Limited Companies Archives - The Accountancy Office

12 things limited company business owners should think about ahead of the new financial year

Posted on March 21, 2025 by Sarah

For many Limited Companies, as 1 April approaches, mark the start of a new financial year and now is the perfect time to reflect, reassess, and plan ahead.

A strong financial strategy can set the stage for a more profitable and stress-free year. Financial planning isn’t just about your business – it’s also about ensuring your personal finances are in order.

Here are 12 key areas to focus on for a successful year ahead.

Business Planning

1. Review Your Current Performance

Start by assessing how your business has performed over the past year. Review your financial statements, compare actual results against forecasts, and identify any trends. Are you hitting your revenue targets? Are there areas of overspending? Understanding your numbers is the foundation for future growth.

2. Set Clear Business Goals

What do you want to achieve in the next 12 months? Whether it’s increasing turnover, expanding your team, launching new services, or improving efficiency, setting measurable goals will keep you focused and help guide your decisions.

3. Conduct a Pricing Review

Are your prices still competitive and profitable? Many business owners set their prices and forget to review them regularly. Consider rising costs, inflation and industry benchmarks to ensure you’re charging appropriately for your services.

4. Create a Budget for the Year Ahead

A solid budget keeps you in control of your finances. Factor in expected income, expenses, tax obligations, and potential investments in your business. Having a clear budget helps prevent cash flow surprises and ensures you’re allocating resources effectively.

5. Plan for Tax Efficiency

Tax rules change frequently, so it’s wise to review your tax position with an accountant. Are you making the most of tax reliefs, allowances, and deductions? Could you benefit from extracting profit in a more tax-efficient way, such as dividends or pension contributions?

6. Strengthen Cash Flow Management

Cash flow is the lifeblood of your business. Review your invoicing process – are clients paying on time? Could you improve payment terms or introduce automated reminders? Consider whether you need access to financing to smooth out cash flow fluctuations.

7. Assess Your Marketing Strategy

A new financial year is a great time to refresh your marketing efforts. Does your branding still align with your business goals? Are you consistently attracting your ideal clients? Review your website, social media presence, and client acquisition strategies to ensure they’re working effectively.

8. Review and Improve Business Processes

Are there any inefficiencies in your operations? Look for opportunities to streamline workflows, automate repetitive tasks, or adopt new software that could save you time and money. A more efficient business means more profit and less stress.

9. Plan for Growth and Investment

If you’re aiming for growth, think about what investments you need to make. Do you need to hire staff, upgrade equipment, or invest in professional development? Planning ahead ensures you have the resources available when needed.

10. Protect Your Business

Risk management is often overlooked but is crucial for long-term stability. Review your insurance policies, contracts, and compliance requirements. If you rely on key team members, consider key person insurance. If you’re a director, ensure you’re meeting all your legal responsibilities.

Personal Financial Planning

11. Review Your Personal Budget

How much money do you need to cover your lifestyle and future plans? It’s important to assess whether your salary and dividends are sufficient – and sustainable. Consider any big expenses you have coming up, such as a house purchase, renovations, or that dream holiday.

12. Plan for the Future: Life Insurance, Pensions & Investments

As a business owner, your personal finances are closely tied to your company. Have you protected yourself and your family with the right life insurance and income protection? Do you have a will and lasting power of attorney in place? Are you making the most of pension contributions and investments to secure your long-term financial future? If you’re unsure, now is the time to get advice.

Final Thoughts

he start of a new financial year is a prime opportunity to reset and plan for success – both in business and in life. Taking a proactive approach in these 12 areas will put you in a stronger position for the year ahead.

If you need support with business or personal financial planning, we’re here to help. From tax efficiency and cash flow management to pensions and life insurance, we offer a full range of services to keep your finances on track.

Call us on 01386 366741 or visit accountancyoffice.co.uk to book your free consultation.

Keeping More of Your Money: A Real Story

Posted on March 18, 2025 by Sarah

We recently started working with a married couple running a successful limited company, despite only forming their company two years ago.

They were making good money, but every month, whatever came in, went out. When the tax bill landed, it was always a shock. They felt like they were working hard but never getting ahead financially.

The Problem?

