Limited Company Archives - Page 5 of 7

News,May 2018

What is a Close Company – A Basic Guide!

George20/10/2021Business , Limited Company

Within the United Kingdom, the term close company is totally different from closing the company, and it solely impacts private limited corporations. This term does not affect LLP or sole traders. A close company consists of participators that are less than or equal to five. Therefore, to know more about what is a close company and participators, read this blog till the end. Looking for expert advice, get in touch with our Limited Company Accountants now! What is a Close Company? It is a private limited company that is privately possessed & controlled by participators that are less than or equal to five. Many small companies within the United Kingdom are close companies because they generally have one or two participators. What Are Participators? It is a person who has a financial interest in the private limited company in terms of: Rights to the capital on winding up or closing the company. Share capital of the company. Voting rights in the meetings. The examples of participators are as follows: Director of a company Shareholder of a company A business loan creditor. Where a Company Can Not Be Close HM Revenue & Customs has specified rules where a company can not be classified as a close company. The rules are as follows: The company is controlled by one or more open companies under any of the control tests (CTM60210 to CTM60250). The company can not be termed a close company under the winding-up test in CTM60320 or control test in (CTM60210 to CTM60250) unless it includes an open company in the group of participators that are equal to or less than five. Only the control test in ICTA88/S416 (2)(c), can show that the company is close. Under the control test, the company would not be classified as a close company in case the reference to participators in Section 416(2)(c) does not include the business loan creditors that are open companies. Publicly Traded Vs. Closed Companies The close companies get less attention as compared to the publicly traded companies. The publicly traded companies garner more attention due to their listed status & reporting requirements, e.g., annual reports. Whereas close companies do not have many burdens of reporting, that is why they have less obligation to transparency. They do not have to publish their financial statements. Corporation Tax Rules for Close Companies Whenever it comes to corporation tax, many close companies can benefit from the starting rates or small businesses. But if it is a close investment company, you have to pay the full amount of corporation tax regardless of your profit levels. Are you tired of taxation problems? Then, let us handle it! The Bottom Line: Now that you know what is a close company, we can sum up the discussion by saying that close companies and closing a company are two different terms. Do not consider them the same. Close companies are the companies that are owned and run by five or less than five participants. However, before considering yourself a close company, read the rules as mentioned above carefully, laid down by HMRC, or consult a professional regarding this. We’ve chartered accountants in Corydon who specialise in offering affordable accounting and taxation services for private limited companies (including close companies), property owners, and self-employed professionals. Get in touch with us today! Disclaimer: This article intends to provide general information based on a close company.

What is the Allotment of Shares & What are the Reasons for Issuing Shares?

George04/10/2021Business , Business Growth Ideas , Limited Company

You may want to change your company’s share structure by adding a new shareholder, or changing the current percentage of shares between the shareholders; this is where the allotment of shares comes into play. In the allotment of shares, the company issues and allots shares to new or existing shareholders. The shares can be allotted to both individuals or corporate entities. But what is the reason for allotting shares? To know about it, read this blog till the end. Talk to one of our chartered accountants in Croydon about the online accountancy services we provide. We are just a click away! If you are confused about the process of shares allotment and you want an expert service for it, then feel free to contact us! What is the Allotment of Shares? By the company, the process of issuing shares and then allotting them to new or existing shareholders is known as the allotment of the shares. New Shares are usually allotted when new business partners are introduced in the company. Most of the companies consider issuing and allotment of shares as the same thing because they follow the same procedure. But keep in mind that these two are different terms unless they follow a similar procedure. What are the Reasons for Issuing Shares? The main purpose of issuing shares is to raise funds for a business. Some of the essential reasons to issue new shares are as follows: For the repayment of the company’s borrowings. In order to raise funds for a company. To raise funds for development or for a new project. At the time of incorporation of a company. To raise funds to purchase a new company or a business. To repair the trade continuation and damaged balance sheet of small businesses at the time of financial crisis. When shares are granted by a business as a share option to employees or directors. When a senior employee becomes a director or a new director joins the company. The Process of Allotment of Shares To allot shares to the new shareholders, all the companies need to perform few specific steps. The following is the procedure for allotting shares. 1) Confirmation to Shareholders ID & Shareholdings It is mandatory to confirm the existing shareholdings, the shares you are proposing to introduce, and your shareholder’s final shareholding structure. The confirmation of the following details is necessary in order to allot a share to a new shareholder. Name Date of birth Relation with other shareholders Residential address Nationality Proof of the ID 2) Holding a Board Meeting To hold a board meeting is essential for shares allotment. The changes are required to be approved in the board meeting, after confirmation of the shareholder’s ID and shareholdings. The information regarding the shareholders and the revised share structure should be included in the minutes of the board meeting. And, it has to be kept secure in the records of a company. These details are then forwarded to the Companies House and they can be utilised as evidence during an audit. 3) Updating Companies House for New Shares Allotment After the allotment of the shares, the details are required to be reported to the Companies House within one month of allotment. This is done by completing & filling the statement of capital form (SH01). The form can be easily filled out on the website of Companies House. This form is utilised to update the share structure of a company to Companies House. The SH01 form is used to report the number and value of newly allotted shares to Companies House, but it does not include the names of shareholders — that is reported in the CS01 (Confirmation Statement). 4) Issuing of New Share Certificates According to the new share structure, the new share certificates are issued to the shareholders after updating the Companies House of the allotment of the new shares. The details about shareholdings are included in a share certificate. Moreover, the certificates that are issued previously will be cancelled automatically. 5) Updating the Company’s CS01 (Confirmation Statement) with New Share Totals Updating the CS01 with the Companies House is mandatory for you. The new share structure in the company will be displayed after updating it. In the company’s confirmation statement, you must include the details of a new shareholder. This is because the SH01 form does not contain any details that are related to a new shareholder. Quick Sum Up We hope now you have understood what is the allotment of shares, the reasons for issuing shares, and the process of share allotment. Go through the above-mentioned procedure while allotting shares. We recommend you consult with a chartered accountant as the process of issuing and allotting shares is quite technical without the help of a professional. CruseBurke provides an expert service for the allotment of shares, providing all the required minutes, forms, and documents with practical advice! So, contact us now! Disclaimer: This article intends to provide general information on allotting shares.

