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By Cheaper Accountant, Jun 6 2017 06:00AM

We previously gave a short introduction to the Director’s Loan Account and what this is used for. It is fairly common for owner Director’s to invest their own cash into a limited company, especially during the early years and this might be to buy stock for example to get the business started. A question that is often asked is how do I repay myself this loan and do repayments attract any tax? This blog post will address these specific issues directly and provide answers to what is a commonly asked question. The comments below will consider a director’s loan made by the director to the company and is currently owed to the company.

Repaying yourself from the limited company

It is a fairly simple process to extract cash from your limited company to repay you for the cash that you have previously loaned to the company. We recommend that you take the following steps:

1. Understand how much you are owed by the company – taking more than the sum owed to you can have tax implications

2. Check that the company has sufficient cash to repay you

3. Then simply complete the bank transfer to action your repayment

What about taxes?

The good news is that there are no tax implications of receiving a repayment of a loan you have made to a limited company. You can repay yourself the outstanding balance in full and this then doesn’t need to be declared by you as income for income tax purposes.

Repaying any loan is often the first step you should take before taking any dividends from the company as dividends are taxable income under the dividend tax rules.

Does the company need to make a profit?

The company doesn’t actually need to make a profit before you can be repaid a director loan. As long as the company has sufficient cash to repay you then a repayment can be made.

By Cheaper Accountant, May 15 2017 07:00AM

We often complete work for clients who run a business via eBay or simply make a large number of online sales with customers making payment via PayPal. The question that is asked time and time again is how do I account for PayPal transactions? This blog article has been written to assist the readers of our blog in resolving this conundrum. The answer is relatively simple and you’ll be relieved to hear that it doesn’t involve hours of extra work and extensive additional bookkeeping duties.

Do I need to record every single PayPal transaction within my accounting software?

This is the good news that you’ve been waiting for and the quick answer is: no you don’t need to record each and every PayPal sale alongside the associated PayPal fee.

You can access detailed records of all sales by simply logging into PayPal and then running a transaction report for the desired date range. There is no requirement for all of this detail to then be manually entered line-by-line into your accounting software. You already have the necessary accounting records and there’s no onus on you to record all of these details twice.

So how do I record the income and fees within my accounting software?

We suggest that you run and extract a transaction report from PayPal at least monthly and then follow the steps below:

1. Extract the transaction listing into a spreadsheet and then save this

2. Sum all sales income for the month in question

3. Sum all PayPal fees for the month in question

4. Enter the monthly sales income total into your accounting software

5. Enter the monthly PayPal fees total into your accounting software

The above steps ensure that the income is recorded for the month and when your accountant comes to prepare your accounts at the end of the 12 month period he or she will be able to see the correct sales figures.

The above task involves a little effort if you are VAT registered as you will also need to record the VAT.

By Cheaper Accountant, May 9 2017 08:00AM

The question posed in this blog update is one that we are asked by clients from time-to-time. When a company, which may be a sole trader or a limited company, is registered for VAT the expense for company purchases alongside the VAT are separately recorded and itemised and then the VAT portion of the invoice the company has paid is claimed on the VAT return for the quarter. This is the practice that a large number of clients are familiar with and is the basis of accounting for VAT to support and facilitate the VAT return. However, what do you do if you’re not registered for VAT?

Recording expenditure details when not registered for VAT

Well, you’ll be pleased to hear that the process here is very simple. All you need to do is simply record the gross value of all purchases (or company expenditure). The gross value is the total paid including VAT. There is no requirement to separately identify and record the VAT.

If you were to record the VAT this is likely to result in the understatement of expenditure as the VAT amount when recorded as a separate line item within all of the major accounting software solutions would result in a debtor (an amount owed to the company) on the balance sheet and indicate that the sum needs to be reclaimed from HMRC within a VAT return. Obviously this would be incorrect for anyone who is not VAT registered.

What if I subsequently register for VAT?

We don’t see any major issues under such circumstances as there are a fairly limited number of expenses that can be reclaimed retrospectively. Nevertheless, we do advise all clients to maintain adequate records of all invoice paperwork to ensure that the VAT on previous expenditure can be claimed under the limited circumstances that are endorsed by HMRC.

