Cheap accountants

1. Use free online accounting

Pandle is online accounting software helping to save business costs for many small businesses. It’s an online accounting service which has a completely free version which has most features a small business needs from accounts software. It also has a Pro version which comes with automatic bank feeds. We can get Pandle Pro for our clients for just £2.50 plus VAT per month.

With online accounting, you can log in from anywhere to access and update your accounts.  There’s no need to update the software or backup your data because they do this for you. You can give your accountant access to your account, then they can log in at the same time as you, to view, fix, and advise you throughout the year, then easily and quickly produce year end accounts. You should also save business costs on your accountant because you’re making their job easier. See more benefits here .

Why pay hundreds of pounds on software installed onto your computer, or waste hours messing about with spreadsheets that don’t give you many instant reports?

2. Do your own bookkeeping

Online accounting has made it so much easier to do your own bookkeeping, you don’t even need to enter anything. You can either sync directly with your bank accounts, or you can download your transactions from online banking, then upload them to the software. All you need to do is tell the software where to put each transaction. 

You can then produce many useful professional reports as often as you like, helping you run your business smoothly.

Save business costs on a bookkeeping service, by quickly and easily doing it yourself.

3. Use Online accountants

In the age of ‘cloud-computing’ it has become easier and cheaper to set up and run your own business. Some accountants are taking advantage of this, moving from traditional offices to a more cloud-based service. They are probably based away from the high street or even at their homes, communicating online and meeting via videocalls. With much lower overheads, their fees should be much lower, yet you should get the same standard of service if you use fully qualified and experienced accountants. So you save business costs while still getting a great service.

Combined with the use of online accounting, some of these ‘new breeds’ offer a fixed price menu of services, payable in easy monthly instalments. So you know exactly what you will be paying, unlike the more traditional method of charging you by the hour, where the accountant can be rewarded for working slower!

Why pay hundreds of pounds more for an accountant working in a nice high street office?

CloudBook Online Accountants have been online accountants since 2013 and can help you save business costs

  • Fully qualified & 20 years experience
  • Doing everything online to keep our prices low
  • Fixed fees & instant quotes  from £20pm
  • Free help setting you up with online accounting
  • 100% satisfaction guarantee
  • We also do bookkeeping, VAT, payroll, and just tax returns
tax planning

We have updated this tax planning guide for 2022/23 following the increase in the national insurance thresholds. The updates have been highlighted.

The tax year ends on 5th April 2022, so March is a good time to do some tax planning for 2022/23. This guide will help you check you’re not going to pay more tax than necessary in 2021/22 and 2022/23.

Most tax payers will pay a higher rate of tax next year due to a 1.25% increase in both the National Insurance and Dividend rates. So you may want to do some tax planning on or before 05-04-2022 to pay tax at the current lower rates.


Below are some tax planning suggestions to consider for everyone, then for directors/shareholders only. 

TAX PLANNING FOR EVERYONE

Use up Income Tax allowances

To recap, everyone has a tax-free personal allowance. Income above that is taxed at different rates depending on the type of income it is and which band of your income (tax band) that income falls into. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. So if you have a £50,270 salary and £40,000 dividends, all of the salary exceeding your personal allowance uses up your basic (lower) rate band so will all be taxed at the basic (lower) rate of income tax. Then all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends. Except £2,000 which is covered by the dividend allowance so is taxed at 0%.

Unused personal allowances and tax bands are not available to be carried forward. So it is important to check that you are using them to efficiently each year. If it’s possible to increase or decrease your income, you should do some tax planning to save tax. It’s best to use up the lower rate bands and avoid the higher rate bands. Some planning can be achieve this, such as changing ownership of assets. For example, transferring shares of a company and therefore the amount of dividends paid out. Or creating an employment can increase income. The bands and rates for Scottish residents are here, and for everyone else in the UK are below.

Tax Bands

  • £0 – £12,570 Personal allowance
  • £12,571 – £50,270 Basic rate band
  • £50,271 – £150,000 Higher rate band*
  • Over £150,000 Additional rate

Other allowances and bands to consider:

  • £2,000: tax-free dividend allowance per person per tax year. This still counts as income so also uses up your tax bands.
  • £50,000 – £60,000: child benefit repaid – see below.
  • £100,000 – £125,140: personal allowance withdrawn – see below.

The different tax rates for Income and Dividends are as follows:

 2022/232022/232021/222021/22
 IncomeDividendsIncomeDividends
Basic rate20%8.75%20%7.5%
Higher rate40%33.75%40%32.5%
Additional rate45%39.35%45%38.1%

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to do some tax planning to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower limit for the tax year for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits exceed the main threshold (was the lower earnings limit), a fixed amount of NI is payable at £163.80pa (was £158.60pa). Credits for the state pension will still be gained if profits exceed the lower earnings limit.

 Self-EmployedSelf-EmployedEmployeeEmployeeEmployerEmployer
 2022/232021/222022/232021/222022/232021/22
Lower earnings limit£6,725£6,515£6,396£6,240n/an/a
Main threshold£11,908 (was £9,880)*£9,568£11,908 (was £9,880)*£9,568£9,100£8,840
Main rate10.25%9%13.25%12%15.05%13.8%
Upper limit£50,270£50,270£50,270£50,270n/an/a
Upper rate3.25%2%3.25%2%15.05%13.8%

* Average over the year. The actual thresholds are £190 per week until 5th July 2022, then £242 per week.

