How have they come to this conclusion?(47 Posts)
Self employed (ltd company status).
total income for last year was £51,000 and outgoings were £47,000.
Accountant has just finished my books and has informed me that I made a profit of £16,000.
How did he come to this conclusion.....I am stumped.
I do really recommend Quickfile as most non-accountants can cope with it as its mostly driven by your bank statements. It will send you a csv file as a back up too so you're not totally dependent on a free cloud package to back up your accounts. You will need an accountant to produce your year end Accounts and tax returns though and add the stuff like depreciation and correcting the directors loan account if necessary and posting salary correctly - if clients want to do it themselves, I get them to give me rights to view their quickfile accounts online then they don't even have to send me anything! I can get their accounts done without even meeting them which is a bit odd but sometimes what people want!
When doing your own book-keeping you should consider whether you can make more using your own time in drumming up business than you can save in book-keeping or how much you value your time off (if you're effectively doing it in non-business time). Otherwise for small businesses its a good option.
You sound like you are happier with your situation and choices now. Good luck.
Wow, that Quickfile is really good....and free too!
Thanks, that has cleared up a lot of misconceptions for me. I did have trouble seeing the company as separate from me, but it all seems much clearer, and easier, now.
Yes because your income will only be £12,000. The remaining £88k would remain an asset of the company as retained profit.
Assuming the £88k profit after tax and dividend payment was all cash it could then be used to grow the business by buying additional stock or fixed assets like machinery etc. BTW it's unusual for the profit after tax and divis to be all cash as you'll have working capital balances like debtors and creditors if you buy and sell on credit.
You are a separate entity from your company even though you own its shares.
I have a client who has a company making money.
then he got a job - so he's left the money in the company ready to draw out in a tax year when he has no other earnings
So does that mean that, even if the company makes a profit of £100,000, if I only take out a dividend of £12,000 that is all I need to declare re Tax Credits?
The most common mistake that people who convert from sole trader to limited company make is confusing their personal affairs with the company affairs.
You have to imagine that the company is a wealthy grandparent who kindly provides you with money if you visit them weekly. You don't get taxed/assessed personally on all their money... only on the money they give you. They are perfectly entitled to keep their money, give it to you, give it to someone else - they get taxed on their own income , you get taxed on yours.
Same goes for companies.
You only get taxed/assessed for benefits on what you pay and dividend to yourself. Your company can choose not to distribute profits if it so wishes and keep it to invest in the business or use to pay you in future years in the event that profits are leaner.
No it won't necessarily affect your tax credit - the company is not you. Just because the company has made more money does not mean you have made more money.
You need to declare your salary and what dividends have been declared to you. You do not have to declare in dividends all the profits the company has made. If you have taken out the money you told me then presumably your accountants have advised you how much to declare in dividends (just declare the difference between the amount you actually took and the amount of your salary is probably the easiest way to do it). You should be able to tell your accountant that you need to have income below the working tax credits thresholds and they should be able to recommend a dividend which does that.
Sorry I have to think very carefully what you have told me privately and what is on the thread! Hope that's not too cryptic.
I'm sure Crush is one way to reduce your costs if you have a straightforward business (you should check they have experience of the sector you work in as I'm sure you know it has some special requirements). Another way is to do your own book-keeping using one of the free online packages (I recommend Quickfile to clients who want to do their own accounts) then pay an accountant or certified book-keeper to do your year end and payroll and that way you'd get a personal service too.
You do need to be confident doing your book-keeping though. Most off the shelf services will produce your accounts exactly from what you give them and won't correct or check anything which a (decent) accountant will. I can't comment on Crush they are relatively new to the market so I haven't heard that much except from their own PR. Nice to hear from someone who uses them.
I'd get this year end out of the way and then start looking at the alternatives.
I'm sure from what OP has said to me privately that she is being paid a salary.
Actually, have just realised that this will affect my Tax Credit payments, won't it?
I mean that when I told them my income for 2011 it was too low, so they have paid me too much, so when I give them the figure for 2012 (3x higher)they will stop my payments and probably want me to repay them back, even though my income for 2012 is wrong.
Does that make sense?
Will be looking at your advice about online accountants.
Oh, not Staffs, I'm in Derbyshire.
