Questions

What are the tax free mileage allowances?
Can I claim subsistence and accommodation costs?
Are the dividends paid by my company subject to tax?
Should I register for VAT?
Is it worth having a company car?
What are the Director’s and Company Secretary’s responsibilities?
What is a Director’s loan account?
What happens to the company if my contract expires and I take a permanent job?



What are the tax free mileage allowances?
The rates applicable from 6th April 2002 regardless of engine size are:

40p per mile for first 10,000 miles
25p per mile for subsequent mileage
You can revert to the higher rate every 6th April.

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Can I claim subsistence and accommodation costs?
Yes, if they are incurred in the course of your business. These can be claimed, including mileage, for up to two years whilst travelling to the same site. After two years such costs are not tax deductible.


Are the dividends paid by my company subject to tax?
Yes and no. A dividend is received by a Shareholder net of corporation tax. This tax meets the recipient’s basic rate tax liability. However, if on the receipt of this dividend, the tax payers income exceeds £39,825, higher rate tax (i.e. an additional 20%) is payable on every £1 that exceeds this £39,825.

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Should I register for VAT?
You are required to register for VAT if your annual turnover exceeds £62,000. However, it may be in your interest to register as you can then reclaim VAT on your company purchases that include VAT. With the introduction of the ‘Flat Rate Scheme’ (please contact us for more details) you can claim a minimum of 13% against the 17.5% VAT you charge.

Because your clients will be VAT registered, you are unlikely to suffer any resistance to being registered for VAT, so voluntary registration is probably beneficial.


Is it worth having a company car?
With the new rules introduced in April 2002, and the fact that you own your own company, it is extremely unlikely to be beneficial to have a company car. Each case should be reviewed individually, but it is very unlikely that it will be tax beneficial. However, it may be that you would prefer to own the car via the company i.e. personal choice.

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What are the Director’s and Company Secretary’s responsibilities?
These are quite long-winded and for a full explanation please download a guidance booklet (a more up to date version may be available directly from Companies House).


What is a Director’s loan account?
This is an account between you, as a Director, and your limited company. Drawings that you make from the company debit this account and dividends that are voted credit this account to cover the drawings made.

For example, a loan account will be overdrawn at your company year end if the liabilities exceed its assets. A typical example will be that the company owes tax of say £10,000 but only has £1,000 in its bank account. It therefore follows that you have drawn £9,000 too much from the company and therefore owe the company £9,000. Hence an overdrawn loan account. This is a similar scenario to being overdrawn with your bank.

The Inland Revenue now keep a watchful eye on overdrawn Director’s loan accounts (i.e. the Director has drawn more money from the company than he was entitled, typically dipping into the tax reserves). If this case arises the Inland Revenue will charge 25% tax on the overdrawn amount. This tax is repaid to the company when the loan is repaid. We must therefore stress the need for a separate tax reserve account in the company’s name.

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What happens to the company if my contract expires and I take a permanent job?
You have two options with regard to the company. The first is to close down the company. The second is to leave the company open in a dormant state, this is where the company does not trade but may be reactivated at any time should you recommence contracting.

Company Cessation

Your accounts for the year end will require completion and we write to you nearer this date to request the relevant details. At this point we prepare the accounts and let you have a note of the final tax liability. All assets will then be deemed as passed back to you. It is possible to pay the Corporation Tax early, the Revenue will refund the amount that you would have received in if you had paid the tax on the due date.


A formal application will be sent to Companies House to apply to have the company ‘struck-off’ the company register when your accounts have been agreed by the Inspector of Taxes. If an application is sent in earlier it may be refused on the grounds that matters have not been finalised with the Inland Revenue. It should be noted that a company cannot be voluntarily struck-off until there has been at least three months of no trading.


You should note that when the company is struck-off the company bank account is automatically closed. Therefore you should ensure that all funds are removed from the account and that the company is not due any repayments before this happens.


Any company pensions must be reviewed. If it is a portable scheme you may take it with you and contribute to it personally. This must be discussed with your pensions advisor.


The bank account may be kept open, and closed when formal notification has been given that the company has been wound up.


Dormant Company

The procedure is the same as for the closing down the company, as detailed above. However, an application is not sent to Companies House to apply to have the company ‘struck-off’ the company register.


On an annual basis a set of accounts need to sent to Companies House and the Inland Revenue to show that the company has not traded. Some administration work is also necessary in respect of the company’s PAYE scheme.


Company pensions may either be kept within the company and contributed to within the company or if it is a portable scheme you may take it with you and contribute to it personally. Again this must be discussed with your pensions advisor.


The bank account can be maintained or closed dependent on whether any funds are still to be put through the company. If it is closed you may always open another when necessary.


Form P45 is not appropriate as you are still employed by your company. You should complete form P46 which would be provided by your new employer.

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