No system for taking money out of the business efficiently
No tax planning – so the Corporation Tax bill was always a nasty surprise
They wanted to buy a house but struggled to show enough income
They wanted to improve their lifestyle and needed an additional £3,000 per month personal income from their company, but their finances felt unpredictable

What We Did:

Set up a structured way to take money out of the business, balancing salary, dividends and pension contributions to maximise tax efficiency.
Created a tax reserve strategy so they weren’t caught off guard when bills were due.
Planned their income properly so they could show enough on paper for their mortgage application.
Helped them set business profit goals that allowed them to take home the income they wanted while still covering tax and business growth.

The Result?

They now pay themselves £3K+ per month comfortably
Their next tax bill is already planned for – no stress!
Their mortgage application looks stronger
They finally feel in control of their finances instead of constantly reacting to surprises

f you’re running a business but struggling to make your hard-earned cash actually work for you, we can help. Let’s get your finances working for your life goals – not against them.

Call The Accountancy Office on 01386 366741 or book a call for a time that is convenient for you.

Buying vs Leasing a Car Through Your Limited Company: Pros and Cons

Posted on February 17, 2025 by Sarah

As a UK limited company owner, you may be considering buying or leasing a company car. Each option has financial, tax, and cash flow implications that can impact your business. In this post, we’ll explore the advantages and disadvantages of both buying and leasing a vehicle through your company to help you make an informed decision.

Buying a Car Through Your Limited Company

Advantages of Buying

Full Ownership – The car belongs to the company, meaning you have an asset that can be sold later.

Tax Relief on Capital Allowances. If the car is brand new and fully electric, you can claim 100% first-year allowances (FYA), reducing corporation tax.

For petrol and diesel cars, tax relief depends on CO₂ emissions.

No Mileage Restrictions – Unlike leasing, there are no penalties for exceeding a set mileage limit.

Potential VAT Reclaim – If the car is used exclusively for business, VAT can be reclaimed (rare for company cars, as personal use often applies).

Disadvantages of Buying

1. High Upfront Costs – A large capital outlay is required, affecting cash flow.

2.Depreciation – The car loses value over time, reducing its resale price.

3.Benefit-in-Kind (BIK) Tax – if the car is available for personal use, the director will pay BIK tax based on CO₂ emissions and list price. BIK rates are much lower for electric cars (currently 2% until 2025).

4.Ongoing Maintenance & Repairs – The company is responsible for all upkeep costs.

Leasing a Car Through Your Limited Company

Advantages of Leasing

Lower Initial Cost – Monthly lease payments improve cash flow compared to buying outright.
Fixed Monthly Payments – Easier to budget with predictable costs.
Tax Deductible Expenses – lease payments are tax-deductible if the car is used for business. However, if CO₂ emissions exceed 50g/km, only 85% of lease costs are deductible.
VAT Reclaim – if the car is used only for business, you can reclaim 100% VAT.If there’s any private use, you can still reclaim 50% of the VAT on lease payments.
No Depreciation – at the end of the lease, you return the car and can upgrade to a newer model.

Disadvantages of Leasing

You Never Own the Car – There’s no asset to sell at the end of the lease.
Mileage Limits Apply – Exceeding the agreed mileage can result in costly penalties.
Long-Term Commitment – If your business circumstances change, ending the lease early may incur fees.
BIK Tax Still Applies – Even though you don’t own the car, a leased vehicle available for personal use is still subject to BIK tax.

Example – Buying vs Leasing an Electric Car

Emma runs a successful consultancy business and wants a company car for both business and personal use. She’s considering a Tesla Model Y (list price: £45,000).

Option 1: Buying the Tesla

As the car is fully electric, Emma’s company can claim 100% first-year allowances, reducing taxable profits by £45,000 in year one.
She avoids mileage restrictions, making it ideal for long-distance client meetings.
However, she’ll have BIK tax to pay, though at just 2%, it’s far lower than for petrol/diesel cars.
Maintenance costs are low, but depreciation means the car will lose value over time.

Option 2: Leasing the Tesla

A 3-year lease costs around £700 per month (£8,400 per year).
The lease payments are fully tax-deductible, reducing corporation tax.
VAT can be reclaimed (50% for personal use).
Emma can switch to a newer model after 3 years, but she must stay within the mileage limit to avoid penalties.

What’s Emma’s decision? Emma opts to buy the Tesla because of the 100% capital allowance, lower long-term costs, and flexibility to keep the car as long as she wants. However, if cash flow were tighter, she might have chosen leasing.

Which Option is Best?