No wage Kew just dividends I think which is pretty poor advice. c.3k for that size of business is ludicrous.
For my 72 per month I get VAT plus all HMRC and Companies House filing, payroll, software to support invoices, credit notes, expenses inc recurring, real time submission. Online access to full and interim accounts, p&l balance sheet, trial balances, p35d, p11, p60 etc. Minutes of dividends, bank rec functionality, reminders of filing and paying taxes and probably lots more. It is a proper bargain.
No I don't work for them.
OP is drawing a wage - apart from this one off error (and its a bit naughty of them not to fess up to this when they realised) I don't think her accountants have done anything wrong, they are just expensive.
Can recommend Crunch online, slick and cheap. Qualified accountant at end of the phone always. £72 per month. Have a look at the demo. If you are organised in your book keeping it is fab.
You should be drawing a wage to some degree as this will reduce your taxable profit. This would then reduce your corporation tax bill.
I don't know anyone in that area but I would suggest at your level of income, a certified bookkeeper who is trained to submit simple company accounts and corporation tax returns would probably do the job nicely.
Put your post code in here http://www.bookkeepers.org.uk/Directory/search.aspx and contact a couple of local ones to get a quote.
Obviously recommendation is good too, but there are a lot of not very good book-keepers out there and a lot of more expensive than you need accountants.
Good luck - let me know if you need any help making a decision. You can be my pro bono client for this year!
Too right - I charge my VAT reg plumber a couple of hundred a quarter - five quarters a year - and for that I do everything including pretend I did not see the Anne summers receipts
I can recommend an accountant in Worcester if you're more that way - DH and I started up last year and we've had an excellent service.
I think the prob is that not only does £1,400 sound a lot, but it also doesn't sound like you've had great advice. I'm pretty sure that for directors of Ltd company your payments should be - 9K (or whatever the personal tax threshold is) wage, then the rest in dividends which come out of post tax profit. That way, you only pay coorporation tax not personal income tax if that makes sense.
disclaimer I am not an accountant but this is my understanding.
Blooming eck - plumbing!!!!!! That's my Dads line of business too.
Whereabouts in the midlands. I can recommend someone in Staffordshire.
I'm in the Midlands, so not expecting to be charged Greater London prices.
Not a complex business.....only plumbing, so not sure why so high. I mean, it's not like i just hand over all the bills and receipts etc in a plastic bag and expect him to trawl through it all. I do the majority of it myself and he just seems to get paid for what I've already done. there's one form every year that really pees me off. I fill out all the minute details and calculations, then he he charges me £40 to "file" it.
Will definitely have to start looking at other firms.
I agree - get a new accountant.
If Kewcumber cannot help you out, ask on this board as its stuffed full with competent accountants
Yes you should - profits around £10,000 shouldn't cost you £3k i accounting fees unless your business is extremely complex.
Their rates are not unreasonable for a medium sized company, I just suspect you are too small for them.
What area are you in - I may know someone or be able to point you in the right direction to get someone more suitable.
Thanks for the advice KEW.
Apparantly, and this was only because I spotted the mistake, the junior accountant who did my books carried over £6,000 from 2011. This explains why my profits for 2012 were 3x higher than in 2011. so in actual fact I did not make £5,000 profit in 2011 but £11,000 and in 2012 it was actually £10,000 profit not £16,000. This also explains why my corporation tax for 2011 was only £900 and in 2012 was £3,500!
Glad that its all been explained to me but it was only my spotting the error that it was sorted........still got a huge bill though.
Should I change my accountant
Unless you have a VERY complex business £1400 a year is too much for annual accounts and CT600. A fairly pricey accountant in west london would charge you (assuming your bookkeeping is in a good state) £1300, a small operator like me with lower overheads would charge £700 - so you should be able to half your year end fee alone by moving your business.
PM me and I'll help you ask the right questions.
Well I have an appointment with him at 10 tommorrow to discuss my worries. But I fear that he will bamboozle me with accountant speak (not my strong point obviously), and I will end up leaving his office no better off.
Agreeing with kewcumber
My partnership isn't high risk in that there are no significant debts as such. We don't get paid afte work is done etc
My parents are in the construction industry, high risk. Work has to be financed and often paid late therefore having limited liability makes sense even when dad was a one man band.
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