Avoid earning over £50k


As well as paying higher tax rates, you need to pay back any child benefit received if your income exceeds £50,000 for the year. It applies if either parent receives child benefit and if either parent has a total income of £50k or more. The higher earner will need to repay some or all of the child benefit. You will repay a proportion of it if your total adjusted income is between £50k and £60k. As a result the marginal tax rates are 60% for 2 children and over 70% for 4 children.

If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, you adjust your total income down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted total income within the £50k – £60k band to save tax.


Avoid earning over £100k

When your total income exceeds £100,000 the tax-free personal allowance is gradually removed. You get no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% (i.e. your tax bill increases by 60p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance

A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner. This is provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse

If a spouse, or civil partner, pays tax at a lower rate, consider transferring to them income-producing assets. For example, savings, company shares, investment property. This gives the income to the person paying the lower rate.

Check your bank

If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Pay into savings

The ISA maximum subscription limit is currently £20,000 and there is no longer a restriction on the amount that may be invested in a cash ISA. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor is 60 and used as retirement income, or it can be withdrawn to help buy a first home.

Juniors

Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-free and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.

National Savings

You can invest regular sums into National Savings banks and building societies. Those willing to accept the possibility of greater risk perhaps equalling greater reward might consider other types of accounts. Such as the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions

One of the best tax planning tips is to pay into your pension because you save tax and keep the money for retirement. Paying personal pension contributions currently gives tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. However, employer pension contributions are not limited to earnings but give tax relief to the employer not the employee.

Pension contributions are taxable if the total contributions into all of your pension schemes exceed an annual limit of £40,000 (or less if your total income exceeds £240,000). Any of these unused £40,000 allowances from the previous 3 years can be brought forward and used in the current year if required. There is a lifetime pension limit of £1,073,100.

Consider paying into pensions for family members. The introduction of stakeholder pensions allow contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell some chargeable assets

Take advantage of tax exemptions. Everyone has a yearly capital gains exemption. This exemption is currently £12,300, and gains up to this figure can be made without tax. Therefore, taxpayers should consider realising gains from investments up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.


Realise losses

With regards to shares standing at a loss, consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you wish to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective to buy back the investment, unless he or she waits for 30 days before doing so. In addition, you must take care not to fall foul of anti-avoidance legislation. This prevents loss relief where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.


Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity

Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income. If you make donations, it is important that you tick Gift Aid so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If you plan on making future donations, bring these forward to 5th April to get tax relief at an earlier date.

Check your PAYE code

Check your PAYE tax code number for the following tax year is correct to avoid paying the wrong amount of tax.

Don’t get fined!

There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here.  If you have a second payment on account to pay as a result of the previous year’s tax return, that payment is due by this 31st July.

We can submit your tax return for the year ending 05-04-2022 soon after 05-04-2022, so provide your details to us as soon as possible. The deadline for submission to HMRC is 31-01-2023, however, we need your details by 31st October to guarantee submission by the deadline. Also, the balance of tax due for the year ending 05-04-2022 plus potentially an extra 50% first payment on account is due by 31-01-2023. 

TAX PLANNING FOR DIRECTORS/SHAREHOLDERS ONLY

To recap, it’s important to remember that your company is a completely separate entity from you (director/shareholder), as such, you each pay tax differently. However, the way you take money from your company may or may not affect the company’s tax. So it is important to consider all taxes when you decide how to pay yourself. 

Your company will pay 19% corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. A company usually pays a salary to directors, and has the option of paying out its profit (as dividends) to its shareholders. Your company’s taxable profit includes a deduction for salaries and expenses but not for dividends.

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not expenses or loans. Also, see above for the various tax bands and rates.

Tax planning before April 2022

On or before 05-04-2022 make sure you use up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

In last year’s tax planning advice we advised a salary of between £8,840 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should top up this salary with dividends covering:

  1. any remaining personal allowance (£12,570);
  2. your tax-free dividend allowance of £2,000, then;
  3. your remaining basic rate band of up to £35,700 at 7.5% (above this dividends are taxed at at least 32.5%).

Other tax planning tips for this month

Consider declaring extra dividends on or before 05-04-2022 to potentially pay a lower tax rate on those dividends by 1.25%. However, you need to be careful that you pay tax in the same or a lower band this year compared to next year. For example, the tax this year on extra dividends is 32.5% if your total income is between £50,270 and £100,000. But the tax next year on dividends is 8.75% if you expect your total income to be less than £50,270.

It’s best to have a similar amount of total income from year to year. This is better than than not using up your basic rate band one year, then going into your higher rate band in the other year. For example, you will save tax of about £9k by declaring total dividends of £35k each year, instead of none this year and £70k next year.

You don’t have to physically pay any extra salary or dividends. Instead, you can credit your directors loan account with the amount. Then you can draw out that amount tax-free at a later date. Or the credit will offset what you’ve already drawn out.

