What is a dividend? | 4 minute read

Many people have heard of the term “dividend”, however not everyone understands what a dividend is or how it works.

In simple terms, a dividend is a sum of money that a limited company pays out to someone who owns shares in the company. It is a set amount of money that is usually paid quarterly or annually to a shareholder of a company and is paid out of a company’s profits or reserves.

Dividend stocks are well known within the world of business as being safe and reliable investments and include shares in some of the world’s biggest, high value companies.

However, it’s only limited companies that can pay dividends. Why? Limited companies are the only type of business that issue shares, as partnerships and sole traders are not set up in this way.

So, how do dividends work?

A dividend is a chunk of a company’s profits that gets paid out to shareholders each year and the directors are responsible for determining how much of the year’s profit can be shared amongst its shareholders.

Any declaration of dividends must be recorded as a board minute and Limited companies are only allowed to pay dividends to their shareholders if there is enough profit to do so. All directors must have a board meeting to agree on the sum of money that they wish to share with their shareholders.

And, dividends can be shared from profit generated in other years. For example, if a small company makes a profit of £3,000 in the current year but has access to profit saved up of £8,000 from previous years, the company can pay dividends to shareholders.

Are dividends exempt from tax? 

Dividends are taxed at a different rate from most other types of income however, they are still liable for tax as they are seen as a form of income.

What are the dividend tax rates in 2019-20?

The amount of tax you pay on dividends currently sits at the same rate that it has been for the past two tax years, with basic-rate taxpayers paying 7.5% on dividends and higher-rate taxpayers paying 32.5% on dividends.

How is a dividend paid?

The vast amount of dividends are paid in the form of a dividend cheque however, there are many companies who will also make payments in additional shares of stock.

Why choose React Accountancy?

Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

 

Get in touch today for further information about any of our services.

You can reach us on 01914324110 or contact us via email using info@reactaccountancy.co.uk

 

 

The UK Government’s furlough scheme was first introduced in March 2020, in a bid to prevent mass redundancies as Coronavirus gripped the UK.

Subsidising the wages of people who can’t do their jobs due to Covid-19 restrictions, or due to the fact that there simply isn’t enough work available, the furlough scheme has already been utilised by around 10 million people in the UK.

And, as the second wave of the virus brings new restrictions and challenges, on November 1st, the Chancellor, Rishi Sunak, announced he would extend the scheme to the 31st March, 2021.

This has been welcomed by many struggling businesses, who have been left with no other option but to close their doors following the announcement of month-long lock down restrictions in England, including the closure of pubs, gyms, restaurants, and all non-essential shops.

Will it be any different from the original scheme?

 In recent months, businesses have had to top up furloughed wages by 20%, with the government paying 60%. Earlier in the year, under the Coronavirus Jobs Retention Scheme, employees placed on leave received 80% of their pay, up to a maximum of £2,500 a month.

The good news is, the scheme will revert back to its original offering, with the Government pledging to pay the full 80% of employees’ wages, with the employer only covering pension and National Insurance contributions.

Does the new furlough scheme apply across the UK?

Yes, any employee working within in the UK is eligible to take advantage of the furlough scheme, with Mr Sunak confirming that the scheme will apply to the whole of the UK.

The chancellor has been quoted in the press stating that his intention was: “to give businesses security through the winter. The security we are providing will protect millions of jobs.”

Why React Accountancy?

Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

Get in touch today for further information about any of our services.

You can reach us on 01914324110 or contact us via email using info@reactaccountancy.co.uk

 

 

  What are the latest changes to Coronavirus support for businesses? | 4 minute read

Covid-19 has had a significant impact on the world’s economy and has forced many businesses to have to shut their doors to the public. And, with a second wave of the virus just getting started, businesses and employees have been growing increasingly concerned about where they stand and how they are going to cope financially.

 

So far, businesses across a diverse range of different sectors have received a lot of welcomed and much needed support from the Government, but with the furlough scheme due to come to an end on 31st October, many businesses are wondering how they will survive the winter and what happens next.

 

The good news is that a full range of business support measures have been made available to UK businesses, which has come as welcomed news to those businesses that are struggling through the pandemic. And in response to the challenges UK businesses are facing, Rishi Sunak has come to the rescue with an updated Job Support Scheme that aims to help businesses keep their heads above water has we all continue to manoeuvre this challenging virus.