If you are interested in reading more about retrospective VAT claims then take a look at our earlier blog post and click on the link provided.

By Cheaper Accountant, May 3 2017 05:55AM

This article has been written as a follow on from the last time we updated the blog and provided advice to the readers of our blog on the motor expenses – full cost method. Today we are addressing our sole trader clients and this blog post has been written with them in mind. If you operate a limited company then this article doesn’t directly relate to you and a different set of rules will need to be followed and applied to what is outlined below. The personal use of a limited company asset such as a company car is a very different topic all together and crosses into the territory of a taxable benefit.

What are Capital Allowances?

Capital allowances are used to allow a business owner to deduct the cost of using an asset for business purposes, such as a motor vehicle, across a number of years. Rather than using the full purchase cost of the asset as an expense against taxable profits, capital allowances are permitted to be used to reflect the decline in value of the asset over a number of years.

Business Use vs Private Use

You will need to accurately understand and calculate your business use and private use of any asset. Continuing with the example of a motor car used during the course of business: let’s assume that it is used 50% of the time for business mileage and 50% of the time for private or personal mileage. This would result in a 50% reduction to the capital allowance claimed.

How are Capital Allowances Calculated?

You purchase a motor vehicle for £10,000 with CO2 emissions of less than 130g/km and as such qualifies for a writing down allowance of 18%. The vehicle is used 50% of the time for business and 50% of the time for personal trips.

Step One – Calculate the Full Capital Allowance

£10,000 x 18% = £1,800

Step Two – Reduce by private use factor

£1,800 x 50% = £900

Step Three – Record as an expense against company profits

The figure of £900 can be recorded as an expense reducing the sole traders’ taxable profit.

This blog has presented a simple example and explanation of the capital allowances that apply to reflect the cost of a sole trader using a motor vehicle during the course of business. This isn’t always a simple process in practice and if you need help with your capital allowances or other accounting matters then don’t hesitate to contact us.

By Cheaper Accountant, Apr 18 2017 06:00AM

Sole traders who operate a vehicle for work purposes will have a choice to make between applying the current mileage rates or applying the full cost method. This blog post will explain how the full cost method works and how to apply this in practice. We previously blogged about the mileage rates that can be used to calculate the cost of all business mileage and these details won’t be repeated here, although we have provided a link to the previous blog post above. There have been no changes to the mileage rates stated and these are the current rates.

Methods for calculating the cost of motor travel

Essentially, if you drive your own car for business you can record the cost of this and doing so will reduce the amount of tax you pay on your sole trader profits.

There are two methods available for capturing the cost of business related travel within your own car. These are:

i) the mileage method – which includes multiplying the number of miles travelled for business by the approved mileage rate

ii) the full cost method – this aims to calculate the full real cost of the business travel within your own car

Full Cost Method

The full cost method is simply as it sounds and involves calculating your full car cost or expense for the year. The following steps identify how the business cost is calculated:

1. Add together all of your car expenditure during the year, which could be petrol expenses, the costs of services and repairs or even an MOT

2. Multiply this total cost by an appropriate business percentage to give the business proportion of the total cost


Let’s say that the total cost of all car expenditure for the year was £2,000 and you drove the car 50% of the time for business.

Your business expense would be: £2,000 x 50% = £1,000

Mileage Log

We strongly advise all clients who are applying the full cost method to keep a detailed mileage log to identify all business and private trips made in the car. This prevents clients falling foul of HMRC should they face an inspection at any point.

Is this the best method for me?

This is a good question and the mileage rates may be better for many sole traders due to the simplicity of the method.

However, the HMRC approved mileage rates are not adjusted for larger vehicles, such an SUV, which tend to use a lot more petrol and are often repaired with more expensive parts. If you drive a larger and more expensive vehicle you may well benefit more from using the full cost method.

Capital allowances and tax relief

The full cost method allows you to claim capital allowances for the purchase price of the car you use and this will be explained in detail in our next blog update.