If cash flow is a priority, leasing offers lower initial costs and predictable expenses.
If you want a company asset and are considering a tax-efficient electric car, buying may be the better choice.
For high-mileage drivers, buying avoids excess mileage penalties.
If you prefer changing cars regularly, leasing may be more convenient.

💡 Tip: If you’re unsure which option is best for you, speak to your accountant (that’s me!) for tailored advice based on your company’s financial situation and tax position.

Need help deciding? Get in touch, and let’s run the numbers!

Why Limited Company Directors and Shareholders Need to Prepare Dividend Vouchers (and How to Do It)

Posted on January 24, 2025January 24, 2025 by admin

As a director/shareholder of a limited company in the UK, understanding dividends is crucial for ensuring compliance with tax laws and maintaining clear financial records. A key part of the dividend process is preparing dividend vouchers. In this blog, we’ll explain why dividend vouchers are necessary and guide you through how to create them.

What Are Dividend Vouchers?

A dividend voucher is a document that records the payment of a dividend to a company’s shareholder(s). It acts as a formal receipt and is an important part of your company’s records.

When a limited company declares and pays a dividend, it must issue a dividend voucher to each shareholder receiving a payment. This applies to all dividends, whether interim or final.

Why Are Dividend Vouchers Necessary?

1. Compliance with HMRC Requirements

HMRC requires evidence of all dividend payments. Dividend vouchers serve as this evidence, showing that the payment was a dividend and not another type of transaction, such as a director’s loan or salary. Without a voucher, you may struggle to justify payments during a tax inspection.

2. Record-Keeping Obligations

As a limited company, you are legally required to maintain accurate records of all financial transactions. Dividend vouchers help fulfil this requirement by documenting distributions made to shareholders.

3. Shareholder Clarity

Dividend vouchers ensure transparency, providing shareholders with clear documentation of the payment, the amount received, and the associated tax credit.

How to Prepare a Dividend Voucher

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide:

Step 1: Confirm Company Profitability

Before declaring dividends, ensure the company has sufficient post-tax profits to cover the payment. Paying dividends when there are no distributable profits could result in legal and financial complications.

Step 2: Declare the Dividend

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment.

Step 3: Draft the Dividend Voucher

Your dividend voucher should include the following details:

• Company name: The name of the limited company issuing the dividend.

• Shareholder details: The name and address of the shareholder receiving the payment.

• Date of issue: The date the dividend is declared or paid.

• Dividend amount: The gross amount of the dividend.

• Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016).

• Net amount: The amount the shareholder will receive after tax (if applicable).

Step 4: Distribute the Voucher

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference.

Step 5: Retain Copies for Company Records

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits.

How to Prepare a Dividend Voucher

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide:

Step 1: Confirm Company Profitability

Step 2: Declare the Dividend

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment.

Step 3: Draft the Dividend Voucher

Your dividend voucher should include the following details:

• Company name: The name of the limited company issuing the dividend.

• Shareholder details: The name and address of the shareholder receiving the payment.

• Date of issue: The date the dividend is declared or paid.

• Dividend amount: The gross amount of the dividend.

• Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016).

• Net amount: The amount the shareholder will receive after tax (if applicable).

Step 4: Distribute the Voucher

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference.

Step 5: Retain Copies for Company Records

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits.

What Happens Without Dividend Vouchers?

Failing to prepare dividend vouchers can lead to:

• HMRC challenging payments, potentially reclassifying them as salary or director’s loans, which could result in additional tax liabilities.

• Difficulties in proving compliance with UK company law.

• Confusion or disputes among shareholders regarding payment amounts and dates.

Need help with dividend vouchers?

Dividend vouchers may seem like a small administrative task, but they are vital for maintaining compliance and clarity within your limited company. By ensuring dividends are properly declared and documented, you protect your business and shareholders from potential complications.

If you need help preparing dividend vouchers or understanding dividend compliance, our team is here to help. We offer a dividend voucher preparation service for a monthly fixed fee.

Call us on 01386 366741 or email here and one of our advisers will be in contact.

How much National Insurance will my company pay in 2025-2026?