What is a Final Salary Pension – A Basic Guide for Beginners!

George23/09/2021Business , Finance , Limited Company , Misc

If you are on the verge of your retirement, you need to know how to plan a retirement. Let’s make your challenge a breeze for you. You are definitely asking yourself, “what are pensions” and how they can help you secure your old age. Pensions are simple savings plans that enable you to get income after your retirement to meet your living expenses. Among the different types, the defined benefit pension plan is reliable as one of the traditional options that is considered by many individuals. This guide will elaborate on all you should know about the defined benefit pension, commonly known as db pension, in easy terms. If you are considering long-term financial security, knowing more about a defined benefit pension can improve your decision-making. Let’s get started! We have skilled financial advisors at CruseBurke that can assist you with pensions and retirement planning! So, get an instant quote now! What is a Defined Benefit Pension Plan? We will begin with the simplest tone: what is a defined benefit pension or final salary pension? The defined benefit pension refers to a category of retirement plans under which your employer will pay a certain amount of money every year for your retirement. This amount is determined by your salary, the length of service that you have served the company, and, in some cases, your age at retirement. The defined benefit pension is characterised by the employer’s responsibility to give the workers peace of mind. Role of Defined Benefit Pension for Retirees in the UK A defined benefit pension plan is predictable and guarantees a certain fixed income after retirement. Unlike other types of pensions, in which the final pot is conditional on investment performance. Defined benefit pension scheme is not a new concept, especially in employment in the UK government, such as in teaching or civil service, etc As also called a final salary pension since the payment is mostly linked to what you earn at the end of your career. This is what makes the defined benefit pension so appealing to the employee. It takes away the risk from your shoulder and that of the employer. This is different from a personal savings account or other retirement schemes. Furthermore, it is basically an employer-sponsored plan in which the company makes the investments. The company ensures that there is a sufficient amount of money to cover the benefits promised. How Does A Defined Benefit Pension Work? Well, as we have covered the basics. It is time to know how a defined benefit pension really works. When you start working with a company with a defined benefit pension, you generally pay a certain amount of your salary every month, and your employer also contributes, usually a lot higher than in other plans. The contributions are placed safely in a large fund, which is invested and managed by professionals. The key benefit of a defined benefit pension is that the amount is defined in advance. It is not a lottery whether you will win it or not. Your retirement sum is calculated by a set formula. In this pension scheme, the employer is fully responsible for maintaining a sufficient pension fund that ensures enough for the pensions of retirees. Let’s see how it works: Pension = Years of service × Accrual Rate × Final Salary For example, 30 years of service with a final pay of £30,000 at 1/60th accrual rate. This means that a sum of £15,000/year is your pension payment. This is what is commonly called a defined benefits pension. This is because the benefits are already defined and secured. Moreover, these pension funds are invested in stocks, bonds, and other assets to increase the amount of money required to pay pensions. When the investments are flourishing, that is good. Otherwise, the employer will replenish the fund. Pros and Cons of Defined Benefit Pension The defined benefit pension scheme comes up with lucrative advantages for employees. Where there are benefits, there are challenges as well. Worry not, most challenges fall on the employer’s shoulders. Let’s discuss the pros and cons of this pension scheme: Pros It guarantees a certain income after retirement. Investment risk is the employer’s responsibility. The defined benefit plan is indexed to inflation. Complete financial security for retirees. Lifelong pension facility. Cons Usually non-transferable from one employer to another. Benefits once fixed cannot be changed. Employers can apply caps or some other conditions. Is a Defined Benefit Pension the Right Fit for You? You must be familiar with the common saying that “not every fruit is sweet”. But still it’s a fruit. Therefore, the defined benefit pension is not a ‘one-size-fits-all’ financial solution. If you are in the public sector and have availed of the defined benefit pension, you are lucky. You will have a certain predictable income after retirement. But on the other hand, if you are in the private sector and change jobs quite often, or go on an early retirement, this might not be a good fit for you. If you are working in a private organisation, you might face a few problems. As this pension scheme is not very common in the private sector nowadays. But, do get professional advice and have a careful thought before opting for this pension. A defined benefit pension scheme is a wonderful investment to consider when a person wants to remain financially stable after retirement. It is a useful addition to your retirement plan because of the predictability and certainty it provides. The fact that the burden of fund management lies with the employer, and also the possibility of protection against inflation. Bottomline It’s a matter of fortune to be in a defined benefit pension plan; it is worth valuing. It is the kind of financial anchor that guarantees a form of income that can be used to meet basic needs such as living expenses, bills, and housing in retirement. You can add to this base of other savings (ISAs or personal pensions) to make your …