The company must have net profit reserves to declare any dividends. Tax applies to dividends in the current year if you approve the dividend and pay or credit the dividend by the 05-04-2022. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

The Changes

Next year, the income tax thresholds and rates remain the same. So the tax-free personal allowance stays at £12,570, and the higher tax rate threshold remains at £50,270. However, there are new National Insurance (NI) rates and thresholds. Employees start paying 13.25% (was 12%) NI on salaries in excess of £823.33pcm (was £797.33pcm in 2021/22) until June 2022, then £1,047.50pcm from July 2022. Directors pay national insurance on an annual basis, so they will pay employees NI if their salary for the year to date exceeds £11,908. Employers start paying 15.05% (was 13.8%) NI on salaries in excess of £9,100 (was £8,840). As mentioned above, all of the dividend tax rates will also increase by 1.25%.

Tax planning from April 2022

We’ve set out below our general tax planning advice on extracting funds from your own company. However, due to the numerous scenarios, which could also change during the year, we may advise you differently on an individual basis.

From 06-04-2022, our advice is that each director/shareholder should take money from the company in the following order:

This assumes you have no other income and there are sufficient profit reserves in the company to take dividends. Profit reserves are accumulated net profits/losses since the company started, less accumulated dividends since the company started.

If you need any specific tax planning advice please get in touch.

Here we explain the 2022 Xero Price Increase. How much Xero’s Prices are increasing. Why Xero’s prices are increasing. Also, the alternatives to Xero. With CloudBook Online Accountants, you can choose whichever software suits you the best.

Xero Price Increase

The Xero Price Increase

Here are the Xero Price increases over the past two years:

PackageStarterStandardPremium
2020 price £pcm102430
2021 price £pcm122633
2021 increase20%8%10%
2022 price £pcm142836
2022 increase17%8%9%
2 Year increase40%17%20%

Why are Xero’s Prices Increasing Again?

Xero state that they are constantly enhancing and improving their product. That the pricing is in line with the value of Xero in the current market. It will help Xero to respond quickly with new tools and services that business might need. Also that it will improve Xero in the future.

Has Xero improved?

In our opinion, Xero is certainly improving all of the time, however those changes are small. Where the changes are not small, they usually come at an extra cost, such as the Expenses or Projects add-ons. The core platform, in our opinion, has not improved enough over the past two years to justify up to a 40% increase in the Xero price over the past two years. Having said that, it is still the best online accounting software for small businesses. So if you can afford to continue using it, you should.

Alternatives to Xero Price Increase

Use CloudBook Online Accountants

With CloudBook Online Accountants, unlike other accountants, you can use whichever software you prefer. We don’t make you use Xero software, so you don’t have to pay their high prices. As well as that, you’ll probably save on accountancy fees too, with our low fixed monthly fees.

Downgrade Xero Plan

To avoid the price increase, could you downgrade your Xero plan? The Starter plan now has unlimited bank transactions and allows up to 20 sales invoices and 5 bills per month. Instead of using bills you could just attach them to the bank transaction. The Standard plan is only missing multi-currency which is only essential if you have foreign bank accounts. If you have few foreign currency transactions you could convert them manually.

Pandle

Pandle is unlimited and comes with multi-currency and bank feeds for £5pcm. We can get it for £2.50pcm. It’s relatively new, sometimes slow, and takes a while to get used to. However, it should cope with most things you use Xero for.

QuickBooks

QuickBooks is our next most popular software after Xero. It does most things that Xero can do and is quite easy to use. Their Simple package is £12pcm, Essentials £22pcm, Plus is £32pcm.

FreeAgent

FreeAgent is geared towards small business and freelancers. Natwest and RBS customers can get it for free. We can get it for our clients for £17.50pcm.

Kashflow

Kashflow is less popular than it used to be. However, if you have straightforward accounting transactions, it can work well for you. Starter is £9pcm, Business is £18pcm or with payroll is £24pcm.

QuickFile

Quickfile is used by a few of our clients. It’s less easy to use but it can be free if you have less than 1000 entries per year, otherwise it’s just £45pa. If you want automated bank feeds, that’s an extra £15pa.

Spreadsheets

If you’re not VAT registered, you could use a spreadsheet (e.g. Excel, Google Sheets, Numbers) to do your accounting. While we prefer online accounting software, if your accounting transactions are straightforward, a tidy spreadsheet would be ok. All transactions need to be categorised.

Our Own Software

We have our own free software which very basically allows you to list your sales and expenditure. It can also submit MTD VAT returns.

Other Online Accounting Software

There are many other online accounting software platforms available. We’ll consider doing your accounts etc using any online accounting software. Look out for ones that can link to UK bank accounts and are MTD compliant. Unfortunately, this excludes Wave accounting which is a free alternative if you don’t need those things.

Dividends are company payments to shareholders from the profits made by that company. If you’re a business owner you’re probably wondering how dividends work for a small company? We’ll explain everything a small company owner/director needs to know about how dividends work.

How dividends work
Photo by Markus Winkler on Unsplash

What Are Dividends?

Dividends are payments by a company to the owners of that company. It is a reward and an incentive for shareholders to buy and continue owning shares in a company. A company can only pay dividends if it has sufficient profit reserves. That’s because dividends are the distribution of a company’s profit reserves to its shareholders. The word ‘dividend’ comes from the Latin word ‘dividendum’ which means something divided. The thing divided is the amount of company’s profit reserves that directors decide to pay. Shareholders receive their share of those profit reserves in the form of a dividend.

What are Profit Reserves?