Posted on November 11, 2024January 24, 2025 by admin

As the dust settles on Labour’s first Budget in 14 years, we look at the impact for businesses, in particular single directors’ of limited companies.
The biggest budget announcement related to employers National Insurance – hitting employers hard with a double whammy:
1.2% increase in employer’s National Insurance contributions (NICs) and

Lowering the secondary threshold (ST) which means employers will start to pay NICs on employees earnings from £5,000 instead of the current £9,100 threshold.
However, the Employment Allowance (EA) will be increasing from £5,000 to £10,500 which will help offset some of the additional costs – for some employers but not all.
Sole Directors of Limited Companies
A company with only one employee paid above the Class 1 National Insurance Secondary Threshold, where that employee is also a director of the company are specifically excluded from claiming the employment allowance.
Whilst this has always been the case (and seems somewhat outdated considering the reduction in the dividend allowance in recent years,) it does mean that sole directors will face additional NIC costs.

Example of a Director’s salary in 2024-2025
In 2024, for a single director working through their own limited company, the most common annual salary was typically £9,100 or £12,570.
A salary of £9,100 did not attract any Employers’ National Insurance because it was below the secondary threshold. The salary also suffered no employee tax or National Insurance contributions and secured a pension credit for the director, as if it had been paid and securing a qualifying year towards the state pension.

National Insurance Chart

What will be the optimum director’s salary in 2025/26?
We anticipate that for the 2025/26 tax year, sole Director Companies (with no employees) will choose between:
A salary of £12,570, achieving the most efficient tax savings available and securing a qualifying pension year, or
Lower salary, not achieving full tax savings and forfeiting a qualifying year, or
No salary, reducing administrative costs and forfeiting a qualifying year.
A salary of £6,000 would incur an Employers NI liability of £150 but it is too low to qualify for the state pension credit because earnings need to be equivalent to the National Insurance Lower Earnings Limit (LEL) (£533 per month 24/25 and £542 25/26).
However, a £6,000 salary + £150 Employers NI would save corporation tax of 19% = £1,169.
If you were to take £6,000 as dividends rather than a salary, the personal tax would be £481 based on the basic dividend rate of 8.75%.
Alternatively, employing an additional staff member could make the business eligible for the Employment Allowance, offsetting Employer NI costs.
There is no definitive answer as to what the best optimum salary for a limited company director is. It will depend on your personal situation, business position, personal priorities and overall tax position.
For company directors with employees (who can claim the Employers Allowance) the optimum salary will usually be £12,570.

What about larger companies?
Let’s look at a larger business who employs 150 workers paying them an average salary of £38,000 per year.
This example highlights the real impact of the Employers’ National Insurance changes with a clear illustration of how the government expects to raise extra revenue.
150 employees x £38,000 = £5,700,000
2024 Employers NIC x 13.8% = £598,230
The company is not eligible to claim the Employment Allowance as it’s Employers NICs exceeds £100,000.

In 2025, with the same number of employees and the same pay rate, the business will be eligible for the Employer’s Allowance due to the removal of the £100,000 cap.
150 employees x £38,000 = £5,700,000
2025 Employers NIC x 15% = £742,250
Less Employers Annual Allowance = £10,500
Total Employers NIC = £732,000
This employer will pay an additional £133,770 in NICs each year (22%) which is a very significant additional tax burden.

How Can I Prepare for the Employers National Insurance Increase?
Adapting to these new additional costs will require thoughtful adjustments to business strategies.
Here are some proactive steps you can take:
Review Payroll Budgets: Businesses should reassess their payroll budgets to account for the higher NI rate and the lowered threshold. By factoring in these changes early, businesses can better prepare for their financial impact. The National Minimum Wage increase should also be considered, where applicable.

Optimise Workforce Planning: Employers may consider restructuring roles or adjusting part-time and flexible work arrangements to manage costs effectively. Prioritising efficiency within the workforce and identifying ways to improve productivity could help offset some of the increased NI expenses.

Consider Salary Sacrifice Schemes: Some companies may explore tax-efficient remuneration options like salary sacrifice schemes, where employees opt to exchange part of their salary for non-cash benefits, reducing the NI liabilities for both employers and employees.

National Minimum Wage
The 6.7% increase in the National Minimum Wage from April 2025 will have a significant impact on employers.
The National Living Wage will increase to £12.21 from 1st April 2025, for employees aged 21 and above.
The National Minimum Wage rate for employees aged 18-20 will increase to £10.00.
The National Minimum Wage rate for employees aged 16-17 will increase to £7.55.
The National Minimum Wage rate for apprentices will increase to £7.55.

Conclusion
There were other announcements that will impact business owners that we have not covered in this blog. For your free Budget Report and complimentary personalised NIC projection, please call 01386 366741 or email us here

What are the Financial Reporting Changes from January 2026?