 

The new scheme outlines the following measures that have been designed to provide much needed support to those businesses that are struggling.

 

As part of the new measures, you can expect the following support:

  • Businesses will pay just 5% of wages for hours not worked
  • All employees must work a minimum of 20% of hours to get help
  • Grants for the self-employed will be available and raised up to £3,750
  • New generous grants will be available for businesses operating in high alert areas in Tier 2 and Tier 3.

 

This not only offers reassurance to businesses that help is available but it also aims to protect as many jobs as possible.

No one knows how the next few months will pan out however, it is hoped that the government’s stepped-up support will help as many struggling businesses as possible.

 

Why React Accountancy?

 

Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.

 

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.

 

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

 

Get in touch today for further information about any of our services or to find out more about how you can benefit from Coronavirus support for businesses.

 

You can reach us on 01914324110 or contact us via email using info@reactaccountancy.co.uk

 

 

Our guide to VAT

Here’s our VAT guide to everything you need to know about VAT for  your business.

What is VAT?

VAT stands for Value Added Tax. This tax is applied to the sale of goods or services by companies who are registered in the UK. When a sale is made, the company adds VAT onto the cost or invoice, collects the full amount, and then pays the VAT TO HMRC.

Is VAT charged on all goods and services?

No. Not all goods and services are VAT-rated. Any goods and services that aren’t eligible for VAT are known as VAT-exempt. This includes things such as residential rent payments, health services, financial insurance, and gambling.

Do I need to register for VAT?

You’ll need to register your company for VAT when your taxable turnover reaches the £85,000 threshold, or you expect it to be more than £85,000 in the next 30-day period. If you fail to register for VAT within 30-days of crossing the £85,000 threshold, you may face a fine.

The figure is calculated on a 12-month rolling basis, rather than the calendar or tax year.

Some businesses also choose to register for VAT voluntarily, before they reach the VAT threshold. This can help give your business more credibility and also allows you to reclaim any VAT paid on the purchases you make.

Which VAT scheme should I use?

There are a number of different VAT schemes, and it’s important to consider which one is best for your business. The main VAT schemes are:

Flat Rate Scheme – For businesses with a turnover of under £150,000. You’ll pay a percentage of your turnover to HMRC, with set rates for individual industries. However, you won’t be able to claim back the VAT you incur on purchases, this is reflected in the fixed rate.

Cash Accounting Scheme – Popular amongst small businesses, you only pay the VAT income you have actually received during the quarter. However, this also means that you can’t claim back VAT for any invoices that haven’t been paid. Businesses with a turnover of under £1.35 million are eligible.

Annual Accounting Scheme – Rather than making quarterly payments, you will make advance payments towards your bill throughout the year. You will then be required to file on VAT return and pay the remaining balance, or claim a refund if you’ve overpaid. Businesses with a turnover of less than £1.35 million are eligible.

How to register for VAT

You can register for VAT online or by completing a VAT1 form. You’ll need to have certain detail to hand, including your Unique Tax Reference, business bank account details, company number and registered address, and details of any associated businesses from the past two years.

 

We hope you’re found our VAT guide helpful. If you’re in need of help with VAT in Newcastle-upon-Tyne or any of the nearby areas, then be sure to make REACT Accountancy your first port of call. We have years of experience handling all aspects of VAT, from planning to returns and much more. We work closely with our clients to ensure their VAT returns are filed correctly and on time. For more information or if you’d like to discuss using our VAT service, then be sure to contact us today.

 

If you’re about to begin a new business venture, setting up a limited company is one of the most tax-efficient and smartest ways to run your company.

A limited company is a business structure that has been incorporated at Companies House as a legal ‘person’. But what does this mean? This basically means that the director or directors of a Limited Company are responsible for all business debts up to the sum of their shares and investments, as well as what they agree to contribute in their personal guarantees.

 

We’ve created a helpful guide outlining how you can set up a Limited Company.

First and foremost, if you decide to set up a limited company, you will basically own everything you do and will be accountable for all of the business decisions that you make.

You will first need to decide whether you want to set your company up as a Private Limited Company or Public Limited Company.

