The following is a report that we produced for a prospective new client who wished to trade from a new night club.
The limited company is able to reclaim six months before the start of the trade (I think you said that your first day of trading is 25 February 2010) that is 25 August 2009 for service rendered. There is no precise definition of what constitutes services but these include items like petrol travel mobile/landline and general car usage. Quite obviously these are incurred by the person i.e. you and so you can expect the company to reimburse you when it has the funds in the bank account. According to Revenue and Customs “you are able to claim travel expenses from your company and it can then claim corporation tax relief (only when reimbursed by the company) in its accounts but in order for you to be personally not taxable on these expenses these must be incurred wholly exclusively and necessarily for the purposes of the trade. Faced with this inequity the Revenue have stated that in these circumstances these expenses do not become personally taxable.
(B) Goods//plant and machinery/long-life assets
The rule is that you are able to claim for these under several different qualifying schedules and going back for several years. Please advise:
CA 45300: The company can claim 100% qualifying expenditure if expended on a qualifying building i.e. being an unused commercial building or structure before the conversion or renovation began meaning that the building must not have been used for anything else for at least one year before conversion began. (A commercial building is one which is used for the purposes of the trade).
CA 23084: 100% tax relief can be claimed on the expenditure on the provision of plant or machinery spent wholly or partly for the purposes of a qualifying activity (a nightclub is) and that the person incurring the expenditure owns the plant and machinery. For the limited company to justify ownership of all assets there must be a written agreement in place whereby the limited company buys all these assets from you and the accounting entries are to credit your loan account and to then debit the various asset classes of the limited company. At some stage in the future the company when in funds can reimburse you personally: that is crediting the bank account and then debiting the loan account. I do not believe that it is wise for a limited company to personally own the lease of the premises and so advice can be sought from your solicitors on this point.
Annual investment allowance qualifies for 100% tax relief and consists of computers/office furniture/equipment/vans/lorries/integral features of the building (CA22320) fittings for kitchen/building, gaming machines etc.
Obviously in goes without saying that a limited company can only reclaim input vat with bona fida purchase invoices.
Minimum Bookkeeping Requirements
The cash book must be written up diligently cross referenced and agreed monthly to the company bank statements. This is in the interest of the company and you personally. You can either appoint a bookkeeper to complete this or our firm can complete this task on behalf of the company. I would strongly advise that as much as possible to make the company a bank job. What this means is that you keep any expenditure that you make on behalf of the company to a minimum. Each time the company incurs an expense then pay in advance a lump sum into the company bank account to meet the expense (assuming the company does not have adequate funds). In this way the financial accounts of the company do not have to (also) be reconciled with a cash account as well as a company bank account. There is also a much better audit trail of transactions of the company making its preparation of accounts much easier and therefore more competitive to prepare.
Purchase/sales invoices must be written up so as to reclaim and declare quarterly vat or to pay on a scheme (subject to a meeting).
For many company directors this becomes merely an add on service and not very important. However it is of paramount importance and it is far better if you can decide at the outset what minimum monthly salary the directors of the company can have (and should be accompanied by director’s service contracts). You must declare monthly or quarterly what the tax, national insurance for the company is and pay this amount to Revenue and Customs. You must now open an account withbillpayments.gov.uk/hmrc and once the liabilities for tax and NIC are computed must be paid by either debit or credit card (but with fees payable). From May 2011 there will be fixed penalties chargeable for the year before for late/no payments and will be based on how many times the company was late in the year before.
Please remember that as a director of a limited company you have a responsibility for the affairs of the limited company but also for the persons employed by it of which you’re good self as director is one.
I hope that the above provides useful information for you if trading through a limited company and perhaps we can meet up quite soon.
You may find it of interest to read (now that you are a director of a trading company)www.hmrc.giv.uk/manuals/bimmanual/BIM300000 so as to gain information of what is and what is not allowable for tax.