DavidBarry(lford)AccountantsTaxadvisers - Limited company notesrther notes 060310

Limited Company Notes 06/03/10

Below are some notes that were written for a client of ours on the tax efficient trading of a limited company.

Please read but get in touch free of charge with any queries you may have on the accounting entries.

Email Out: 02 March 2010-update

Hello client and I hope that this email finds you in good health.

I refer to our meeting.

Credit the sales ledger net (which reduces the debtors figure in the sales ledger).

Debit bad debt ledger net.

Credit the sales ledger with output vat equal to the vat on your margin (sales less purchases).

Debit the vat account. This contrasts the original credit on the vat ledger (http://www.hmrc.gov.uk/manuals/vatmargmanual/VATMARG13700.htm).

Credit bank account with the net salary paid.

Debit the salary account.

Debit the salary account with tax and employees contribution (tax + Ee).

Credit the paye account with tax and Employees contribution (tax + Ee).

Debit the employers NIC (Er).

Credit the paye account (Er).

Annual investment allowance (AIA) available on all equipment incuding vans etc if purchased after 06 April 2008. Before this date then subject to FYA allowances at 50%. Beware this allowance coming to an end re the forthcoming budget and so early consideration should be given to potential purchases.

Writing down allowances on cars is 20% if a company vehicle. As explained the company can claim a deduction for all vehicle expenses (car insurance; motor repairs and servicing and diesel) subject to private use.

Any private recorded use should be added back in the Corporation tax comp. and the vehicle and benefits recorded on the director’s personal tax return 2010. The director’s personal tax benefit is equal to the car itself (and is based on its emissions) together with tax on the benefit provided there is private usage.

A better way is for you to calculate the private usage (total recorded mileage of the car less that completed on company business) and request that the director reimburse the company for this amount which can then be credited to all categories of the motor expense account so that the director is only subject to the car benefit. In this way you also avoid add backs in the accounts of the company and you should pass an ordinary resolution to this effect.

If you have brought the car into the accounts of the limited company so that this then becomes a company vehicle then you should carefully consider whether the car is appropriate e.g. high emissions equals an inordinately high tax benefit charge.

The accounting entries are as follows:

Credit directors loan account (with the private usage).

Debit bank account (with the funds).

Debit directors loan account.

Credit private usage in the motor vehicle account.

In this way the company is fully reimbursed for all private use of the car. Therefore there is no private usage to be recorded on the director’s personal tax return. Only charge is for the car itself as it is available for the director to use.

Please note that the same rule applies for all other employees if earning more than £8500 per annum.

Hint: Always have a mobile phone in the name of the company as in this way the payments can become more fully tax deductible as one mobile phone only is allowable for each employee of a company without benefit.

It does not matter if dividends have not been drawn. These are only a distribution of profits and not tax deductible. In any case can only be drawn if the company bank account is in credit and not overdrawn. If you want you can put a note in the director’s report that no dividends have been proposed or drawn.