The vast majority of small businesses, freelancers, contractors and start-ups will opt to become a Private Limited Company as, to become a Public Limited Company, the business must have a minimum share capital of at least £50,000. There must also be two shareholders, two directors, and a company secretary.

 

Choosing a name

Next, you will need to think about what you want to call your company. It’s important that your name reflects who you are and how you want to be seen – after all, it’s the first impression your customers will get of your brand

It should also be unique, differentiate you from your competitors, and of course, you’ll need to check that another business hasn’t already used it. 

Forming a Limited Company

You can form a Limited Company online by providing the following information to Companies House online. Click here to download our Company Formation Form. 

The type of business your limited company will operate as. You will be asked to submit a SIC code (Standard Industrial Classification code) for your business.

  • The address you want to register your business at. This will then become your registered office address.
  • You will then need to decide on the ownership of your company including how many shareholders and how many shares each shareholder will have.

Once you’ve followed these steps, in the vast majority of cases, Companies House will have your limited company formed in a few hours. And then its time for the fun to begin!

 

Why choose React Accountancy?

Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

Get in touch today for further information about any of our services.

You can reach us on 01914324110 or contact us via email using info@reactaccountancy.co.uk

 

There are various reasons why you might want to close your limited company.

But it’s not simply a case of closing the doors, taking down your website, and letting your clients and customers know you’ll no longer be trading. There are also various legal steps you must take if you’ve decided to close your limited company.

The steps you need to take to close your limited company, and the costs involved, will depend if your company is solvent or insolvent.

Closing a solvent company

If your limited company is still able to pay its bills, it is classed as solvent. You can close a solvent company in one of two ways:

Member’s Voluntary Liquidation (MVL)

When applying for MVL, the directors will be required to sign a Declaration of Solvency, confirming that the company is solvent. All shareholders will then have to vote on the MVL, and at least 75% must be in favour for it to be passed.

If the company is liquidised, a licensed insolvency practitioner (IP) will be appointed to administer the process. Any assets will be sold off and, when the company is solvent, the proceeds will be distributed amongst any creditors, before being split between the shareholders.

Company dissolution

Company dissolution is typically the cheapest way to close a limited company. This involved being struck off the Companies House register.

Before dissolving the company, you must take a number of required steps, including ceasing trading for three months, closing down your payroll scheme, paying your creditors, and meeting your tax and National Insurance liabilities. You’ll also need to inform any creditors that the company is being dissolved.

Once you’ve completed the necessary steps, you’ll need to complete a DS01 form and send it to Companies House along with the required fee.

Closing an insolvent company

If your company can’t pay its bills, it is classed as insolvent. If this is the case, you must arrange the liquidation of your company. If you don’t pay your creditors, you may be forced into liquidation.

Creditors’ Voluntary Liquidation (CVL)

If your company is struggling with debt, this may be the best option. However, you must ensure you put the interests of your creditors ahead of the shareholders of you could be investigated by the Insolvency Service for misconduct or wrongful trading.

As soon as the company becomes insolvent, you must cease trading immediately to protect your creditors’ interests. Shareholders must then vote on a winding-up resolution, and 75% must be in favour for it to pass.

You will then present your creditors with a repayment proposal. If they vote to accept it, an insolvency practitioner will be appointed to take control of the company’s assets. A

 

Compulsory Liquidation

Compulsory liquidation can be initiated by a director, the company itself, or the company’s creditors if they are owed £750 or more, by lodging a winding-up petition at court.

If a winding-up order is granted, the company will undergo compulsory liquidation.

 

How much does it cost to close a limited company?

The costs involved in closing a limited company vary depending on the way the company is closed. Of course, however you close the company, you will also need to pay any outstanding debts and wages.

To strike off a solvent company is typically the most affordable option, with a fee being paid to Companies House. An MVL will involve a liquidator’s fee, which will usually be anything from £1,500 + VAT, depending on the complexity of the process.

A CVL is usually the most costly way to close a company, and you will typically need to pay around £3,000 to £7,000. If these fees aren’t covered by the company’s assets, the directors may be held personally liable.

 

Here at React Accountancy, we can take care of the process, ensuring your limited company is closed in the most effective and efficient manner, and that all regulations are adhered to.   We can close your limited company for £350+VAT.

To find out more about how we can help you close your limited company, please get in touch.