What is Equity? Definition, Formula & Importance

George20/09/2021Accounting , Business , Finance , Limited Company

A company balance sheet contains the term “equity.” But this term is also common in personal finances, accounting, and amongst investors. This blog will inform you about what is equity, its different forms, and why it is essential for businesses and shareholders? So, let’s start to explore more! Our accountants at CruseBurke are qualified and cost-effective! We save your time, money, and stress by handling all your finances and business problems in no time! So, allow us to do this at an affordable package! What is Equity? The amount of money that can be returned to the shareholders of a company at the time when all the assets are liquidated, and all the debts of a company are paid off is known as equity. In a publicly listed company, equity belongs to every shareholder, and if the company is limited, it belongs to the owner(s). What are Different Types of Equity? A degree of ownership found in any asset after subtracting all the liabilities is generally known as equity. Following are its different types: Private Equity – It is any stock or additional securities that shows ownership in a limited company. Stockholders’ Equity – It is the number of funds that are contributed by the shareholders (including profits or losses) on all company balance sheets. Ownership Equity – It is the amount of money that remains after paying all the debts to its creditors by a company (when it is proclaimed bankrupt and goes into liquidation). How to Work Out Equity? The utilisation of shareholder equity usually occurs in the balance sheet and accounting, such as Total Liabilities + Shareholder’s Equity = Total Assets The analyst often utilises equity to determine the financial position of a company. You can rearrange the formula as mentioned earlier to calculate the equity. Shareholder’s Equity = Total Assets – Total Liabilities Unable to calculate equity? Let us handle this! Why is Equity Essential for Businesses? Equity is the most valuable bit of a business that is remained from the total assets once all the liabilities are subtracted. A business is considered more valuable if it contains more equity. They can often use this as leverage for investment. You also possess equity and a share of the profits when you possess shares in a business. It means that if your business performs well, your profits increase, and so does the value of equity. So, a private company that needs to raise funds can consider selling shares (equities) within the company. What are the Equity Risks for Businesses and Shareholders? Some equity risks are involved for both businesses and shareholders. Those risks are as follows: 1) Investing is a Risk Purchasing shares in exchange for equity involves risk, like any investment. The businesses may not perform as they planned; therefore, the equity’s value may decrease. 2) It Changes the Business The selling of equities (shares) means that the original owner (s) of a company must share the profits with other shareholders. It also means that the ownership of a company is shared too. For example, if you as a business owner want to sell your business equity (share), the other shareholders also have to agree to this. Therefore, sharing ownership can make it more complex to make changes or decisions in the future. Conclusion We hope now you have understood the basic concept of what is equity and why it is essential for businesses and shareholders. Equity is important as it represents a company’s financial position, and a business is considered more valuable if it contains more equity. A company can sell the equity to raise its funds, but it must be aware of its risks. Talk to one of our chartered accountants in Croydon about the online accountancy services we provide. We are just a click away! If you are confused about selling equity, then feel free to contact us! We have the best solutions to all your business problems! Disclaimer: This blog contains general information about what is equity.

