Archives September 2024

Easy Steps to Set Up a Limited Company in the UK


With over 900,000 new businesses launched in the UK in 2023, entrepreneurship is booming. With 2024 showing similar promise, it’s a great time to consider launching your own business. Setting up a limited company is a popular choice for many entrepreneurs as it offers several advantages, including the right balance of professionalism, personal financial protection, and tax benefits. Though the process might look a little overwhelming, this guide will break it down into critical steps for you.

 

 What is a Limited Company?

A limited company has a legal identity that is completely different from that of its owner. That means your finances are not exposed to any business liabilities. In this structure, shareholders own the company, and directors run it. This limits your liability to the money you have invested in shares, shielding your personal assets if things go wrong.

There are two types of limited companies, including:

  • Private Limited Company (Ltd)
  • Public Limited Company (PLC)

 

Should You Choose a Limited Company?

While it offers several benefits, a limited company may not be the right choice for every business. Consider the following factors:

  • Liability Protection: Guards your personal possessions from business debts.
  • Tax Efficiency: Depending on your income level, you could pay less tax than if you were a sole trader.
  • Professional Image: Having ‘Ltd’ after your business name can add credibility with clients and suppliers.

 

Choose a Company Name

A company name is your first chance to make a great impression. Here are a few things to consider:

  • Unique: Use the Companies House name checker to ensure that the name is not already registered.
  • Appropriate: Avoid offensive or misleading names.
  • End with ‘Limited’ or ‘Ltd’: Unless you’re a charity or have an exemption.
  • Sensitive Words: Some words, like “Royal,” require special permission.

 

Gather Your Information

Before registering, you need the following:

  • Registered Office Address: A UK address for official correspondence.
  • Directors: You need at least one director responsible for the company’s operations.
  • Shareholders: Shareholders own the company. You can be both a director and a shareholder.
  • Share Capital: If there’s more than one shareholder, decide how shares will be divided.
  • Memorandum and Articles of Association: Legal documents outlining the structure of the company.

 

Register With Companies House

After collecting all necessary information, you can register a limited company with Companies House through the following three methods:

  • Online: This is the fastest method to complete registration within 24 hours.
  • Post: It takes about 8 to 10 days, and you must send the completed IN01 form to Companies House.
  • Through an Agent: An accountant or company formation agent can handle the registration for you.

 

Register for Corporation Tax

You must register for Corporation Tax with HM Revenue & Customs (HMRC) within three months of starting your company. You will need your company’s Unique Taxpayer Reference (UTR), which HMRC will send to your registered office. Failure to register before the deadline can lead to penalties.

 

Open a Separate Business Bank Account

It is legally required for limited companies to simplify accounting and bookkeeping. This makes it easier to calculate taxes, track business expenses, and manage cash flow. Furthermore, a separate business account adds credibility to the business, allowing access to loans that would be difficult to get otherwise.

 

Understand Your Legal Responsibilities

Setting up a limited company involves certain legal responsibilities, including:

  • Prepare and submit annual reports to Companies House.
  • File a confirmation statement at least once annually to confirm the information about the company.
  • Submit and pay any corporation taxes due within nine months of your accounting period.
  • Register for PAYE and manage payroll taxes if the company has employees.
  • Register for VAT if the taxable turnover exceeds the threshold.

 

Maintain Accurate Records

Accurate and updated records help with financial management and compliance. These include the following:

  • All income and expenses
  • Minutes and resolutions from the Director’s meetings
  • Changes in shareholding
  • Salaries, benefits, and tax deductions of employees

 

Conclusion

Establishing a limited company in the UK can seem complex, but its benefits often outweigh the challenges. By following these steps, you can start a legally compliant and financially organised business. Please visit the HMRC website for more details.

Once you start your operations, you will need to start filing your company accounts in Inline eXtensible Business Reporting Language (iXBRL) format as part of the Corporation Tax return to HM Revenue and Customs (HMRC). DataTracks professionals, with more than 19 years of experience, can help you prepare error-free iXBRL reports. Contact us at +44 (0) 203 608 8035 or via email at [email protected].



Finance

Paper vs Online Tax Returns: Choosing the Best Option


 

Completing the self-assessment tax return may certainly be a challenging task, but it needs to be completed accurately. You have two main options: the traditional paper form or using HMRC’s online portal. With over 97% of people now filing online, it is clear that many find the digital route easier. Let’s dive into why that is the case and help you figure out which option works best for you.

 

Who Needs to File a Tax Return?