Posted on October 8, 2024March 14, 2025 by admin

The Financial Reporting Council (FRC) has announced changes to FRS102 and other financial reporting standards, affecting millions of UK companies from 1 January 2026.

The changes are designed to enhance the quality of financial reporting in the UK and consistent with international standards.

What is FRS 102 and FRS 105?

FRS 102 is the Financial Reporting Standard applicable in the UK.

FRS 105 is the Financial Reporting Standard applicable to the Micro-entities Regime, a simplified version of FRS 102 to reflect the simpler nature and smaller size of UK companies.

Check with your accountant if you’re unsure which Financial Reporting Standard you’re adopting.

What are the significant changes coming up in FRS 102?

The two headline changes relate to lease accounting and revenue recognition.

In terms of lease accounting, the changes only affect FRS 102 (not FRS 105).

Amendments to revenue recognition affect both FRS 102 and FRS 105.

Lease accounting

Almost all operating leases will be recognised on the balance sheet’ by lessees within the financial statements, bringing an asset and liability into their accounts, eliminating the distinction between operating and finance leases.

Currently, FRS 102 classifies leases as either operating or finance leases. Assets held under operating leases are not recognised on the balance sheet and the lease payments are expensed in the profit and loss account.

Assets held under finance leases are recognised on the balance sheet with a lease liability included in creditors for the lease rental payments due. Regular lease payments reduce the liability, they are not charged to the Profit and loss. Instead, depreciation and interest are recognised as an expense.

The amendment will remove operating leases from FRS 102 meaning that all leased assets will be included on the balance sheet and accounted for in the same way as finance leases.

There are some exemptions available for short term and low value leases.

Balance sheets will show more assets and liabilities. This could affect various financial ratios.

There will be some practical issues with assessing all current leases too.

In terms of profit and loss account, there will be a charge for depreciation and interest on the lease liability.

Revenue recognition

Under FRS 102, revenue is recognised with reference to the stage of completion of the transaction. This will vary depending on whether the transaction is a sale of goods, provision of services or a contract over a period of time, such as construction.

The amount and timing of revenue included within the financial statements may change as a consequence of the new five-step recognition criteria, which is a simplified version of IFRS 15 ‘Revenue from Contracts with Customers’.

Distinct goods or services promised to a customer will be recognised when they are transferred to the customer.

The five-step revenue recognition model is:

Identify the contract with the customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to each performance obligation.
Recognise revenue when the performance obligation has been satisfied.

There will likely be little to no impact for many companies if their revenue recognition already follows this model.

Let’s look at an example of a mobile phone company providing a mobile phone to a customer, on a two year contract.

The contract is for the phone and the data/calls plan
The obligation is to provide a mobile phone and two years of data/calls
The transaction price will be the monthly cost, over the two year contract
The transaction price is allocated between the mobile phone handset and the data/calls package
The mobile phone revenue would be recognised on day 1, as soon as the phone is handed to the customer. The revenue from the data/calls would be recognised monthly over the life of the two year contract

How You Can Prepare for the Lease Accounting Changes Under FRS 102

Early adoption is an option, but you will have to adopt all leases at once.

It’s important to review your lease agreements. This is probably the most important and initially the most time-consuming part.

Identify which leases are short-term leases and which are ‘low-value’ assets that qualify for exemptions.

All remaining leases are “finance leases” and, if you are not already accounting for them as such, they will need to be brought onto your balance sheet from 2026.

It is crucial that you understand the impact on recognition and measurement on your financial statements if you adopt the revisions early. For example, most operating leases coming onto the balance sheet will increase assets and liabilities on your balance sheet. Your profit or loss will have an increased depreciation charge, increased interest/finance expense and decreased lease rental charge.

If you would like to discuss this further the please contact us on 01386 366741 or email here and one of our advisers will be happy to help.

Changing the name of a limited company-Your guide.

Posted on November 8, 2023 by admin

Changing the name of a limited company is straight forward but there’s a lot to consider beforehand when choosing the name for your limited company.

There are a number of words and phrases that UK company law defines as ‘sensitive’ due to their potential to mislead, confuse or offend the general public. If your proposed company name change includes one of the sensitive words, there is a little more work involved in getting the name change approved.