Registered Office Address and a Business Address – Basic Guide

George17/09/2021Business , Limited Company

Knowing the difference between a registered office address and a business address can be confusing if you establish a limited company in the United Kingdom. Many individuals use addresses interchangeably, but each address has different purposes. Therefore, when it comes to the rules of the company address, you must follow them strictly when using, locating, and disclosing these addresses. So, in this article, we’ll look at both addresses and how they are different? Reduce your business burden by allowing our accountants to establish your company within 3 hours! Contact us now! What is a Registered Office Address? A registered address is a legal requirement for a company that is registered with the Companies House and publically visible on the company register. This address is required by limited company owners throughout the formation process. It is your company’s contact address for correspondence with government organisations such as HM Revenue & Customs and Companies House. Furthermore, this is where all important mails are delivered. A limited company owner or director must submit a registered address when founding a limited business. This address must be a physical address in the United Kingdom where the business is registered. This address can be found in the following places: England and Wales Scotland Only in Wales Northern Ireland Remember that this address does not essentially have to be the location where you conduct your daily business operations. If you meet the legalities of the registered address, you can use the home address, office of your solicitor or accountant, your trading address, and any other address that is permitted as a registered address. No, Post Office Boxes (PO Boxes) are not acceptable as registered office addresses for companies. This is because the Economic Crime and Corporate Transparency Act 2023 requires companies to use an “appropriate address” that is easily traceable and verifiable, which a PO Box does not meet. What Documents are Required by a Company to Change its Registered Address? If you want to change your address while staying in the same country, you must notify Companies House and modify it on other official documents such as: Emails Cheques Publications Order forms Letterheads Invoices Money orders Websites Faxes Bills Receipts What is a Business Address? A business address is also known as a trading address. It can be a registered address, but it’s not required. It is the address where a corporation is located and runs its business operations. This address is also used to communicate with clients, banks, and suppliers. Companies House and HM Revenue & Customs do not require it, unlike a registered address. Furthermore, unless it serves as a registered office, it is not included in public records. Some businesses only have one trading address, which might or might not be the location of their trading activity. Moreover, some businesses have various business addresses in different countries. Although a trading address differs from a registered one, many companies utilise the same address for business and registration. Because every company is unique, the location of each one differs as well. Registered Office Address and a Business Address – What is the Difference? Following are the dissimilarities between a registered address and a business address. Quick Sum Up We hope this blog will help you to understand both terms better “registered office address” and “business address”. So, we will conclude our blog by saying that a registered address is required by law to receive all legal documents from government authorities. In contrast, a trading address is not an official address for correspondence with HM Revenue & Customs or Companies House. A business address is required to contact non-government entities such as clients, banks, and customers. You can, however, use your registration address as a trading address for day-to-day activities. CruseBurke offers all-inclusive business creation services at a low price with a registered office address in Croydon. We’ll quickly register your self-employed business in no time! Disclaimer: This blog is written to inform you about your Registered Office Address and a Business Address.