By Cheaper Accountant, Apr 5 2017 06:00AM

Even though there are changes to the dividend tax due to come into effect in the not so distant future, the strategy of paying yourself a low salary topped up with dividends from your limited company remains the lowest tax method of extracting income from a limited company. So the strategy to pay yourself remains the same but this blog article will explain how much you can pay yourself without incurring any income tax and national insurance charges.

With a new tax year quickly approaching (6 April 2017 to 5 April 2018) it is timely to update the readers of our blog on how much to pay yourself in salary from your limited company during the 2017-18 tax year.

The good news is that the monthly sum that we recommend you pay yourself has increased to £680 a month (up from £670 a month during 2016-17) which results in an annual director’s salary of £8,160. You should then pay yourself dividends on top of this low level of salary.

At this level of salary you won’t have to pay employer or employee national insurance contributions and no income tax will be due to be paid to HMRC on the wage you receive. The dividends you receive will be subject to dividend tax but the tax-free dividend allowance of £5,000 will apply during 2017-18.

The total director salary of £8,160 is less than the personal allowance for the 2017-18 tax year but don’t be tempted to pay yourself up to the personal allowance as you will then end up paying more tax. If you pay up to the personal allowance you will be liable to pay national insurance contributions that can be avoided at the £8,160 salary level.

The following gives an approximate breakdown of what tax will be due on an overall director income of £45,000.

Gross Salary £8,160

Dividends £36,840

Total Income £45,000

Dividend Tax £2,140

Total Tax £2,140

Income After Tax £42,860

The above strategy results in a take home pay of £42,860 or 95% of total income. The tax you will pay is far less than being paid in full via the PAYE tax system.

By Cheaper Accountant, Mar 9 2017 07:00AM

The Government has just announced further changes to the dividend tax system during the budget that will impact all limited company Directors who pay themselves via a combination of salary topped up with dividends. Paying a low salary to a director from a limited company and then paying dividends afterwards if a popular method of reducing income tax and in particular National Insurance charges but this due to get bit more expensive.

There have been a number of changes to the dividend tax system with the scrapping of the dividend tax credit and the introduction of new dividend tax rates. Yesterday’s budget announcement means that things are set to change yet again.

What are the changes?

The main headline change announced was a reduction in the tax-free dividend allowance from the current amount of £5,000 down to £2,000. This is a significant decrease and will result in more tax being paid by the owners of limited companies and will impact a number of small businesses across the UK.

The reduction will come into effect during April 2018.

The increased cost to a basic rate taxpayer is expected to be £225 per annum.

Why is the change being introduced?

The current Government has made changes to bring the tax paid by director-shareholders closer to, or more in line with, the tax paid by regular employees.

What should I do about this?

The impending change to the tax-free dividend allowance raises the prospect of maximising the use of the current year’s tax free allowance rather than leaving profits within a limited company.

The change doesn’t alter the current strategies for minimising tax on income extracted from a limited company as there are still significant gains with regards to reduced National Insurance payments when receiving dividends.

As with all changes to the tax system more detailed guidance will be released closer to the time of implementation and we will endeavour to update the blog to reflect this as and when needed.

By Cheaper Accountant, Mar 1 2017 12:35AM

If a limited company director is late with the statutory company filings, for example the confirmation statement and the company accounts, to Companies House this may result in the limited company being dissolved or struck off by Companies House. Once the company has been dissolved under these circumstances there a number of steps that must be undertaken to restore or reactivate the limited company.

Why has my limited company been dissolved?

Companies House generally use their statutory powers to strike off or close a limited company if they suspect that the company is no longer active. They may reach this conclusion if you:

1. Fail to file the Confirmation Statement on time and this is long overdue

2. Fail to file the Company Accounts on time and these are long overdue

What are the consequences?

If your limited company has been dissolved you are very likely to find that your company bank account has been frozen and won’t be able to access any cash held within the account.

Another significant consequence is that you as a director will become personally liable for all company debts if you continue to trade after the company has been dissolved. You will not benefit from the limited liability protection that a limited company offers.

How do I restore my limited company?