There are no legal restrictions preventing the use of dissolved limited company names. If this is something you are considering, it’s advisable to carry out extensive research on the company that previously traded under the name you plan to use. This will help you to determine if there any negative associations attached to the name.

Before you complete the formal process of changing your company name, there are several tasks you will need complete:

Before anything else, you should carry out a trade mark search using your new name. This is to make sure that the name hasn’t already been as a trade mark by somebody else.
Check at Companies House to ensure the proposed name isn’t already in use. You will also want to check domain availability of your chosen name and that the domain name is available for purchase.
Review your company’s articles of association to check what provisions are written to enable changing the company’s name. Check if it provides another way to change the company name other than using the special resolution procedure (section 78, CA 2006).
On completing the above, gain a formal agreement to change your company name by passing a special resolution at a board meeting. Meeting minutes should also be prepared, circulated and retained for at least 10 years at the registered company office.
Register the company’s new name with Companies House by completing Companies House form NM01 (Change a Company Name)
When changing your company name, you must ensure that you properly update the company’s statutory registers. This is a legal requirement and failing to correct company registers may result in fines.
You will need to notify HMRC of the company’s new name. You can report changes to your business directly to HMRC by following the guidance on the Gov.uk website – https://www.gov.uk/tell-hmrc-changed-business-details.
Your bank will need to be informed of any changes to your company name (or any other details).
Notify your customers. This is an important step and it’s advisable to let them know of the change before it happens.
Notify your suppliers. Suppliers must also know they are still working with the same company under a new name.
Notify your employees It’s important that they’re aware of any changes before they’re implemented to avoid any uncertainty or worry of change amongst the team.
Notify your insurers to ensure your policy is up to date. Failing to notify your insurer may invalidate your policy should you need to make a claim.
If you have Hire Purchase agreements or any similar finance creditors, it’s important to update your company name with these companies. This will ensure that any loans and agreements are up to date.
If you have an existing website in place, you will need to consider transferring or redirecting the website to the new domain name, whilst making any necessary changes to the website such as the company’s legal information.
When Changing the name of a limited company this will most likely impact your emails too, so you will need to make sure that these are transferred to your new domain if necessary.
When you change your company name it’s important to let the local councils and authorities know too so that their records can be updated.
With a new company name, you will need a new and updated set of memorandum & articles of association.
Make any changes to your printed business stationery and marketing materials.
Update your Xero software with the change of company name (and any other software)
Announce the name change across the company’s social media platforms and any other marketing audiences.

How can I raise cash to grow my business?

Posted on October 17, 2023 by admin

This is often one of the biggest hurdles that growing businesses face, raising cash. You’ve increased your sales to maximum capacity, you’ve got a team and processes in place but you can’t plan for further growth without further financial investment.

It’s a great position to be in but you need to consider your options for funding.

Firstly, be sure of what you’re setting out to achieve. Have a clear plan in place and clearly define your goals:

What’s your action plan for the next 12 months?
The next three years?
The next five years?
How much cash do you need for each of the above stages?

There are several different approaches to guiding your business to the next level. Here we list some potential options for consideration:

Personal Funding

The quickest and easiest way to raise finance is often to utilise personal savings. The disadvantage is that the amount of funds may be limited and insufficient to fund the level of growth required. Also, there may be a level of risk with no guarantee that the company will be able to repay those funds. Raising money from friends and family is also another option but again there is a level of risk and no guarantee that the money will ever be returned which can lead to strained relationships.

There are then only two other options – Equity or Debt.

Equity

Equity means you are looking for investor to give you money, in exchange for a stake in your business.

The benefit of raising cash this way is that it doesn’t need to be repaid and you may get to benefit from an investor with extremely valuable experience which will help the business grow in the direction you want it to. However, you’re also giving away a portion of your business which means you will have less control so it’s important to make sure you choose the right investor.

Here are some examples of equity investments:

Private Equity – investors who provided cash to established businesses in return for a large or controlling stake, to help them grow to the next level.

Corporate Venture Capital – an investment made by a large company into a smaller business, in return for a share of that business.

Expansion Capital firms – give established businesses money to grow and reach maturity.

Angel Investors – act as mentors and invest their own money in early-stage businesses for a share in the company.

Venture Capital – invest in businesses with high growth potential, often after Angel investors have got the business started. The money comes from established entrepreneurs, investment banks and other financial institutions.

Crowdfunding – Using an online platform, investors buy shares in a company to help it grow.

