimise any tax liability, you can consider the following:

Chase debtors in order to get payments into the bank account now. A good bank balance on the year end date helps.

Is there enough money in the bank to cover the tax forecast you have? Consider how much money you have taken out of the company. Ignore salary and reimbursed expenses for the moment, and just think about additional drawings. If the additional drawings exceed your net profit, then you may have taken out too much. HMRC charges income tax on a personal “benefit in kind” if your company is providing you with (what is in effect) an interest free overdraft. If this is likely to be a problem, you may want to consider injecting some cash into the company bank account before the year end date. The important thing is to have a healthy balance sheet on the year end date.

If you can legitimately delay issuing invoices to clients this month then do that. Issue them in the first month of the next trading year. Depending on the accounting treatment, that may put potential taxable profit into the later trading year and delay the tax liability for a further twelve months.

Ensure that you, and any of your staff, prepare expense claim forms for all expenses incurred by the end of this trading year.

Bring forward any anticipated expenditure on major purchases. For example, if you were planning to buy a new computer early in the next trading year, buy it this month so that tax relief can be claimed sooner. This can be beneficial, even with more mundane items of expenditure. If you are about to replenish anything, incur the expenditure now, before the year end! Each item on its own may not be much, but they soon add up and they make a difference.

Tax relief cannot be claimed for holding stock. Do not buy more stock this month, wait until next month. If you sell goods as opposed to services, or if your business is a mix of goods and services, then you need to plan a stock take for the last day in the trading year. A stock take is going to be easier if you aim to have as little stock as possible around the year end date. Tax relief can only be claimed for stock which has been sold so there is no point holding onto any more stock than you really need to!

Look at the bad debts that have arisen during the year. If any of these debts are more than 6 months old, write them off now and claim bad debt relief. Prepare a further copy of the original invoice and (in red ink) write across it “Bad debt relief claimed” and write the date that you made the decision. You have to make that decision before the year end date. In order to qualify for bad debt relief for both corporation tax and for VAT, you must write to the debtor stating that you consider the debt to be irrecoverable and you are claiming bad debt relief.

Consider any invoices that have been issued which may give rise to a credit note. To the extent that you can predict the need to raise a credit note, do it now before the year end.

Do a ratio analysis. Ratio analysis is exactly what HMRC does, so it’s a good idea if you do it before they do. Compare your own profit and loss forecast for this current year with the formal accounts for last year. Think along the lines of “are my travel costs this year in line with last year”? If expenses in the current year are significantly higher than the year before, you need to be ready to explain that extra cost in the event of a tax office enquiry.

Likewise, if one expense category in the current year is significantly lower than last year you might have missed some expenses. Think about anything that could have been overlooked and which needs to be put through the books . . . in these last few weeks . . . before your year end.

All these things should already be in the “plan, do, review” section of your business plan. What does your business plan actually say?