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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4939
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Hey, I started a start-up company coming out of University

Resolved Question:

Hey,
I started a start-up company coming out of University with two friends and we naively thought that tax and paying employees would be much more straight forward than it was. We are currently in the process of shutting down the company as it was unprofitable and creating our final accounts, which is what we need help with.
In the 11 months we were trading, we only generated just under £6000 in revenue, which the majority of which was paid to two of the three directors, directly out of the business account. We did this because we felt the income was much lower than the PAYE threshold (over the period we had worked to generate the income). My question is:
Were we supposed to declare the payment at the time, and therefore by not declaring it, we can't consider it wages?
If so, is our only choice to mark the money down as a dividends payment, and thus pay both Corporation Tax and Income tax? Is there anything we have to do to declare these dividends, or any code needed when we fill in our self assessment?
If not, how do we declare the wage payments on our accounts as they're not in any PAYE system?
Thanks for your time.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.

Hello and welcome to the site. Thank you for your question.

Please advise what the company year end is?
You say you have generated just under £6k in revenue.. do you have a feel of profit after expenses but before salary to directors?

Do you have dates and amounts of when the monies were withdrawn as salaries?

When did you start trading?

Many thanks

Customer: replied 2 years ago.

Hi, thanks for your quick response.




  • The (Ltd.) company was incorporated on 16/10/13, and between this date and when we applied to strike off (02/09/14).




  • On the two jobs we carried out, we earned £750 (paid in March 2014) and £5000 (paid in early April 2014). The £5000 payment should have been paid in March 2014, but was paid late by the client.




  • As a result, 2 of 3 of us were paid on April 10th (£2500) each and June 23rd (£254.59). We also spent about £250 on Software licences. These were our only transactions.




  • We have received a corporation tax letter for the period of October 2013 to October 2014



Expert:  taxadvisor.uk replied 2 years ago.
Alex, thank you for your prompt and detailed reply.

The good thing is that all withdrawals are in the current tax year.
An employer is exempt from PAYE if none of your employees is paid £111 or more a week, gets expenses and benefits, has another job or gets a pension.

You should show a monthly salary for each director who was paid on 10 Apr and 23 Jun at the rate of £400 per month over 6 months making a total of (2,400 x 2) 4,800 and £350 each for Oct 2014 making total payroll £5,500.

No fees during the initial months of operation (i.e Tax year 2013-14) and all fees paid in tax year 2014-15.

Show this figure as directors' fees in the account and report it to HMRC as your earnings from the company in the tax year 2014-15 when completing your self assessment tax returns.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Hey,

Thanks for the response, thats good to hear, it was looking like we were going to have to pay a ridiculous amount of tax for an unprofitable period. I've got just two clarifying questions if thats ok?

Firstly, are we going to have to therefore file two tax returns, one for Oct 13 until Oct 14 and one for Oct 14 until strike-off date? Or alternatively can we just file one return for Oct 13 until strike off date, such as a CT600 short form?

Secondly, you mention directors fees, do you know what category/box we would fill in for this on say a CT600 short form to account for this, or is this something we need to take to an accountant to do? I'm sorry I'm finding the whole thing perilously unclear!

Thanks again,

Alex

Expert:  taxadvisor.uk replied 2 years ago.
Alex, thank you for your reply.

Your accounts are due for filing at Companies House no later than April 2015. As far as CH goes it is abbreviated balance sheet as at 31 Oct 2014.

Now we come to filing CT600 return. If the company did not start trading till after 1 Nov 2013 although it was incorporated on 16 Oct 2013, you should write to HMRC and advise that it was dormant for the period 16-31 Oct 2013. You will then have to file one set of CT600 return to cover period 1 Nov 2013 to 31 Oct 2014. If the company is struck off and there is no movement on the balance sheet or activity post 31 Oct 2014, then there will be no accounts to be filed. Just write to HMRC and advise of the strike-off date.

I am sure you can handle filing CT return without engaging an accountant.
In the p&l section of the accounts show directors fees as administrative expenses.
When you go to computations section, show the fees as directors remuneration in Box CP16..

If you need further help completing CT600 return, please come back with a fresh question and I will try to help you.

I hope this is helpful and answers your question.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it.

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4939
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.

Best wishes

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