Debt

Debt financing means you are borrowing money that needs to be repaid, usually with interest being paid on the amount you borrow.

Debt is often a scary word and managing any borrowing needs to be done carefully when looking at raising cash. Some debt is straight forward and short-term. Other debt is longer term. This is why you need to be clear of the purpose for your lending requirements.

Always consider all the options and think ahead to your 5 year plan. Raising equity can be complex and is a lengthy process. Make sure you have sufficient cash to meet your plans. Having a strong financial business model and cashflow plan is essential.

Here are some debt options for consideration:

Overdraft – short term lending, typically from a compay’s bank and up to an agreed limit. Overdrafts can be expensive but a business will only pay interest on the amount they actually borrow.

Credit cards – another short term option and easily accessible but usually with a high interest rate.

Invoice factoring – selling your unpaid sales invoices to a third party who will collect the debt from your customer, paying you a percentage of the invoice value up front, minus their fee. A fairly expensive option but useful if you have a large amount of outstanding invoices with slow payers.

Asset financing – raising funds to purchase physical assets such as vehicles and equipment. A fairly quick form of finance, also giving the lender tangible assets to recover should you default on the repayments. Useful for asset intensive businesses with the option to consider refinancing the assets and releasing cash to the business.

Supplier Credit terms – often overlooked as a form of financing and another short term option. Negotiating extended credit terms with your key suppliers can free up working capital.

Business loans – borrowing money from a loan provider such as a bank and then paying it back with interest over an agreed period. Loans can be both short-term and long-term. There are also various Government backed loan schemes such as the Recovery Loan Scheme and start-up loans.

Peer to Peer Lending – a business borrows money through an online platform and pays it back with interest over an agreed period.

Direct lending funding – A business borrows money from a fund and repays it with interest. A fund may be able to provide loans where a bank will not.

There is also one other option – Grant Funding. A Grant is a non-repayable type of funding, usually awarded by governments, organisations, or companies to invest in certain assets or activities, or to help a business achieve a particular goal.

Exactly what level of debt is suitable for your business depends on your precise requirements at any one time. Whatever level of debt you undertake, it’s important to measure it. Keep track of your level of gearing and monitor your debt to equity ratio – a simple formula to show how capital has been raised to run a business. This is an important financial metric because it indicates how financially stable a company is when facing problems with trading or other operational considerations and what ability it has to raise additional capital for growth.

How an accountant can help you

There are a number of ways in which a qualified accountant can help make your business more efficient, especially when it comes to managing your debt. Every business is different but monitoring cash and debt, is equally as important as measuring profit.

An accountant can support you in creating a cashflow forecast to make sure you’re in good cash health and by spotting any potential cash shortfalls early on. You also need to understand what you owe as well as what cash you have in the bank. Looking at your bank balance every day won’t tell you all you need to know.

Based in the Heart of Evesham, The Accountancy Office are here to help If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.

Associated Companies for Corporation Tax 2023

Posted on September 22, 2023 by admin

Associated Companies for Corporation Tax – New Rules from April 2023

The rules around corporation tax changed on 1 April 2023. The amount of corporation tax that a company will pay will depend on the level of its profits, and also whether or not it has any associated companies.

From 1 April 2023, companies with profits below £50,000 will pay corporation tax at the small profits rate of 19% whilst companies whose profits exceed the upper limit of £250,000 will pay corporation tax at the main rate of 25%.

Where two or more companies are “associated” with each other, the Corporation tax limits are divided by the number of companies concerned.

What is an Associated Company?

A company is an associated company of another at any time when:

One of the two has control of the other or
Both are under the control of the same person or persons

Companies are considered associated for the full accounting period, even if they are only associated for part of that period. Associated companies can also include both UK and Non-UK tax resident companies.

Dormant Companies which are not carrying on any trade or business are excluded from the associated company calculation.

When considering whether a person has control over more than one company, the most common test for “control” is the voting power of a shareholder. In a simple case, where each of the company’s shares carries one vote, any person or persons who own more than 50% of the shares will “control” the company.

It is important to understand the number of associated companies as soon as possible to estimate tax liabilities. If you are forecasting to produce significant profits for your company and you have one or more Associated Companies, you may wish to considering restructuring your activities to minimise any loss of marginal relief.

If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.

What is a Group Company structure

Posted on May 12, 2023 by admin

Accountancy services Evesham

A group company structure may often be useful for a business with multiple income streams.