Profit reserves consist of a company’s accumulated net profits, minus dividends paid to date. Retained profits, or the profit and loss account are other terms to describe profit reserves. The net profit of a company is its sales, minus its costs, minus any corporation tax payable on that profit. Adding this net profit to any opening profit reserves, then deducting any dividends, leaves the amount of closing profit reserves. This happens every year so that you have a running total of profit reserves.

A company must not pay a dividend if it doesn’t have enough profit reserves to cover that dividend. If it does, that dividend is unlawful. Shareholders and/or directors may need to return unlawful dividends back to the company.

Who are the Shareholders?

The total ownership of a company is divided into any number of shares. Shareholders are the people or entities (e.g. other companies), that own those shares of a company. For example a company may have a total of 100 shares. If so, each share would represent a 1% ownership of the company. The shareholders own a proportion of the shares that equal the proportion of the company they own. So if there was just one shareholder they would own all 100 shares or 100% of the company. Two shareholders could own anything between 50 shares each, or a split of 99 shares and 1.

This is a very simple example with one type and class of share, usually called Ordinary. A company can have a very complicated share structure with different classes and types of shares. For example it could have different classes of ordinary shares, such as A Ordinary and B Ordinary shares. It can also have different types of shares such as preference shares.

Directors do not receive dividends, only shareholders do. Shareholders appoint directors to run the company. A company can only pay a salary to directors, and only a dividend to shareholders. That’s how dividends work. However, in many small companies shareholders are also directors.

How much dividend does each shareholder receive?

Shareholders receive a share of the dividend in proportion to the number of shares owned compared to the total. Another way to put it, is that a company pays dividends at the same rate per share. So let’s say there are 100 shares in total, of which Mrs Smith owns 60 and Mr Jones owns 40. If the directors decide to pay a dividend of £10,000, that’s a rate of £100 per share (£10,000 / 100). So £6,000 (£100 x 60) is payable to Mrs Smith and £4,000 (£100 x 40) is payable to Mr Jones.

How dividends work in practice? Part 1

The procedure and advice on how dividends work in practice is as follows: 

  1. First you need to check that you have sufficient retained profit to cover the total dividend. Retained profit is the net profit (after salaries and tax) since the company started. Minus the dividends since the company started. If your accounting is up to date, you can use the Balance Sheet report to find retained profit. Look for Total Equity (minus shares) or Retained Profit or Profit & Loss.
  2. Each shareholder receives a proportion of the total dividend. The same proportion as the number of shares held by each shareholder compared to the total.
  3. It’s a good idea at this point to check the personal tax consequences. A personal tax year ends on 5th April. So a 5th April dividend goes on that tax year’s personal tax return. A 6th April dividend (the day after) goes on the following tax year’s personal tax return. The first £2k of dividends received by an individual in a tax year (5th April) are tax-free. You pay 8.75% tax on dividends in your basic tax rate band (up to total income of about £50k). You pay at least 33.75% tax on any dividends that fall into a higher tax rate band. The current dividend tax rates are here.

How dividends work in practice? Part 2

  1. If you are happy to proceed, you can then either physically pay the dividend with a bank transfer. Or credit it to a loan account by making an accounting adjustment. This would be a manual journal or an expense to dividends using the shareholders loan account. Crediting a dividend rather than paying it will either reduce the amount the shareholder owes to the company. Or increase the amount the company owes to the shareholder. If you are repaying a loan owed to the company, wait 30 days before making any further payments. A payment to the shareholder within 30 days effectively cancels out the loan repayment. Payments to the shareholder from the loan account do not normally have any further tax consequences.
  2. You also need to create documentation as evidence of each dividend, consisting of board meeting minutes and a dividend voucher. We can provide a form to automatically create the paperwork on request (clients only).
  3. Dividends can’t be backdated. However, if you are just catching up with the paperwork for dividends decided earlier, it should be ok.

If you have any other questions about how dividends work, let us know. Our clients receive advice like this included in all of our fixed fee accountancy packages.

Could directors save tax by splitting trades between more than one company? The increase to the employee’s national insurance threshold means more tax can be saved by a director using one company. But would it pay to have two companies both benefiting from lower tax? We’ll explain whether directors can save more tax with an extra company.

save tax
Photo by Jon Tyson on Unsplash

The Tax Rules

First we need to go over the basic tax rules.

Corporation tax

A company pays 19% corporation tax on its net profit before tax, adjusted for some non-allowable items such as depreciation. Salaries, employer’s national insurance contributions, and employer’s pension contributions are all costs of a company, reducing its profit before tax. That means the company saves tax if it pays a salary to a director.

PAYE income tax

While a salary saves the company tax, it can cost the director tax. Everyone receives a tax-free personal allowance each tax year, currently £12,570 (2022/23). So, if a person’s income exceeds this for the tax year, the excess income will be taxed. Salaries are taxed at 20% in the basic rate (income between £12,570 and £50,270).

National insurance

Employees and directors also pay employees national insurance if a salary from an employer exceeds £11,908 (average for 2022/23). The key difference between income tax and national insurance on a salary, is that the income tax threshold is per person but the national insurance threshold is per job. So two salaries of £11,000 will cost the employee income tax but not national insurance.

Employers also pay national insurance at 15.05% on a salary exceeding £9,100. However, as they are saving corporation tax at 19% on the salary, they are still saving about 4% overall.

