Frequently Asked Questions >

We have provided you with some frequently asked questions and answers. Should you have any further queries, please do not hesitate to contact us for further advice.

For small business topics, please click here

Tell me about Company Directors and the Company Secretary.

Having chosen a company name the first decision that you will face is who to choose as a Director and Company Secretary.

The Director is easy, that will be you, the contractor. You may appoint additional directors if you wish, although this is not a legal requirement.

Having a company secretary is a legal requirement and their duty, in theory, is to ensure accurate completion of all statutory documents. In practice this role is fulfilled by us, your accountants, so normally the spouse or partner is appointed as secretary. However, it is also normal practice for accountants to hold this position as they do the work anyway.

Whatever your wishes we will be happy to oblige.

top

How should I allocate shares?

The share holding is the second decision you will face. The share holding of the company will affect the split of any dividends you declare. The dividends are paid in direct proportion to the number of shares held by each shareholder.

Anyone can be a shareholder and they don't have to be an officer of the company. As a general rule it is best to split the share holding, so as to avoid paying tax at the higher rate (40%). A spouse or partner who does not earn is an ideal choice.

However, there are currently implications with this, especially regarding rules around the settlement rules (S660A), so we can advise specifically in this area and provide tailored advice to suit your particular situation.

top

How much salary should I draw?

When deciding what salary to take from the company there are several things to consider:
Do you have a pension to which you contribute? If so, your salary will depend directly on the amount of contributions you make.

Do you need to ensure that reasonable levels of National Insurance are paid? If for example if you are approaching retirement and are eligible for a state pension you would be wise to maintain reasonable NI contributions.

Are you working over 45 hours a week including time travelling?

If the answer to all these questions is no then a small salary is usually taken from the company and the rest is taken via dividends, thus minimising the amount of National Insurance you have to pay. In this case we recommend a salary of £9000 per annum.

top

You told me that I should pay myself £9000 per annum. How do you arrive at this figure?

On 1st April 1999 the minimum wage was introduced.

This meant that a contractor working 45 hours a week (including travelling time) should be earning at least £9,072 per year (based on the minimum wage for over 21-year-olds of £4.20 per hour and a 48 week working year). So allowing for a little leeway we arrived at £9000.

Obviously, if you are working more than 45 hours a week, then your salary needs to be adjusted accordingly to ensure that the company is not fined for breaching the minimum wage laws.

On the other hand, if you are working less than 45 hours a week, then you can take a smaller salary. Once decided upon, we will give you wage slips showing exactly how much you have to take from the company each month. We will also notify you when payments have to be made to the Inland Revenue for tax and National Insurance deducted from wages.

The remaining net earnings of the company are taken by way of dividends.

top

Tell me about VAT

VAT registration is a legal requirement if your company turns over £61,000 or over (for 2006/07). If your turnover is less than this then VAT registration is voluntary.

In most cases we recommend that companies are registered for VAT. We will complete a VAT registration form and send it to HM Customs and Excise.

Whilst waiting for your registration to come through you can still invoice clients for your services by simply writing on the invoice "VAT registration pending, VAT invoice to follow."

Once registration is received then you will need to go back and invoice your clients for the VAT. This is called a VAT only invoice and should have on it your VAT registration number.

All subsequent invoices should have the registration number and VAT at 17.5% added to the cost of services.

Let us know if you would like us to send you an example of each of these invoices.

As well as charging VAT it can also be claimed back. To do this you must ensure that all receipts/invoices, where possible, are made out to the company. VAT can be claimed back on all vatable company purchases and where the receipt/invoice shows a VAT registration number.

If you are unsure about whether or not you can claim back the VAT then just ask and we will endeavour to help.

VAT returns are made quarterly and any VAT due is paid at the same time as the return is submitted. We will complete the VAT returns and send them to you to sign and send on with any payment due.

top

What expenses can I claim for?

Any expenses incurred or purchases made to aid your work in the company can be paid for through the company and will be offset against tax at the end of the year. If you are unsure about whether an expense is allowable or not then just give us a call.

top

What records do I need to keep?

We have kept your recording keeping to an absolute minimum. You only need to complete two forms; an Activity sheet and an Expenses sheet.

The Activity sheet is intended to be a record of all the invoices you issue as well as a reflection of your bank statements. So, any moneys received by the company and any moneys paid by the company are recorded on here.

The Expenses sheet is to record details of any company purchases made or expenses claimed from the company, such as mileage.

Receipts and invoices need to be kept safe and sent to us with the forms at the end of each quarter, these quarters will coincide with your VAT return being due.

These are the only records of the company that you need to keep, we will do everything else.

top

What do I need to know about IR35?

Click here for more information.

top

What do I need to do to help me avoid an investigation and to ensure that if I have an investigation, then I will have no worries?

Firstly, employ the services of a qualified accountant who is familiar with IT Contractors. MGCS is an accountancy and taxation service company that was established specifically to provide services to Contractors operating through their own Limited Company.

Always keep your book-keeping up to date and never use the company cheque book to pay personal expenses. Also don't be tempted to 'borrow' money from your company.

Don't be tempted to round up your expense allowances, always be honest when recording your expenses.

Ensure your company and personal returns are submitted to the relevant authorities by the due date.
Take minutes of Directors meetings where dividends are voted and never back date dividends.

Don't put back income into a future year by delaying raising of invoices to your agency and finally don’t ignore IR35 or S660A.

top