Before diving into the “how,” it is important to figure out whether you even need to file a tax return in the first place. Not everyone has to, so if you are unsure, here is a quick checklist to help. You will likely need to file a return if you have met any of the following criteria in the last tax year:

  • Total taxable income of more than £150,000
  • A sole trader who made over £1,000 (before tax relief)
  • A company director (but not if it is a non-profit organisation)
  • Paid the high-income child benefit charge
  • A partner in a business partnership
  • Have untaxed income from sources like rental properties or savings
  • Have foreign income

Still not sure? The Government’s website can help you check if you need to file.

 

Key Deadlines You Do Not Want to Miss

Missing tax deadlines can lead to penalties and interest on late payments. The following are some important dates to remember:

  • 5th October: Register for self-assessment for the previous tax year
  • 31st October: Submit paper returns
  • 31st January: Submit online returns
  • 31st January: Pay the tax bill for the previous tax year

 

Comparing Online and Paper Returns

1. Accuracy

One of the biggest advantages of the online tax system is the accuracy it offers. The online portal automatically performs calculations and highlights missing information, reducing the chance of errors.

However, using the paper return requires calculations to be made manually, raising the chances of errors. This may result in penalties and fines from the HMRC.

2. Time Pressure

A key difference between online and paper returns is the deadline. For paper returns, the filing can be done up to 31st October, which means you will have less time to compile your reports. However, online tax returns extend the period by an additional three months with a deadline of 31st January. This extra time gives you more flexibility and reduces the stress of rushing to meet deadlines.

3. Ease and Use of Convenience

Filing your tax return online is not only faster but also more convenient. HMRC’s system allows some fields to be automatically filled in, and guidance is available to help you through the process. Additionally, online returns usually take less time than paper returns, so you are likely to receive any refunds earlier.

Paper returns can, however, take longer to complete since they require the use of postal services for delivery. This is another reason why HMRC is trying to promote digital filing through the Making Tax Digital (MTD) scheme.

4. Security

Online filing is more secure. HMRC’s portal uses encryption, multi-factor authentication, and automatic timeouts to protect personal information. Filing through the post, however, can result in documents being lost or intercepted.

5. Environmental Impact

If you are environmentally conscious, filing online is the way to go. Digital filings lower the impact on the environment by reducing paper usage. Conversely, paper filing leads to more waste and additional resources for printing and mailing.

 

Making Your Decision

Determining when to file a paper or online tax return depends on several factors, including technological literacy, deadlines, and security. Filing online is generally faster, easier, and less likely to lead to errors. However, if you prefer a more traditional approach or do not have reliable internet access, paper returns are still an option.

 

Conclusion

Many people are currently filing an online tax return. It is a less stressful process because there are fewer chances for errors, and the due dates are considerably longer. This explains why most UK taxpayers now prefer this method. For additional details, please visit the HMRC website.

iXBRL tagging services: If you are looking for support with iXBRL filing, the team at DataTracks is here to help. You can contact them at +44 (0) 203 608 8035 or via email at [email protected]. 



Finance

A Guide to Determining Your Company’s Size


Managing a business requires compliance with various rules and regulations. Understanding the classification of a company’s size is important to determining the financial reporting standards to be followed. The following blog explores the classification of a company into a micro-entity or a small company and the key differences between the different financial reporting standards.

What Qualifies as a Micro-Entity and a Small Company?

Micro-Entity : This is a company’s smallest categorisation, and it is allowed to report significantly less information than the larger entities. It must file reports under the Financial Reporting Standard (FRS) 105, applicable in the UK and the Republic of Ireland. A company must meet any two of the following conditions to be classified as a micro-entity:

  1. A turnover of up to £632,000
  2. £316,000 or less on the balance sheet
  3. Ten employees or less

Small Company: A small company must report under FRS 102 if it satisfies any two of the following conditions:

  1. A turnover of up to £10.2 million
  2. £5.1 million or less on the balance sheet
  3. 50 employees or less

FRS 105 vs. FRS 102: Key Differences

FRS 105 and FRS 102 are financial reporting standards used to report company accounts. FRS 105 allows the preparation of simplified financial statements for micro-entities in order to save time and effort.

FRS 102 applies to companies that require more comprehensive financial disclosures. These statements include other information that may be useful in formulating decisions by investors, creditors, and stakeholders.

Who Cannot File as a Micro-Entity?

Not all firms qualify to file as micro-entity under the FRS 105. The following types of companies are excluded:

  1. Limited partnerships
  2. Public limited companies
  3. Overseas companies
  4. Unregistered companies
  5. Charitable companies
  6. Qualifying partnerships

What are Statutory Accounts?