Dividends

The other way a director can usually pay themselves is with a dividend, if the director is also a shareholder of the company. A dividend is not a trading cost of the company, so it doesn’t reduce it’s net profit before tax. So a dividend doesn’t save the company tax. Everyone receives a tax-free allowance for dividends of £2,000 per tax year. This is on top of the personal allowance on all income of £12,570. Dividends received above these allowances are taxed at 8.75% in the basic rate band, then 33.75% in the higher rate band (total income exceeding £50,270).

The Scenarios

1. One Company – Dividends Only

So, lets say a director has two trades in one company, each making a net profit before the director’s salary and before dividends of £25,000. A total profit of £50,000. The corporation tax on that will be £9,500. The director could take all of the post tax profit of £40,500 as a dividend. If the director has no other income, using up the total allowances of £14,570 results in tax of £2,269 and a net income of £38,231.

2. One Company – Salary and Dividends

As above, but the director takes £11,908 as a salary. Again, assuming there is no other income, no PAYE or employee’s NIC will be deducted. Employer’s NIC on this will be £423, leaving a net profit of £37,669. Corporation tax will be £7,157, leaving £30,512 that can be taken as a dividend. The tax on the dividend will be £2,437. This leaves the director with a net income of £39,983. £1,752 more than in scenario 1.

3. Two Companies – Salary and Dividends

Let’s split the two trades between two companies and take a salary of £11,908 from each one. No employee’s NIC is payable but income tax of £2,249 is payable on the salaries. Each company will pay Employer’s NIC of £422, leaving a net profit of £12,670 and corporation tax of £2,407. That leaves £10,263 that can be taken as dividends from each company. Tax on the dividends will be £1,621. This leaves the director with a net income of £40,472. £489 more than in scenario 2 and with the added benefit of protecting the assets of each trade from the risks of the other trade.

Conclusion

So it can save a director tax to put separate trades into separate companies and take a salary from each. However, the saving may be less than the extra costs associated with running an extra company. There are non-financial benefits such as protecting one trade from another and having a separate identity. So a director would have to weigh up the pros and cons of each.

Starting a business is never easy. Recent statistics suggest approximately one in ten startups fail in the first year, and by year 5 less than half have survived. It’s never too soon (or too late!) to ask an accountant for advice when starting a business, and before starting up is best. For example, it’s not always best to start off as a company, and you could be missing out on a potential tax refund by assuming it is.

Good advice early on can save tax, accountants fees, and quite a few headaches. Not to mention helping you survive the first year, then year two and so on. A couple of the main reasons cited for startup failures are overspending on advertising, and getting the pricing wrong. So it’s crucial that you have a good pricing strategy and that you have, and stick to, a realistic budget. Of course you will need accurate bookkeeping records from the start to help monitor the spending against the budget, and online accounting is ideal for that. As we help many different types of business, our experience can also help you check there are no flaws or missed opportunities in your plan.

Many of our clients received our free advice and free help to setup a self employed business or company, and register it with HMRC. We even setup and train our clients on online accounting for free. Our range of business startup helpsheets below are written in plain english to help you start a business successfully. If you have any questions please contact us. We are happy to advise anyone looking to start a business, or have already done so.

Business Startup Guides

Go to our Resources page, Business Centre, Business Helpsheets, Business Startup Helpsheets, to find the following business startup pages:

It can be a tricky job as a company director. You are entrusted with many responsibilities, and it is only a matter of time before your decisions and answers have to be discussed. For instance, should you loan money to your company? Or should you borrow money from the company with a director’s loan? When it comes to the latter, you first need to understand the exact meaning and risks behind a director’s loan, as it is strictly regulated and should only be used for short-term borrowing. So, let’s go through some information about what a director’s loan involves.

Photo by Towfiqu barbhuiya on Unsplash

What is a Director’s Loan?

When it comes to the director’s loan there are two types: when a director lends money to the company, usually to help with start-up costs and support any cash-flow difficulties. And where the director (or close family member) borrows money from the company that does not include salary, dividends, expense repayment, or money previously paid or loaned into the company. This is known as a director’s loan, and like any loan, you will eventually have to pay off what you borrowed.

What is the Directors Loan Account (DLA)

You must keep a director’s loan account or DLA, which is a record of all the money that has either been borrowed or paid into the company. When HMRC needs to see your annual accounts at the end of your company’s financial year, the DLA needs to be included on the balance sheet. This will then show whether the company is owed money from the director (asset) or the company owes money to the director (liability).

Within your DLA you should include:

  • Cash withdrawals and repayments made by the director
  • Personal expenses that are paid using company money or credit card
  • Business transactions paid or received by the director
  • Any interest changed on the director’s loan

At Cloudbook Online Accountants, we can provide you with a low-cost, proactive cloud accountant. This means all your accountancy is 100% online. This means all your books and monthly accounts are accurate and organised. Saving you a lot of time! Have a look at how we work.

Why Should I Take Out a Director’s Loan?

Taking out a director’s loan rather than a loan from a bank can come with many benefits. For instance, a director’s loan will give you access to more money than you are currently receiving from dividends and/or salary. It is flexible and fast to cover short-term and one-off expenses such as unexpected bills. However, it should be considered carefully and only as a last resort for short-term borrowing, due to being admin-heavy and the potential of hefty tax penalties.

How Do I Take Out a Director’s Loan?