Loaning Money to Your Own Company as a Director

George14/09/2021Business , Finance , Limited Company

When you set up your business, there are many initial costs, like accountancy fees, insurance premiums, stationery, and website packages. To pay for all these costs, loaning money to your own company is a good idea while you are waiting for payment from your first client. Through a director’s loan, you can support your business. It means to provide your own money to a limited company to support numerous projects and objectives. Though it is a helpful approach to provide funds, it is also a decision that must be properly examined and planned out. Therefore, you should be aware of the following things if you consider lending money to your limited company. Tired of taxation problems? Take your break and let Our Experts handle the rest! Why would your Own Company require a Loan? Your limited company would require a loan because of the following reasons: You are setting up your new company, maybe with the other directors, and you would like to provide some funding for the initial costs. Your company currently is not making a profit, and you want to invest some operating capital into it. You don’t have enough funds to pay for any asset or equipment right now, and you want to buy it through the company. Check Legal Aspects Before Loaning Money to Your Own Company Before loaning money to your own company, double ensure that the company’s Articles of Association permits the company to take money from the directors and whether there are any restrictions on these loans imposed by the Articles. If you are unclear about what is allowed for your company by the Articles of Association, you should be aware of it before proceeding. The next step is to make a loan agreement after ensuring that the loan is allowed. The loan agreement should specify the repayment schedule, size and date of the loan, and the agreed rate of interest. It is usually advisable to record a loan agreement properly! Our professionals at CruseBurke provide affordable solutions for all your business problems! Contact us now! What is a Director Loan Account? The director can make a loan to the company in other forms, along with making in the form of cash. For instance, in case a director purchases goods, services, or equipment on behalf of a company, or if he forgoes payments of salary for a certain time, then this will also depict a loan to the company and must be documented in the DLA (Director’s Loan Account). Can a Director Lend Money to a Limited Company? Yes, a director can lend money to a limited company. It is preferable rather than taking a commercial loan from your bank. All loans are recorded in the director’s (loan) accounts. If a director borrows money from a limited company, it will also be recorded for accounting purposes in the director’s account. Furthermore, it is useful to record all kinds of loans such as deferred salary payments, payments for goods or services, or cash loans directors make to the company. All these loans are documented in DLA as credits, and when the company files its annual legal accounts, they will be stated as current liabilities on BS (Balance Sheet). The Key Point to Consider When Lending Money to a Limited Company Following are the key points that need to be considered when lending money to a limited company. By making a director’s loan to your company, the amount (as a creditor) will be included on a company’s balance sheet. Your company can pay off the loan at any time if the director decides. Until the amount shown on the company’s balance sheet is fully paid, it will decrease. Ensure that there are enough funds in the company to encounter its current liabilities, e.g. tax, if you want the company to pay off the loan at any time. When thinking about any aspect of loaning money to your company and how you execute loan transactions, remember that limited company directors are required to always behave in the company’s maximum interests. Wrapping Up We will conclude our blog by saying that loaning money to your own company is preferable rather than taking a loan from the bank. There are several rules to consider while lending or borrowing money to your company. However, keeping in mind those rules, we can say that the director’s loan is a complex area and requires strict accounting and bookkeeping. So, make sure you have a professional for dealing with all the aspects of a director’s loan. Our cost-effective Chartered Accountants in Croydon are experienced in dealing with all aspects of directors and company loans! So, reach us now for customized packages! Disclaimer: This blog contains general information about lending money to your own company.