Statutory accounts, also known as annual accounts, are compulsory legal documents to be prepared and submitted at the end of every financial year. Companies can file full accounts (which are detailed) or abridged accounts (simplified versions).

  • Abridged accounts enable companies to report the value at the end of the period without the obligation to publish the full year-end data. For example, they do not need to segregate the company’s debtors, creditors, and fixed assets.
  • Filleted accounts allow further simplification by eliminating the profit and loss account when submitting reports to Companies House.

The requirements of statutory accounts under FRS 105 (micro-entities) are:

  1. Profit and loss statement
  2. Balance sheet
  3. No requirement for a director’s report or an audit

The requirements of statutory accounts under FRS 102 (small companies) are:

  1. Profit and loss statement
  2. A balance sheet with notes to the accounts
  3. Director’s report
  4. Auditor’s report (unless exempt from audit)

Choosing the Right Reporting Standard

A company that qualifies as a micro-entity can file under FRS 105 or FRS 102. However, if the business is required to report some accounting treatments, including revaluation of key assets such as property, the only available framework is FRS 102 since FRS 105 does not allow it.

If a company that was previously a micro-entity now qualifies as a small company, it may file reports as a micro-entity for that period. However, if it remains a small company in the following years, it will be required to adopt FRS 102. These changes should be carefully implemented to respond to the relevant financial reporting requirements.

What If Companies File Under the Wrong Reporting Standard?

If companies file under an incorrect financial reporting standard, they will have to file an amendment. This includes furnishing corrected statutory accounts and returns. Amendments have to be submitted to the relevant entities as changes made in the financial reporting standard cannot be submitted digitally. Issuers can download and print the relevant documents to ensure that all amendments are verified and submitted correctly.

Conclusion

Conducting regular reviews and selecting the right reporting standards can prevent potential problems and get the business back on track. You can visit the HMRC website for more details regarding your company’s size and the different financial reporting standards. 

Leveraging iXBRL services can be an ideal solution for those looking to streamline their financial reporting. Get in touch with a DataTracks expert at +44 (0) 203 608 8035 or [email protected] for error-free, compliance reporting.



Finance

How our Sage partnership can help your tax planning


Joining forces with accounting software firm Sage has huge benefits for our customers

Businesses that have a strong handle on money coming in and going out are at an advantage when it comes to being able to manage their cash flow.

That’s why Swoop has joined forces with accounting software giant, Sage: when business owners work together with their accountants and sources of funding, they find they have more levers to pull when their circumstances change.

James Kennedy, Head of Tax at Swoop, says that tax is a fact of business life – but with the right tools in place, business owners can understand how to plan their taxes to minimise exposure and avoid overpayment.

Swoop sat down with James to get some ideas on how to make tax make sense.

Swoop: Why is it that many businesses don’t have their tax planned efficiently?

James: Tax is complex and many businesses do not have the in-house resources to manage their tax positions proactively.

Swoop: How do Swoop and Sage work together to solve this?

James: We have in-house experts that can proactively manage opportunities such as R&D tax credits. Sage’s software makes it easy to access the data you need to make the changes you need to manage your business more efficiently in many ways – not least tax.

Swoop: Have you got any examples of how businesses are leaving money on the table?

James: While most established businesses doing R&D (research and development) already have a long history of successful R&D tax claims, many are now bogged down in enquiries as a result of increased HMRC compliance activity. This can delay expected cash flows or even jeopardise future claims if mismanaged. At Swoop, we are spending a lot of our time helping businesses to successfully resolve their R&D tax enquiries. Other tax savings often missed include Capital Allowances and Business Rates reviews which can often yield significant savings when fully accounted for.

Swoop: Is it worth going through major changes to get a tax incentive?

James: Commercial factors should always dictate major changes to a business. Simply working with a trusted tax adviser should be enough to spot opportunities which those changes present.

Swoop: What about growth? Can you become more profitable without being penalised for making more money?

James: We recognise the strong link between R&D, grant funding and equity raises. Indeed, successful R&D claims often mean that the business is more likely to receive grants and equity funding. This is a direct way to support growth and we hope that our clients go on to have tax liabilities as a result of the substantial profits arising from that growth.

Swoop: There’s a budget coming up – what would you like to see from the government?

James: We were promised no increased taxes on ‘working people’. With a fiscal plan based on increasing tax revenue by over £8.5 billion a year by the end of the parliament, we can expect taxes on wealth. While that may mean businesses share some of the burden, we can only hope that the government will provide certainty on the position and any changes to the rules.

Swoop: Any final tips about what business owners should or shouldn’t do if they haven’t thought about tax efficiency for a while?