Taking out a director’s loan can be a little tricky and is not as straightforward as some may think. First of all, some loans will need to get approval from company shareholders, especially if you are looking at a loan over £10,000. However, there are some circumstances where you will not need shareholder approval, for instance:

  • The series of loans is less than £10,000
  • The loan is less than £50,000 and is intended for expenditure on company business
  • To fund the defence of civil or criminal proceedings brought in connection with the company

What is the Interest?

When it comes to interest, it is up to your company what is charged on the director’s loan. Keep in mind, if the interest is below the official rate then it may be treated as a ‘Benefit in Kind’ by HMRC. This can sometimes be referred to as ‘perks’, and as a director you may be taxed on the difference between the official rate and what you are paying. HMRC will see a director loan to be a Benefit in Kind if:

  • The loan exceeds £10,000 at any time
  • You’re not paying interest
  • The interest paid is below HMRC’s average beneficial loan rate

If any of these points are relevant to you, then you will be required to include it on a P11D. HMRC pays close attention to accounts that are regularly overdrawn, and if they believe your loan is a salary, Income Tax and National Insurance will be charged.

How Much Can I Borrow?

Whilst there is no legal limit to how much you can borrow, you should take a lot into consideration. For instance, how long can the company manage without this money? How much can the company afford to give you? What are the tax rules? You don’t want to be responsible for your company tackling cash flow problems, and depending on how much you have borrowed will result in different tax rules. For example, if the amount is under £10,000 then it can be borrowed tax-free, but it needs to be repaid within nine months and one day from the date of the company’s financial year end. It starts to get more complicated if this payment is missed, or the amount loaned is higher. In fact, before considering the amount to borrow there are a few extra details you may need to know here.

When Do I Need to Pay Back a Director’s Loan?

As having said previously, a director’s loan has to be paid back within nine months and one day following the company’s financial year end. If unpaid, you could be subject to a 33.75% corporation tax charge (S455 tax). This can eventually be claimed back, however it is an extremely lengthy process. In total there are three ways you can pay back a directors loan:

  • Declare a dividend to the director but don’t pay it
  • Process a salary to the director but don’t pay it
  • Pay cash into the company

Is it Possible to Take Out Another Directors Loan if it Has Been Paid Back?

To take out another loan, you have to wait a minimum of 30 days if you have already paid back the previous. Keep in mind however, it can be seen as bad practice by HMRC if you are paying off one loan just before the nine month deadline, only to take out a new one a month after. This can be considered tax avoidance or ‘Bed and Breakfasting’. So try to not rely on the director’s loans. The rules regarding ‘Bed and Breakfasting’ can be very complex, so we strongly advise having a chat through these rules. If you are looking for more information, then get in contact with one of our friendly team members, who will happily talk you through all you need to know.

What if I Can’t Repay?

Sometimes, we get into an unfortunate situation where you find you do not have the funds to repay the loan within those nine months. Ideally, you will have enough money in the company’s profit reserve

to clear the loan, by taking a dividend equivalent to the loan amount. However, in some cases the company can end up in liquidation, and in extreme cases court or personal bankruptcy.

Overall, this is just a quick summary of what is involved within a director’s loan. To find out more information, get in contact with one of our reliable online accountants who will be able to tell you all about a director’s loan, including the risks and benefits it can provide you.

Cutting costs to improve profits will not necessarily work if the quality of what you offer suffers. However a good financial information system will provide you with relevant information to help you make cost cutting decisions. Using an online accounting so your accountant can help with this and keep the information accurate throughout the year, will also help. The following are proven ways to cutting costs and reducing expenses…

cutting costs

General Ways of Cutting Costs

  • Sometimes, a high volume profitable business could make cost savings
    but the volume of their business actually hides that fact that there is
    room for further cost savings. You need to measure in detail, not
    globally in order to identify all areas you can save costs.
  • It is sometimes necessary to spend money in order to save money in
    the long term. For example, investment in machinery or redundancy
    payments.
  • Controls can help to reduce costs. For example, portion controls, stock
    controls, cash controls.
  • Measuring the efficiency of individuals or departments can identify
    where there is room for improvement.
  • Having budgets helps to identify when costs are out of control of
    something is going wrong. The best way to budget is not “what did we
    spend last year and add 5%” but by starting from zero and deciding what
    you should be spending in each area.
  • The lowest price isn’t always the best price when quality suffers.
  • Changing the sales mix, for example in a restaurant can reduce wastage
    of products with a limited lifespan. A limited menu will help sell more
    of those items.
  • Consider joining a buying group in order to take advantage of
    consolidated buying power.
  • Review all your standing orders and direct debits. Unless these are
    reviewed on a periodic basis, some can continue that you no longer
    want.
  • When making capital expenditure are all sources of finance considered
    including grants.
  • Never sign up at the first meeting. Take time to consider however good
    the deal looks.
  • Always ask for a free trial.
  • Do research to make sure you buy the right product.
  • Always read the small print on order forms.
  • Try to reduce frequency of purchases.
  • See if any items can be outsourced or a subcontractor used to save
    costs.
  • Weigh up the costs and benefits of all items.
  • Take advantage of free consultations from professional advisors.
  • Offer to settle bills early in exchange for a discount when you buy.
  • There are hundreds of grants available for businesses to offset against
    expenditure. Check you’re not missing any. Business Links are a good
    source of information on grants.
  • Many government agencies offer free or low cost business advice when
    you are starting out.
  • Are the advantages and disadvantages of buying outright, HP or
    leasing capital equipment reviewed before each decision?
 