Turnover vs Revenue – Top 8 Differences

George13/09/2021Business , Finance , Limited Company

Turnover and revenue – are they the same or do they differ? If you’ve ever been confused by this, you’re not the only one. Many people use these terms as if they’re the same. People often use these terms interchangeably. But there’s a small difference in both the terms, and that matters in business. Let’s break it down! Contact our professionals at CruseBurke to grow your business revenue & turnover! Reduce your business burden and stress by letting us handle your financial worries! What is Revenue? Revenue is the total amount of money a business earns from its primary activities such as selling goods or providing services. It is also known as sales or income. Revenue doesn’t include any costs, taxes, or deductions. It’s the full amount before anything is subtracted. What is Turnover? Turnover is the total money received from selling goods and services after deducting trade discounts, VAT, and other taxes. Turnover also includes things like compensating travel expenses when clients visit for consultations, which will appear on your expense report. Turnover is not your profit; however, to achieve it, you need to pay out your general business expenses and production costs. What is Turnover in the UK vs US? The UK and US define turnover differently in various contexts. This table will give you a better view of how turnover and revenue are used in the UK and US. Aspects United Kingdom (UK) United States (US) Meaning Referring to revenue (total sales generated from goods/services) Referring to Efficiency metrics (how inventory and fast assets are cycled) Use Tax Filings, Annual Reports, Financial Statements HR Reports, Efficiency Ratios, Managerial Analysis Accounting Treatment Appears as the top-line figure on the Income Statement Rarely shown in financial statements, but can appear in management ratios (inventory turnover, asset turnover) Is Revenue the Same as Turnover? Revenue and turnover both show how much money a business makes, but they are used in different ways. Revenue is the total income from selling goods or services and is the term used worldwide. Turnover is the UK term for the same thing, especially when referring to income after returns and discounts. While revenue is the formal accounting term, turnover is more common in the UK for business and tax purposes. What is the Difference Between Turnover and Profit? When you are working in a business, it is important to understand financial aspects and terminologies. Sometimes people use turnover and profit interchangeably but they refer to different things. Like turnover refers to ‘the net sales of a company’, while profit refers to ‘the net residual earnings after deduction of all expenses’. Turnover vs Profit The following are the key differences between Turnover and Profit: Aspects Turnover Profit Meaning Total sales/revenue earned before costs Financial gain or benefit after costs and expenses are deducted from revenue Focus Measures business activity/scale of operations Measures business success/ financial health Impact Higher turnover does not always guarantee profitability. Profitability basically shows how well a company generates returns after covering all expenses. Usefulness Helps measure market demand, growth, and size. Helps measure efficiency, sustainability and investor’s value. What is the Difference Between Turnover and Revenue? As described previously, revenue is the income which is generated by a business through performing normal operations. Turnover is the measure of how quickly a business is selling its inventory and replacing it with new one. Here is a detailed comparison: Aspects Revenue Turnover Definition It refers to the amount a company makes by selling its products or services. It refers to the amount of income generated through trading products and services. Effects It has a strong effect on the profitability of the company. It has a strong effect on the efficiency of the company. Importance It is important to understand, as its primary factors affect the growth of your business. It is important for managing production levels, and ensuring nothing is left for a delayed inventory period. Reporting It is mandatory to report revenue as it is the first item on the income statement. It is vital to report turnover, as it is calculated to understand financial statements better. Turnover vs Revenue vs Profit Turnover is the total money a business makes from selling its products or services, before any expenses are taken out. Revenue is pretty much the same, but can also include things like royalties or interest. Profit, on the other hand, is what’s left after all expenses are deducted. It’s the real “bottom line” that shows how well a business is doing financially. What are the Types of Revenue? There are many types of revenue. But in business, you’ll mostly hear about these four: Operating vs Non-Operating Revenue The earnings generated by a company from its internal business’s main core activities before taking into account interest and taxes is known as Operating Revenue. This is the money that comes in from sales of goods or services, and it’s the top line number on a company’s income statement. The earnings generated by a company from its outside activities is known as Non-Operating Revenue. This can include interest income, dividends and gains or losses from investments. Nonoperating revenue appears at the bottom of a company’s income statement. Gross vs Net Revenue Gross revenue is the total amount of money earned from the sale of goods or services before a company deducts any expenses. It shows the total sales performance and the overall demand for a company’s goods and services Net revenue is the amount earned after a business deducts all expenses. It shows the actual earnings which a company generates after accounting for the direct expenses related to sales. What are the Different Types of Turnover? The following are the different types of Turnover: Inventory Turnover It indicates how often a company replaces and sells its inventory during a given time period. Formula: Inventory Turnover = Cost of Goods Sold(COGS)/Average Inventory Asset Turnover It measures how efficiently a company utilizes its assets to generate revenue. Formula: Asset Turnover = Net Sales/Average Total Assets …

What is Depreciation and How to work out Depreciation in the UK?

