Posted in: Limited companies

What is the Annual Return?

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The Annual Return is a form that limited companies (only) need to send to Companies House once a year. It is a summary of the company’s non-financial information. Typically it includes the company number, the company’s registered office address, principal business activities, the directors of the company, details of the type and number of shares issued, and (optionally) the names of the shareholders.

The Annual Return has to include the above information as at a certain date, known as the ‘made-up date’. This is usually the anniversary of incorporation and is not usually the same as the year-end for the company accounts. Consequently, it is usually prepared as a separate exercise to the annual accounts and corporation tax returns.

The fee for submitting the Annual Return is included in your annual quotation and we submit it automatically so there is nothing for you to do. That said, you will need to notify us if any of the key information above changes.

Please note: Companies House issue reminder letters for the Annual Return a week or two before the date on which the return can be submitted. These letters read like ‘warning’ letters  and can cause worry and confusion. Despite this, you do not need to do anything. We will submit the return automatically before the deadline date,  but please call us if you are worried.

Expenses Checklist

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What you can include

We recommend that you look at everything you spend and and ask whether there is a business related element to it. If there is, then it is likely that you can claim all or a proportion of it to reduce your tax bill. If in doubt include it in your expenses along with a note for us and we will review it at year end.

Compare your expenses to the following checklist to see if there is anything else you can claim for:

  • Purchases – of goods and materials for resale
  • Subcontractor costs – people who you sub-contract work to
  • Employee costs – people who work for you on a PAYE basis
  • Premises costs – rent and rates paid
  • Working from home expenses – if you do any work from home (or store business-related things there) you can claim a percentage of your household costs including mortgage interest
  • Repairs and renewals – if this is for property you own and relates to new build or new features (rather than upgrades or replacements) then it may need to be added to fixed assets. Please let us know details
  • General administration expenses – don’t forget to claim for any cash items you pay for personally such as postage, computer consumables, stationery etc.
  • Motor expenses – you can either claim the actual costs (petrol, repairs, MoT, insurance etc.) or a mileage allowance. If you haven’t kept all your petrol and repair receipts then you will need to let us have a note of your mileage
  • Other travelling costs – include a proportion of long-distance trips and holidays if they contain any work related element such as attending business meeting, exhibitions, networking, or doing market research. Don’t forget to make an assessment of parking charges etc.
  • Subsistence – costs for accommodation, food, and and general expenses incurred whilst working away from home
  • Advertising and marketing – don’t forget any networking costs, even social meetings can have a claimable element if it may lead to business
  • Entertaining – there are strict rules on this and we will need to go through this with you. You cannot claim for business meals held within 3 miles of your home
  • Accountancy – all accountancy and bookkeeping costs are fully claimable
  • Staff party – if you have employees you can spend up to £150 per head on one annual staff event such as a Christmas party
  • Other legal and professional costs – these can be claimed if they relate to the business but you cannot claim fines or penalties as expenses
  • Bad debts – you can deduct any unpaid sales invoices if the likelihood is they will not be paid
  • Interest payments – these are allowable and will be shown on the bank statements
  • Bank charges – these are allowable and will be shown on the bank statements
  • Other finance charges – if you have any Hire Purchases or finance leases then you will need to let us see the contracts as we have to separate the interest and capital repayment elements
  • Fees and subscriptions – to professional and work-related bodies
  • Books and periodicals – if these are work-related then you can claim for them
  • Workwear – ordinary clothing is not allowed, but if they display the company name or logo then it will be allowed
  • Safety/protective clothing – high visibility jackets or steel-toed boots are allowable but not ordinary clothing, even if it is bright. If it can be worn socially then it is usually not allowed
  • Staff training and development – technically, this includes upgrading existing skills but not learning unrelated or completely new ones (barmy, but that’s the rule)
  • Mobile phone costs – we usually allow 100% of mobile phone costs used by the business
  • Director’s salary – if paid by a limited company through a PAYE scheme. Ordinary ‘drawings’ are not allowed
  • Capital equipment – such as computer equipment. If you have a camera, iPad, laptop or video does it have a business usage? If so let us know.

Additional first year expenses

Additionally, in the first year of trading you can claim a ‘fair value’ for any plant, equipment, or tools that you already own and introduce into the business, particularly:

  • Computer equipment and software
  • Machinery
  • Tools and equipment
  • Raw materials
  • Other related goods

You can also claim for:

  • Company formation costs
  • Pre-trading expenses – for market research, building prototypes, preparing business plans etc.

What you can’t include:

  • Payments for your own time
  • Your personal drawings – businesses are taxed on their profits, irrespective of whether they are left in or taken out of the business
  • Ordinary clothing – unless it falls into one of the categories above
  • Travel to a single place of work
  • Depreciation – instead HMRC allow you to claim Capital Allowances (we have a separate article on this). We will work this out for you.

The above is a general guide only. Detailed rules apply in many cases and we will guide you on the specifics when we prepare your accounts and tax return.

Limited companies – the basics

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Some general guidance

A limited company is a completely separate legal entity to that of the directors, employees and shareholders. It can sue and be sued in its own right. Its debts are not personal debts of the owners.

Limited companies pay ‘corporation tax’ on their profits. This is based on the accounting profits of the period which we adjust as required by HMRC.

What documents have to be submitted?

Each year you need to send HMRC:

  • A full copy of your accounts
  • A corporation tax computation
  • A corporation tax return.

These must be sent to HMRC within 12 months from the period end or penalties will be charged. Note: any tax payable must be paid within 9 months or interest will be charged.

Also, an ‘abbreviated’ set of accounts must be supplied to Companies House within 9 months of the period end or penalties will be charged. These are made publicly available. The abbreviated accounts contain a copy of the balance sheet but not the trading details for the period. They do not contain details the company profits or your personal earnings from the business.

And finally, the company must send an Annual Return to Companies House within 28 days of the ‘made up date’. This date is usually on the anniversary of incorporation. It is usually a different date from when the accounts are prepared and submitted.

Why be a limited company?

If the company is sued then this is not the personal responsibility of the directors, employees or shareholders – and your personal assets are not at risk. However, in certain circumstances a Court can overrule this and clients should always seek specific guidance before relying on this.

Also, dividend income does not attract National Insurance. As such it can be a much more tax-effective way of being paid as compared to PAYE income or being self-employed. People tend to roll their eyes at the mention of National Insurance – but on a taxable profit of £15,000 it can be a saving of £1,200!

How is corporation tax calculated?

The ‘trading profits’ of the company are adjusted to give the ‘taxable profits’ which are then charged at the prevailing rate of corporation tax. The main tax adjustment for small companies is usually for capital allowances (see below).

How can I make sense of the figures and tax computations?

The place to start is with the trading profit shown in the accounts. This is the starting point on the Trading profit computation which details the tax adjustments leading to the taxable profit. The taxable profit is then the starting point on the Corporation tax computation which details how the tax is calculated.

How do I pay the corporation tax?

Shortly after the end company’s year-end HMRC will write to you reminding you of your obligation to pay Corporation Tax. The bottom part of the letter will include a payslip. You can also pay online or at a post office.