 

Specific Examples of Cost Cutting

And For Some Specific Expenses For Cutting Costs…

  • Labour costs can be controlled by controlling overtime with planning
    and scheduling, labour saving equipment and improved layouts (e.g.
    drive through windows). Improved employee retention reduces
    recruitment costs.
  • Move employees onto yearly hour contracts to improve productivity.
    For example, rather than 48 weeks, 5 days a week, 7 hours a day, change
    the contract to 1680 hours a year. Then you can use staff more in busy
    periods rather than paying overtime. It gives staff blocks of time off and
    they don’t have to sit around doing nothing and being bored.
  • Can any of your staff be moved onto a self-employed basis to save
    employers national insurance costs as well as holiday pay, sick pay and
    maternity pay costs?
  • Phone costs – least cost routing can reduce phone bills by as much as
    40%.
  • A small business could do away with a separate fax line and use a fax to
    email facility whereby faxes appear in your email. Type “fax to email”
    into a search engine and many providers will come up.
  • Advertising – send camera-ready artwork with a cheque for 20% of
    the rate card price and a letter authorizing them to cash the cheque and
    run the advert whenever they have space. Many publications have space
    left they need to fill and something is better than nothing.
  • Consider an appeal against your rates assessment. Many are higher
    than they need be.
  • Rents can be negotiated in times of property crashes. You could ask
    for a lower rent in exchange for a longer lease.
  • Are bank charges and interest payments reviewed for accuracy? There are
    software programs that will do this and consultants who offer a checking
    service?
  • Leasing and interest costs should be reviewed regularly to see if
    better terms can be obtained.
  • Bank Charges
    • Always negotiate the charges with your bank.
    • Use BACS – charges will be cheaper than paying by cheque.
    • Don’t have more accounts than you need.
    • Most banks offer free banking for at least a year and maybe 18
      months to small businesses. Have you considered a change of
      bank?
  • Finally, the largest expense is often tax so use a great accountant who
    will slash your tax bills, will advise you on cutting costs, and one who uses online accounting such as the free Pandle to save you accountancy fees! See Our Prices or get an Instant Quote.

Whilst fiscal responsibility is OK don’t waste all your time looking for ways of cutting costs.

Stock Controls
The costs of holding stock are…

  • The money spent on it that is tied up and could be used
    elsewhere.
  • The risk of the stock reducing in value if it becomes obsolete or
    is perishable.
  • The risk of theft or damage.
  • The cost of storage.
  • Having to manage and organise it.

Stock levels need to be minimized without running out of items so that
you can’t supply what the customer needs. You therefore need a stock
control system to get the balance right.

As such, the best stock level to hold is normally one that keeps the level of stock
necessary to support your normal level of trade. By doing this you will be
able to supply what your customers want most of the time while cutting costs.

Also, the following tips will help with stock control…

  • Produce sales forecasts so that you know what stock levels to hold to
    meet that demand.
  • Speed up your production process as much as possible by
    developing good supplier relationships.
  • If you never run out of stock, you’re probably holding too much.
  • Form reciprocal relationships with non-geographically competing
    businesses to supply each other if you run out of stock.
  • Monitor your re-order levels.
  • Reduce duplication of stock holding that occurs with multiple stock
    holding locations. So try to keep stock in one place as much as possible.
  • Try to buy stock on sale or return, which will allow you to hold more
    stock without any risk or cost. Having a preferred supplier may make
    this more possible.
  • Apply Pateto’s 80/20 law to stock – concentrate on the 20% of stock
    lines that probably make 80% of your sales.
  • Only go for bulk discounts if they are beneficial after considering the
    cost of holding the extra stock.
  • Regular stock takes on the same day each week can help to determine
    usage levels.

If you are VAT registered you may be wondering: What is MTD VAT? When do I have to do Making Tax Digital VAT Returns? And how do I do MTD VAT Returns? MTD stands for Making Tax Digital and we’ll explain all you need to know about it below.

What is MTD?

Making Tax Digital is HMRC’s initiative to get every business and business owner (including landlords) keeping digital records and submitting all tax returns online. The digital records need to be linked to the numbers submitted on the return, so essentially you have to use online accounting software. It applied to MTD VAT returns first but plans are in place to apply it to income tax (2024) and corporation tax (2026). Eventually everyone that needs to submit a tax return will be submitting quarterly MTD tax returns and a finalised one for the year.

MTD VAT

MTD VAT Returns are already required for all VAT registered businesses with annual sales of over £85,000. From 1st April 2022 MTD VAT will start to apply to all VAT registered businesses, regardless of their annual sales.

When do I have to do MTD VAT returns?

As mentioned above, MTD VAT returns already apply if annual sales are over £85,000. Also, it already applies if you have voluntarily signed up for it. For everyone else it, there’s a staggered start, depending on your VAT period and frequency. In a nutshell it applies from the VAT period starting on or after 1st April 2022.

So here is your first MTD VAT return if you submit a VAT return:

  • Quarterly to Mar/Jun/Sep/Dec – June 2022
  • Quarterly to Apr/Jul/Oct/Jan- July 2022
  • Quarterly to May/Aug/Nov/Feb – August 2022
  • Monthly – April 2022
  • Annually – March 2023 or one of the 11 months following depending on which month your annual VAT returns go up to.