There are a number of steps that you need to take to restore your limited company and these are explained below:

1. Complete Form RT01

2. Enclose a cheque for £100 made payable to “Companies House”

3. Complete the outstanding Confirmation Statement

4. Complete the outstanding Company Accounts

5. Enclose payment in full for any fines that have been issued by Companies House which remain unpaid

6. If the company has any assets at all you must apply to the Government for a Waiver Letter to demonstrate that you have the Crown’s written consent to restore your limited company.

The form you need to complete this can be found here and you will need to enclose payment of £64.

7. Once you have all of the above documents ready you will then need to post them to Companies House at the following address:

Companies House

Crown Way


CF14 3UZ

If you find yourself needing to restore a dissolved limited company feel free to contact one of our accountants and we generally assist clients with this free of charge.

Note: if you need any accounts or confirmation statements to be completed then there will be a charge for us to complete this work.

By Cheaper Accountant, Feb 15 2017 07:00AM

We see some confusion from time-to-time relating to the need to register as an employer and in turn operate PAYE and complete RTI submissions to HMRC. You must register as an employer if you meet the conditions requiring registration. However, not all companies need to register as an employer and you could be paying your accountant to complete the company’s monthly payroll and RTI submissions when this isn’t actually needed.

What triggers the need to register as an employer?

If your company pays you or another employee a monthly salary of £486 a month (during the 2016-17 tax year) or more then you will need to register as an employer. This is sometimes referred to as the employer registration threshold.

The above assumes that the employee(s) in question are only employed by your company and they are not receiving a pension or other taxable benefits.

What this does mean is that you can pay yourself or another employee £485 a month and then you avoid needing to register as an employer and you don’t need to pay your accountant to operate PAYE for you and you don’t need to pay your accountant to submit monthly RTI returns to HMRC.

How do I register as an employer?

If you need to register as an employer this can be done by clicking on the following link and then simply entering all of the details requested:

Once you have registered as an employer HMRC will post you your employer reference number and tax office reference number. You or your accountant will need these details to complete your company payroll and RTI submissions to HMRC.

By Cheaper Accountant, Feb 14 2017 06:39AM

The VAT Flat Rate Scheme is due to change in April 2017 and the changes will dramatically reduce the benefits or gains associated with operating the Flat Rate Scheme for many small businesses across the UK. The Flat Rate Scheme has been used by many businesses a method of boosting income by charging VAT of 20% on customer invoices and then paying a lesser % to HMRC and simply pocketing the gain. This is all changing and for many businesses it simply won’t be worthwhile operating the scheme in the future.

What is the Flat Rate Scheme?

The Flat Rate Scheme is a VAT scheme that small businesses can sign up to and the aim of the scheme is to offer small businesses a simplified and less burdensome approach to calculating and paying VAT to HMRC.

The scheme allows small business to charge 20% VAT on all invoices issued to customers and to then pay HMRC a reduced percentage of the total income received. If you are a management consultant, for example, your flat rate percentage would be 14%.

This means that on a £100 invoice you would add VAT of £20 (being 20%) and you would then receive total income of £120. You would then pay HMRC 14% of £120, being £16.80, resulting in a gain of £3.20.

These gains could add up across a 12 month period.

What is changing?

From 1 April 2017 small businesses with a low cost base will be impacted by the changes to the Flat Rate Scheme. This will affect many businesses that offer services and this could be anyone contracting, freelancing or providing consultancy services via a limited company or as a sole trader.

If you spend less than 2% of your turnover on goods (not services) per annum then you will be classed as a “limited cost trader” and you will be impacted by the changes.

Furthermore, if you spend less than £1,000 per annum on goods, regardless of your level of turnover, you will be also classed as a “limited cost trader” and you will be impacted by the changes.

If you fall into any of the above categories you will need to pay HMRC VAT at a rate of 16.5% of total income from sales (or turnover).

So if you are a management consultant, continuing on from the example proved above, you will need to pay HMRC 16.5% of the £120 you receive from your customer resulting in VAT due of £19.80, which leaves a gain of only £0.20.

As you can see from the example above the changes can result in major reduction in income and it hardly seems worthwhile operating the scheme post March 2017.

If you want to discuss any of the changes further then feel free to email one of our cheap accountants at