Should you keep all those income streams within one company or split the different streams into a different structure?

When you start a business you may set out with one product or service income. As time goes on, you may find that you expand into different areas and you may find yourself offering a number of different products or services.

Firstly, you can do nothing and keep all the income streams within one company. Alternatively, you can consider splitting all of your trades into a group structure.

A group company structure is a business model in which a parent company (often referred to as a holding company) with you as the shareholder owning the shares in the parent company.

The parent company then has subsidiary companies underneath it, with each subsidiary having it’s own trade. A holding company does not produce any goods or services by itself. Its main purpose is to own shares of other companies to form a corporate group.

Each subsidiary is a separate legal entity, often with its own separate management and operations teams, but they are ultimately owned and controlled by the parent company.

What are the benefits of a group structure?

Minimise risk

This is the most important reason for considering a group structure.

The greatest risk with running any company is insolvency. A group structure minimises risk in that it is not obliged to pay for any of its subsidiaries liabilities, providing that it has not given it any corporate guarantees.

The parent company protects the assets of the entire group. A single company with multiple trades has all its assets and business exposed if there are any issues in any part of the business. The group company structure allows better asset management, better distribution of assets and efficient sale of assets. It also helps with loans, borrowings and business growth. The idea is the main ownership of assets and rights sits in the parent company.

If one trade is not performing well, or if something goes wrong with one of the trades and an insolvency claim is raised, the claim would be against that one company. The rest of the business is protected so you can continue without worry. Keeping trades separate ensures that the other trades are protected from business risks such as litigation, financial difficulties or insolvency of operating companies in the group.

Cash

With a group structure, you can transfer any excess cash from the subsidiaries to the parent company. You can then choose if you want to use that cash for investment or transfer it to yourself personally, obviously tax will become payable if transferring to yourself.

Asset Safeguarding

You can keep property and large value assets in the parent company, away from the subsidiaries. This is useful in the event of an insolvency claim as you do not want to risk losing title to your business premises as a result of a large claim.

Other benefits include:

Reputation – a group structure allows a new venture to build its own brand and reputation away from the other trades.

Reporting – if everything is recorded in one business it can be difficult to show exactly how each trade is performing,

Investment – it’s easier to raise capital for one specific trade. With all trades within one company, it is difficult to reliably assure investors that the funds are not being used for other trades. A group company structure can enable better access to finance. A lender might look more favourably upon a larger, more diversified business with a strong record of performance.

Sale – if you have one trade that is performing very well which you are considering selling in the future, it is far easier to sell a trade if it is within its own company.

Tax – a group structure is considered as a whole for tax purposes. If one company is generating a loss, that loss can be offset against another company’s profits.

VAT – you coul;d end up with multiple VAT registrations but you can look into a group registration. This all depends on the VAT status of your trades.

Disadvantages:

Administration & compliance – the more companies you have, the more compliance is needed. Each company is required to file annual accounts with Companies House and a corporation tax return to HMRC. Each company will also be required to file a confirmation statement each year too. The more companies you have, the higher the accountancy fees will be.

Software subscriptions – due to multiple accounting records being required, each company will require its own accounting software subscription to a product such as Xero.

Other considerations:

It’s always advisable to set up your group company structure at the earliest opportunity. However, if you decide that you wish to separate your existing trades and create a group at a later date, this is perfectly manageable, although there will be some professional legal fees involved due to an application process known as a “de-merger”.

Group companies are required to make QIPS (quarterly instalment payments) relating to your corporation tax liabilities, compared to a single company which would usually pay it’s corporation tax liability nine months and a day after the end of the financial year.

This means that the subsidiaries may have to prepay it’s corporation tax upfront in quarterly staged payments. This can be determinantal to cashflow.

Future planning is key so think about your business plans for the future. Setting up a group structure isn’t appropriate for every company. However, there are some circumstances where it makes strong commercial sense to have a group structure in place.

Consider the increased costs of compliance as well as the initial set up costs. There is a lot to manage and consider when setting up a group company structure. They can be complex and may involve multiple legal entities. For this reason, we suggest seeking professional assistance from a qualified tax advisor and legal expert to ensure the group structure is legally compliant and optimised for your business objectives.

For qualified advice and help contact The Accountancy office in Evesham were we will be happy to discuss your requirements. Visit us at our website, email us or call us on 01386 764761

Category: Limited Companies