 

There are lots of benefits that come hand in hand with acquiring the support of an accountant to take care of your day to day accounting duties.

As limited companies also have far more responsibilities than sole traders, it can become very easy for business owners to become overwhelmed by their accounts, especially if they don’t have any experience in book keeping.

Saving you both time and money when it comes to handling all aspects of your accounting, hiring an accountant is not a legal requirement however, it is sure to make your life a whole lot easier, leaving you free to do what you do best, run your business.

 

What do accountants do?

An accountant’s responsibilities encompass a wide range of different roles, which will also vary depending on the size of the company they are working with. From preparing and submitting annual accounts and VAT returns through to filing payroll runs and monitoring cash flow, an account’s support can be invaluable to a whole host of different businesses.

The vast majority of accountants will also be more than happy to offer advice on any tax issues, conduct annual reviews, handle any HMRC correspondence and of course, produce end of year accounts which are then submitted to companies house once a year. Your accountant will also provide an annual confirmation statement too.

With this in mind, it certainly pays to hire an accountant to help support your financial business operations.

 

How much does it cost to hire an accountant?

The amount you will pay for an accountant depends on the services you require and you will quickly discover that across the industry, prices vary based on location, experience and speciality.

All accountants have specialist qualifications and have spent years studying this field of work. With this in mind, you will be paying for a professional service, which is not always cheap.

Of course, factors such as the complexity of your business also impact on the price you will pay for an accountant however, like any service, you should always make sure that you shop around for an accountant that meets your business needs.

 

Why choose React Accountancy?

Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

 

Get in touch today for further information about any of our services.

You can reach us on 01914324110 or contact us via email using info@reactaccountancy.co.uk

 

 

Tax

Have you heard of HMRC’s Making Tax Digital (MTD) project?

Starting in April 2019 all VAT Registered businesses will be compelled to submit their VAT Returns through approved software as HMRC will switch off the VAT submission section of their website in order to ensure that they can capture more business information and a full audit trail of the data behind the VAT Return.

A year later will see all Limited Companies and Sole Traders with a turnover in excess of £10,000 per annum having to make quarterly profit returns to HMRC.

This is now a great time to get involved with this project and to use it as a launch pad for improving the information that you have available to help you to run your business and achieve your goals.

React Accountancy have all the tools and experience that you need to help you on this journey and our mission is to help our clients grow, become more efficient, more profitable and more successful.

Don’t worry about the changes that are coming – we are happy to offer you a free consultation to fully explain MTD and the opportunities that it represents.

Get in touch – we love to talk & love it even more when we’re helping businesses to thrive!

Property

Mortgage Interest Relief:

Under current arrangements, interest paid on a loan or mortgage used to purchase a property which is let can be deducted from the rental income from the letting before calculating any income tax due. The Government is to change this longstanding rule and replace it with an income tax deduction at the basic rate (20%) on the interest paid.

As this is a major change for landlords the change will be phased in from 2017/18 with the amount of the tax deduction from rents reducing and the amount of basic rate tax relief given increasing. In the transition years landlords will be able to claim:

  • 2017/18 – 75% of the interest against rents, basic rate tax relief on 25% of the interest
  • 2018/19 – 50% of the interest against rents, basic rate tax relief on 50% of the interest
  • 2019/20 – 25% of the interest against rents, basic rate tax relief on 75% of the interest
  • 2020/21 – only basic rate relief will be given on the interest

Wear & tear allowance:

Existing arrangements for furnished lettings allow a fixed annual deduction for wear & tear on soft furnishings and moveable furniture of 10% of the rents – this is to end from April 2016. From 2016/17 onwards, landlords will instead claim only for expenses actually incurred during the year.

Rent a room scheme:

The annual tax free amount that landlords can receive from letting a room in their own home is to increase from £4,250 to £7,500 from April 2016 onwards.

Overall affect:

Individuals letting a number of properties may to see an overall reduction in the tax relief they obtain on the financing element of their letting business. The Government’s stated intention is to “make the tax system fairer” however, it is perhaps inevitable that higher financing costs will be passed on by landlords to their tenants through higher rents. As regards the changes to the wear & tear allowance, additional record-keeping will be necessary in future years to ensure that all replaced items can be claimed.