George10/09/2021Accounting , Business , Limited Company

The value of the company’s assets, like machinery, computers, and office furniture, diminishes with time. Depreciation is an accounting term which means as an asset moves through its productive life, its value gradually decreases from the original price. This blog will inform you about what depreciation is, how to work out depreciation, and why it should be important to you as an owner of a business. So, let’s start! Feel free to contact our professionals if you are worried about calculating depreciation! We will work out your depreciation in no time and at a reasonable price! What is Depreciation? Depreciation is the process by which the value of your company’s assets decreases over time. As a result, depreciation affects the book value of your assets on the balance sheet. When an asset depreciates, you won’t be able to sell it for the original price. Moreover, because the business uses its value for sales and profit, depreciation is considered a day-to-day operating expenditure on the profit and loss sheet. A computer, for example, depreciates over time and eventually becomes unusable, reducing its original price to zero. What are Depreciable Assets? Depreciable assets are tangible assets that gradually deteriorate, decrease in value, or become useless over time by use and wear and tear. The term used for the diminishing value of intangible assets is known as amortisation. Fixed assets are classified into two categories: Tangible (Fixed Assets) – The assets that can be touched are tangible assets such as buildings, machinery, computers, cars, desks, etc. Intangible (Fixed Assets) – The assets that can not be touched are intangible assets such as Intellectual property, goodwill, software, copyright trademarks, patents, etc. How Does Depreciation Apply in Accounting? Depreciation is a non-cash cost. It is categorised in the two following perspectives: Income Statement – The decrease in the original value of an asset is treated as an expense. Balance Sheet – Same as in the income statement, depreciation affects the book value of your assets. How to work out Depreciation in the UK? You need to calculate depreciation to see how an asset’s value depreciates over time and how quickly this happens. There are many methods for calculating depreciation in the United Kingdom, such as: 1) Straight Line Method According to this method, the value of assets depreciates at the same rate every year until they become obsolete (useless). An asset with a three-year lifespan, for example, would lose one-third of its value each year. The formula of this method is as follows: Depreciation = Purchase Cost of Fixed Asset / Useful Life of Fixed Asset 2) Diminishing Value Depreciation The asset depreciates at a higher rate in the first few years under this method. And, over time, the rate of depreciation decreases. This formula can be used to compute depreciation using this method: Depreciation = Purchase Cost of Fixed Assets * Reducing Balance Percentage / Projected Lifespan In Years 3) Units of Production Depreciation Some products have a longer lifespan when measured in terms of their work rather than their time. An automobile, for example, may operate for a certain miles, or a packing machine may pack a given number of products. Therefore, rather than being depreciable based on their age, these assets are depreciable based on their functioning capabilities. Depreciation = (Cost – Residual/Salvage Value) * (Number Of Units Produced / Life In A Number Of Units) Depreciation vs Capital Allowances (UK Tax Treatment) In accounting, depreciation is the process of spreading the cost of a fixed asset—such as machinery, vehicles, or office equipment—over its useful life. This helps present a more accurate view of profit in the financial statements. However, HMRC does not allow depreciation as a tax-deductible expense. When preparing your company’s Corporation Tax return, any depreciation charged in the accounts must be added back to your profits. Instead, tax relief on qualifying capital expenditure is provided through capital allowances. These are specific deductions that reduce your taxable profits, and they follow rules set out by HMRC. Main Types of Capital Allowances (2025/26) Annual Investment Allowance (AIA): Gives 100% tax relief on qualifying plant and machinery purchases, up to £1 million per year. Full Expensing – Available until at least March 2026, allowing companies to claim a 100% first-year deduction for most new plant and machinery. Writing-Down Allowances (WDA): Apply when expenditure exceeds the AIA limit or for certain assets that don’t qualify for full expensing. Rates are generally 18% (main pool) or 6% (special rate pool) per year. First-Year Allowances (FYA): Available for specific energy-efficient or environmentally beneficial assets. Depreciation for Small Businesses Depreciation will help you better understand your expenses and lower your tax bill ( which are positive outcomes). At first, it will appear to be complicated, but there’s not too much to worry about. Many businesses consider the schedule of depreciation, which is provided by HM Revenue & Customs. Once the depreciation is set in the accounting application (software), the calculation is performed automatically. An accountant or bookkeeper, as usual, can help you along the route. Final Thoughts We hope you now understand the basic information about what depreciation is, depreciable assets, how depreciation applies in accounting, and how to work out depreciation in the UK. This information will assist you in better understanding the worth of your assets, lower your tax burden, and increase your company’s value. Moreover, suppose you don’t want to work out manually. In that case, you can use your accounting software to implement HM Revenue & Customs’ depreciation schedule and submit accurate data immediately to your tax return. Are you looking for a tax accountant to file your tax return? Then contact our Chartered Accountants in Croydon! We provide the best payroll and taxation services at affordable prices! Disclaimer: This blog contains general information about depreciation.

Trading Name vs Company Name UK: Which One should I Use?

George07/09/2021Business , Limited Company

Your company’s title is an essential part of your brand and personality. It is shown on signs, printed material and expressed on all of your tax returns and budgetary reports. Limited companies are required to register an official name with the Companies House and also have a choice of operating under another (different) name. But which name is better to be used by the company? In this blog, we will focus on trading name vs company name. Have you established a new business? If you are up for company registration then contact us! What is a Company Name? The name, which you have officially registered with the Companies House, is known as a company name. The companies names are invalid if: They are offensive They are linked with any local authority or an organisation They are identical to the trademark or registered name The company name should end with “Ltd” or “Limited”. What is a Trading Name? It is a name that is used by your business on daily basis and you are not required to register it with the Companies House, but it should meet the same conditions as a company name. Remember that the rules for company names are slightly different for self-employed persons and partnerships. They are not required to register their official company name with the Companies House (and operate under the given name instead of a company name). Trading Name vs. Company Name Trading name vs. company name; which one to choose? It is a key decision to operate under a trading name or adhere to your unique company name. You have to keep these points in mind if you are choosing to use a trading name. Confusion for Customers – Using a trading name (after few years of running your business) instead of a company name can create confusion in your customer’s mind. Therefore, you should be prepared to answer all the queries related to this change, and you should convey to your customers that your company will remain the same, only your name will be changed. Company Reputation – This change can harm your business reputation. Business owners struggle a lot to set up a solid brand and reputation. If individuals can not recognise your brand due to name modification, then it might negatively affect any goodwill you’ve built up over the past years, so do consider these risks while using a trading name instead of the company name. Feasible with both time and money- You have to make sure that is this change is feasible in both time and money? Your expenses will quickly increase because to reflect your new name, you’ll need to get new signs made, stationary, and editing your social media and website. So think almost whether you’ll save the money – and time – you’ll make these changes. In the event that you’re still battling to pay your bills and cover your other costs, it will not be encouraged to change your business name until your accounts are a bit more steady. Quick Sum Up To sum up the discussion of trading name vs. company name, we can say that you should consider all these key points while using a trading name instead of the company name. If you make sure of all the potential risks, then you can change the name confidently. In addition, it is better to consult with the professional before making any decision because they can help you better choose a valid name for your company and check the relevant trademarks registries for you. Are you looking for a chartered accountant for your company? Look no other than CruseBurke! Allow us to help you select a legal name for your business and let us handle all your business problems at affordable prices! Disclaimer: This blog contains general information about trading name vs. company name.

