Freelance IT consulting and tax - a question or two

It is easier to be self employed rather than work through a company. It may save a little bit of tax but there is more accounting work to do which would need an accountant. It's still adviseable to get an accountant but he'd charge less than if you had a company. It's less work to complete the self employment pages of a tax return than it is running a payroll and submitting statutory accounts, abbreviated accounts and corporation tax return.

These are the tax rates you'd have to pay.

Kenny, as a general principle, if you are self-employed, the profit from that gets put on top of your other income and taxed accordingly. So if, for example, your current employment income pushes you into the 40% higher rate already, any self-employed earnings will be subjected to a straight 40%.

Alternatively if the top rate of tax on your employment income is 22% then if there is sufficient 22% band left then that would be the rate of tax on your self-employment earnings. Or possibly the rest of the 22% band, and then some at 40%.

Using a Limited Company? Totally different, and more options available. Not a daft question .... do you actually need this extra income at this time? Or would you just leave the net profit in the company to accumulate there? If you need/want to withdraw the income then you can do so either as salary and/or dividends.

Operating a Limited Company? Yes there are additional tasks ... Companies House Annual Return ... preparation of accounts in a particular format ..... abridged version of accounts filed at Companies House.

"Peter Saxton" wrote

Aren't "abbreviated accounts", actually statutory?

In the sense that most things are governed by statute. I live in a statutory house and I have a statutory marriage.

There are many types of accounts needing to be prepared. Most companies have three main:

the most detailed are for management less detailed are for HMRC less detailed are for shareholders less detailed are for Companies House

Depending on the size of the company and whether the company is listed will also affect the information provided.

Many people involved in the finances understand what "statutory accounts" mean by the context. They are the main disclosure requirements decided by statute before they are abbreviated for Companies House..

"Peter Saxton" wrote

OK, I guess the level of detail for these will be set by management;

"Peter Saxton" wrote

Where do they detail (pun intended!) the level of detail which they require?

"Peter Saxton" wrote

Are the members not allowed to set the level of detail for the accounts which they receive? After all, they own the company!

"Peter Saxton" wrote

I thought they had the "statutory" accounts, which can be abbreviated ones (depending on the circumstances noted in the relevant Companies Acts & Regulations)?

"Peter Saxton" wrote

For disclosure to whom? [If not management / HMRC / shareholders / Companies House.]

What pun?

They require the full members' account which are required to be reported to shareholders, plus a detailed profit and loss account, plus calculations showing the difference between the profit on those accounts and the profit shown on the tax return.

The information they are entitled to is set out in the Companies Acts.

I guess they could also be described as statutory accounts.

The shareholders.

They are not. The directors decide.

Not according to common usage of the term.

Shareholders

"Ronald Raygun" wrote

"Detail the detail..." ?!

"Jonathan Bryce" wrote

Where do they say that?

"Jonathan Bryce" wrote

"Required"? (See below...)

"Jonathan Bryce" wrote

Again, where do they say that?

"Jonathan Bryce" wrote

Fair enough - I understand that this is requested in the notes on the Corporation Tax Return.

"Jonathan Bryce" wrote

But if that's all it is (just an "entitlement"), then they would be able to waive that "entitlement".

I'm thinking particularly about small private companies, owned by just a few shareholders - of course, major PLCs probably wouldn't be able to get a unanimous decision from all their shareholders anyway ...

"Peter Saxton" wrote

But, ahem, the shareholders get to decide who the directors are!

I'm thinking particularly about small private companies, owned by just a few shareholders - of course, major PLCs would instead have other (listing) rules etc. anyway ...

If that's a pun, then I think you needn't bother to apply to become a scriptwriter for a comedy show to be peppered with "unrehearsed" wit.

AIUI a pun is a play on words based on similar words having different meanings. In this case, "detail" and "detail" are identical, so it passes the "similar" test, but despite the small matter that one is a verb and the other a noun, their meanings are effectively the same, so it fails.

The directors decide the maximum level of detail. The shareholders decide who the directors are but not what they do when they are directors. I stand by my statement that the directors decide.

If you are thinking about the above I don't know why you are making a fuss about the statutory accounts. The shareholders will have access to all the management information they require. The accounts that are prepared are to satisfy the requirements of Companies House and HMRC.

"Peter Saxton" wrote

Yes, but any decision by the directors is made with the thought that if the shareholder's don't like it, then the director(s) may be removed from office. Hence they need to take account of the shareholder's views.

"Peter Saxton" wrote

Well, firstly I was just questioning whether the "abbreviated" a/c's are indeed "statutory" ones. [I thought they were.]

Then, I was trying to determine if in fact "full" statutory a/c's (ie not abbreviated ones) need to be formally prepared, in the situation of a small company as described. Jonathan B suggested that these are required for HMRC, but no-one seems to have shown any evidence to back up that statement...

"Peter Saxton" wrote

Exactly my point! - Why bother going to the trouble of formally producing a/c's in a specific ("full" statutory) format, if they are not required?

"Peter Saxton" wrote

We know that CoH are satisfied with the abbreviated a/c's.

But what are the actual *requirements* for HMRC? - Do they really *need* the "full statutory" a/c's?

So the directors decide!

Is a house statutory?

"A company tax return consists of:

a correctly completed return form CT600 under certain circumstances, CT600 Supplementary Pages and information, accounts, computations, statements and reports which the company has drawn up and are relevant to the tax liability.

If your company delivers a completed return form but does not deliver a copy of its accounts and computations, it is treated as not having made a return."

It is required by statute, Companies House and HMRC.

See above. The abbreviated accounts don't give a profit and loss account for a small company so they wouldn't be much good to show the corporation tax charge calculations.

"Peter Saxton" wrote

Do you really think that they would "decide differently" if the shareholders asked them for a certain level of detail / format?

"Peter Saxton" wrote

IF it is defined by statute, yes. Is it?

"Peter Saxton" wrote

I can't see anything there that says "statutory" ("full", "abbreviated" or otherwise).

Did I miss it, or did you forget to quote it?

"Peter Saxton" wrote

For *whom*? Companies House doesn't need it (see below), shareholders don't need it (they can all waive their entitlement), so what's the point in creating something if you don't need to give it to anyone?!

"Peter Saxton" wrote

No it's not - they are satisfied with just *abbreviated* a/c's (they don't require the "full statutory" ones).

"Peter Saxton" wrote

According to your quote above, all they need are "accounts" (not necessarily the "full statutory" ones)! [Also see below.]

"Peter Saxton" wrote

Perhaps, but the small company could easily provide other info, **in whatever form they wished**, that *would* show all relevant details.

Do you still think that HMRC need this "extra info" in the (specific) form of "full statutory accounts"?

The F "In the case of a company which- (a) is required to deliver a company tax return for a period, (b) is resident in the United Kingdom throughout that period, and (c) is required under the Companies Act 1985 to prepare accounts for a period consisting of or including the whole of that period, the power to require the delivery of accounts as part of the return is limited to such accounts, containing such information and having annexed to them such documents, as are required to be prepared under that Act. "

"Peter Saxt>

... OK, so the small company we're considering is one such company ...

"Peter Saxton" wrote

... OK, so all the FA1998 is doing is *LIMITing* what can be required ...

"Peter Saxton" wrote

And we know that the CA1985 only requires *abbreviated* a/c's to be prepared for "small" companies, doesn't it?

"We" is wrong then. "Full" accounts have to be prepared. "Abbreviated" accounts have to be submitted to Companies House. Have you ever read a set of abbreviated accounts and remembered that they have been prepared from the full set of accounts?