When do I have to sign up for MTD VAT?

When to actually sign up for MTD isn’t as straight forward as you would think! You need to wait until your last non-MTD return has been submitted and paid. If that’s by direct debit the payments could be as late as the 13th. So, if you do quarterly returns, sign up no sooner than one month and 13 days after the last quarter end. For existing direct debits to continue working, you need to sign up at least 7 days before the first MTD VAT due date, so that’s 1 month after the first quarter end. So there’s about a 10 week window in which you need to sign up.

How to do MTD Returns

You could spend hours fiddling around with spreadsheets and formulas and ‘bridging software’ to submit your totals to HMRC. That’s after spending hours actually completing the spreadsheets. Or you could use free online accounting software like Pandle. We can get you Pandle Pro with automatic bank feeds for just £2.50 per month. Also, Xero Accounting is easy to use and available from as little as £9 per month (through us). You’ll save so much time using online accounting software, that those prices will be worth it.

We’ve specialised in online accounting software since we started business in 2013. It saves our clients time, it save us time, and so it makes our accountancy fees cheaper (from £20pcm). If you’d like advice on which software to choose and how to use it, please get in touch. We can also sign you up for MTD and do your VAT Returns for you (from an extra £10pcm).

Delving into taxes when it concerns your business can always be a daunting time, and it is not always the most exciting part. However, it always needs to be dealt with at some point. To help you get started, we have gathered a few little tips to guide you on your way.

In this day and age, dealing with taxes can be complex. And whether your business is just starting out, or has been around for a few years, it can always be tricky to establish what is available to you, what you are entitled to, and your financial affairs. Before we get started if you are looking for some in-depth tax-saving tips from online accountants, then have a look at our range of free resources from special tax reports, tax calculators, and tax helpsheets. We can even email these directly to you (promise we won’t spam you).

1. Meet Deadlines and Stay Organised

One of the first and most important tips we can give you is to always meet your deadlines. Organisation is essential to any workplace. Any delayed filing with Companies House paperwork (confirmation statement), HMRC, FCA, and other regulatory accounts, can result in fines and other consequences. For a business, this can have devastating impacts as can affect your credit rating and banking commitments.

There are many documents you need to keep organised when you are running a business and keeping organised will reduce any hassle. It is also a great idea to map out future dates you need to be aware of. For instance:

  • Tax year dates – including any potential changes
  • Self assessment tax return deadlines
  • Tax registration deadlines
  • Tax payment and filing deadlines
  • Aware of any penalties for late payments
  • Any COVID extensions

Furthermore, make sure you always keep a copy of your documents, such as invoices and receipts in a safe place. According to HMRC, these business records need to be kept for six years, so keep them secure and protected. Also, records and receipts are needed from HMRC to expense claims or input VAT amounts, so make sure your business keeps proper supporting records.

2. Claim Anything You Are Entitled To

Make sure you claim anything you are entitled to such as ‘Capital Allowances’ to help with your business rates. Our friendly group of online accountants can talk you through this. Capital allowances can be claimed against taxable profit, meaning you can receive a reduction in capital expenditure such as business equipment. For example, there are:

  • Annual Investment Allowance (AIA)

AIA is available for British businesses, and is a form of tax relief designated for the purchase of business equipment. AIA applies to businesses of any size, and allows an immediate deduction against profits for capital expenditure up to a certain limit. Most businesses can claim on a portion of expenditure to most types of plant and machinery (except cars).

  • Enhanced Capital Allowances (ECAs)

ECAs encourage business to invest in efficient and environmentally friendly equipment. This scheme allows you to claim 100% first-year allowances such as tax relief in efficient technologies. This will not only reduce investment costs, but your environmental impact. All in all, this will improve your cash flow and the time it takes to pay back your investment. However keep in mind, this can only be claimed for new plant and machinery, not second-hand or used.

Make sure you do some research to find out exactly what you are entitled to. There are multiple options out there that will benefit you and your business, to which you are 100% entitled to.

3. Working From Home?

If you are working from home, or a self-employed business owner you may be able to claim tax relief for:

  • Gas and electricity
  • Metered water
  • Business phone call and dial-up internet access

Furthermore, you can claim a fixed nominal sum of £6 a week with no evidence of your extra costs. There can be many generous tax savings for those of you who work from home. So make sure you research and are aware of them.

4. Be Aware of Illegal Dividends

Dividends are payments for shareholders, directors, or investors for buying the company’s shares or stocks. Any company can pay dividends from retained profits after paying corporation tax and have met all liabilities. However, be aware of illegal dividends, or ‘Ultra Vires’. This can occur after declaring expenses based on bank balance rather than profits, yet dividends should only be paid from profits. Unfortunately, this is not unusual and can result in an overpayment and is costly to sort out at a later date.

5. Talk To Us

Of course there is a lot of information out there which is time consuming, as well as being tricky to navigate. Here at CloudBook Online Accountants, we want to make your life easier. We will work with you from the start to the very end of the year and will assist and support you every step of the way. Whether you are a UK based sole trader, small or medium business owner or property investor. We will help get your finances on track and help you stay organised with an easily reachable, friendly and qualified online accountant.

So, we hope you have discovered some new information about tax and your business. Get in contact with us if you have any questions, or are interested in any services from our online accountants.