James: Speak with your accountant and other partners such as Sage. They can always at least point you in the right direction of a specialist who may be able to advise further on potential opportunities.

Next steps…

Swoop can help you run your business with better cash flow and more tax efficiency. You can check that your business is taking advantage of all the opportunities and incentives open to it by completing this short form.



Finance

Key Changes and Updates in the Draft UK Taxonomy Suite 2025


The Financial Reporting Council (FRC) has published the Draft UK Taxonomy Suite 2025, an annual release to accommodate UK GAAP and UK-IFRS changes. This suite is intended to enhance the quality, relevance, and reliability of financial reports. The changes are open for public consultation until 20 September 2024, and the FRC invites comments from the stakeholders. The following blog discusses a breakdown of major developments in the 2025 Taxonomy Suite and their impact on organisations and financial professionals.

Mandatory Annual Updates

The FRC revises the UK Taxonomy Suite annually to address changes in the environment of business reporting. This year, several mandatory updates are consistent with changes that have been adopted by the UK Endorsement Board (UKEB). Key changes include: 

  • Supplier Finance Arrangements: Some new elements have been added as a result of the changes in IAS 7 (Statement of Cash Flows) and IFRS 7 (Financial Instruments: Disclosures).
  • Lack of Exchangeability: The suite now includes amendments to IAS 21 (The Effects of Changes in Foreign Exchange Rates) for use where the currencies are non-exchangeable.
  • Periodic Review and Amendments: The suite takes into account recent revisions of FRS 102 and other standard (FRED 82 and FRED 84). For example, adjustments in the principles of IFRS 15 (Revenue from Contracts with Customers) have been adopted for the entry point of FRS 102.

 Housekeeping Updates

  To improve the quality of financial data, the 2025 Taxonomy Suite introduces several housekeeping changes: 

  • Employee Information and Ethnicity Breakdown: New hypercubes can be used to disaggregate employee data by sex, gender, and ethnicity.
  • Non-Negative Facts in Accounts: The data type for “Average number of employees during the period” has been changed to a non-negative decimal type. This update solves the error of reporting negative values to improve the data quality.
  • Balance Types: The definitions for some of the balance types have been clarified. For instance, the ‘Past service cost of defined benefit plan’ has been classified as ‘debit’, and ‘Increase (decrease) in net debt’ items fall under ‘credit’.
  • Financial Instruments Policies: Two new policy concepts, ‘Financial instruments classification policy’ and ‘Financial instruments recognition and measurement policy,’ have been added to facilitate disclosures of financial assets and liabilities recognised at fair value through profit or loss.
  • Net Reinsurance Contracts Held Analysis: To prevent duplication and ensure accurate reporting of this standard, duplicate domain members have been renamed.

 Candidates for Digitisation

  The 2025 update emphasises digitisation to streamline financial reporting and enhance accessibility: 

  • Community Interest Company (CIC) Reports and Dormant Subsidiary Exempt Package (DSEP) Accounts: This update adds three new entry points for digital reporting: CIC 34, DSEP 00AA06, and DSEP Agreement. These enable more precise electronic submission, eliminating confusion and increasing the quality of the information.
  • Detailed Profit and Loss (DPL) Restructure: Some variations to the DPL schema were made to improve the integration of extension taxonomies and other entry points. This restructure will not impact the end-users but will improve the taxonomy’s flexibility and usability.
  • Exemption for Discontinued Operations: A new concept has been created to allow entities to exclude their reporting due to discontinued operations. This is also helpful in extensive tagging and viable reporting for organisations going through various transformations.
  • Capital Commitments: It allows issuers to tag multiple commitments individually to provide additional detail in financial reports.
  • Deferred Tax Adjustments: New concepts have been added for ‘Deferred tax adjustments from prior periods,’ giving better clarity for tax adjustments in previous years’ income statements.
  • Deferred Tax Assets: ‘Tax increase (decrease) from unrecognised deferred tax assets’ helps identify and tag the unrecognised deferred tax assets more specifically.

 Extension Taxonomies

 This year, the FRC also plans to update the Irish Extensions Taxonomy and Charities Taxonomy by extending the planned 2025 FRC Taxonomy Suite. 

Conclusion

 The Draft UK Taxonomy Suite 2025 is a step towards enhancing the efficiency of digital financial reporting in the UK. For companies required to file in iXBRL format, these changes offer a chance to update their reporting, enhance compliance with the new standards, and enhance the credibility and reliability of information disclosed.

 Prepare accurate and compliant iXBRL reports for filing CT600 returns with HMRC. Contact our experts at +44 (0) 203 608 8035 or [email protected].



Finance