Corporation Tax for A Limited Company, How Much Is There To Pay?

George03/09/2021Dividend Allowance , Limited Company , Tax Issues

If you are running your business as a limited company, you must pay corporation tax. Limited corporation’s tax rules are different from other corporations to some extent. Therefore, in this blog, you will know the corporation tax for a limited company, how much corporation tax needs to be paid, and what expenses you can claim capital tax allowances. Are you looking for an accountant to help you manage your finances? Please do not hesitate to contact us! CruseBurke accountants provide tax services at a reasonable cost! Types of Taxes to be Paid by a Limited Company? Following are the taxes that need to be paid by a limited company. Corporation Tax National Insurance Contributions (NICs) Value Added Tax (VAT) In this blog, we will cover corporation tax for a limited company. Corporation Tax for a Limited Company If you are running a limited company, you must pay corporation tax on your company profits. The current rate of a corporation tax is 19%. Corporation Tax is levied on a company’s trading profits, the sale of taxes, and investments. When establishing your limited company, you must register yourself for corporation tax with HMRC within the first three months of trading. Late registering may result in a penalty of fees. So, registering for corporation tax must be your priority. How much Corporation Tax to be paid by a Limited Company? The rates of corporation tax to be paid by a limited company in 2021 is as follows: The “main rate” for the companies, making profits except for ring fence profits, is 19%. The standard rate for the unit trusts and open-ended investment companies is 20%. You can check more information about the rates here! What Expenses are Eligible for Capital Tax Allowances? When working out how much charge you owe, a few Corporation tax stipends are available for your company. When you prepare your accounts, you can deduct your business expenses from the trading profits before tax. Capital tax allowances can only be claimed on the “entirely and exclusively” expenditures incurred for business purposes. Some costs which are qualified for capital tax allowances are: Machinery & equipment Vehicles Accommodation Mileage Training Remember that these expenses must be incurred for business purposes, and you can not claim capital tax allowances for the costs used in entertaining clients. Dividend Taxation for Limited Companies In case your local company has made a benefit after taking away trade costs and enterprise charges (corporation tax), it can give out these profits to its shareholders with something called a ‘dividend’. You’ll only pay shareholders a profit (dividend) in case you’ve got good benefits. Dividends are not charged in the UK, but the shareholders who gain them may be subject to income tax and NICs(National Insurance Contributions) depending on their personal tax allowance. However, when they complete their annual self-assessment, this will become clear. The tax rates can be changed yearly for limited companies, and it can be troublesome to decide (exactly) what your tax liabilities are. However, you can take help from the tax accounting apps to understand your tax liabilities and manage your finances. Final Thoughts To conclude our overview of corporation tax for a limited company, we can see that limited corporations benefit from being exempt from income tax. However, there is no way to avoid corporation tax, NICs, and VAT. You need to pay the corporation tax on your trading profits. Besides this, you can claim tax reliefs on corporation tax. Many tax reliefs are available to reduce your corporation tax bill, such as Research and Development relief, Creative industry tax relief, The Patent Box, Marginal Relief, Disincorporation Relief, etc. Moreover, you can reduce the corporation tax bill if you make wise strategies about the dividend payments (that directors take from the business) and salary as you can not avoid your taxes, so it’s essential to remain up-to-date about your tax duties while remaining tax efficient. Unable to claim corporation tax reliefs on your taxes? Let us handle this! We are qualified chartered accountants that can claim your tax relief and manage your taxes in no time! Disclaimer: This blog contains general information about Corporation tax for a limited company.