Blog

Micro entity

Another good thing that have come out of EU.

EU issued a directive no. 2012/6/EU as of 14 March 2012 to be implemented all over EU for micro entities.

 

UK government to comply with the above directive put in place: The Small Companies (Micro-Entities’ Accounts) Regulations 2013.

 

Main aim- To reduce administrative burden for small business to boost economy.

 

What is a micro entity?

If a company meets two of the following three conditions, it is classified as a micro entity:

• Turnover : not more than £632,000

• Balance sheet total : not more than £316,000

• Employees : not more than 10

 

What its use?

Mainly your accountant’s year end work is reduced thus the fee you pay is reduced.

 

How do we file annual accounts at Companies house ?

In the same way as you use to file, just select “Micro entity” while filing.

 

What is the impact for HMRC accounts and tax return?

HMRC accepts these accounts. There is no material impact on your corporation tax.

National Insurance is weekly or monthly but not yearly

Directors National Insurance

April 2017

My client took a new employee who had worked for two months with another employer before joining him.

My client will employ this individual for a couple of months paying say £1000 per month.

After taking the last employer’s pay and current projected pay this individual’s earning was below Personal Allowance limit of £10,600 (Tax year 2015 -2016)

When I ran the payroll , HMRC Basic PAYE tool asked me to deduct Class 1 National Insurance from this employee’s pay.

I was confused as I calculated that this employee’s total pay in the whole tax year will be less than Primary Threshold of £672 x 12 = £8,064

I had been calculating National Insurance contribution like Income Tax and taking the National insurance thresholds to be same as Income Tax Threshold.

I researched and once again Chartered Institute of Tax Advisor’s(CIOT) website came to rescue. It informed me that national insurance thresholds are calculated on a weekly or monthly basis (depending on the payment cycle) unlike Income Tax where thresholds are calculated on a yearly basis.

Example of Hypothetical Emily was most illuminating. Visit the below mentioned page and

Ctrl + F “Emily” to find the example.

Link to the article : http://www.taxguideforstudents.org.uk/tax-essentials/what-is-national-insurance

Thank you CIOT

March 2019

Recently my colleague Neel took another client where the director was appointed during the financial year. He was processing his one salary payment as £8,424 the NIC threshold for financial year 2018-19 but tax softwares were asking him to deduct NICs. We tried in two different software same result.

We searched on the internet and came across another helpful guide by HMRC CA44. It reminded us that like employees , directors appointed mid way through the year will have their NIC threshold pro rated.

 

Which accounting framework?

There are too many accounting framework around IFRS, IFRS for SMEs, FRSSE, FRS 102 and others,  all creating a confusing mess.

I have created below a simple table explaining the applicable frameworks:

Company typeAccounting framework
Micro company       ie. Turnover below £632,000 per annum1FRS 105
Small Companies    ie.  Turnover below £10.20 million per annum1Section 1A Small Entities of FRS 102
All othersFRS 102
Listed CompaniesIFRS

Where an entity prepares its financial statements in accordance with an accounting framework , a statement of compliance needs to be included in the notes.

Notes :

  1. Other criteria also apply like number of employees and balance sheet total.

Further reading:

  1. ICAEW article with all resources.

 

Bonus:

  1. A company that is not a parent but whose accounts are included in consolidated group accounts is not entitled to apply the micro-entities regime in it is individual accounts. Thus UK subsidiary of a overseas parent will need to use FRS 102 (1A if small). source: ICAEW

HMRC Password : Anomaly – 12 digits only.

Recently one of my customer was having issue in submission of corporation tax return.

The return status was showing as `Locked`. Finally we found out the client password was 13 digits long but HMRC website will take in only the first 12 digits of the password.

Leaving the 13th character of the password , did the trick !

HMRC – How to make a dormant company active

HMRC guidance states that this can be done via online service but I could not find an option to do it.

Finally on calling them they informed that I need to send a letter to:

Corporation Tax Services,
HMRC
BX9 1AX

 

Sample letter below:

Corporation Tax Services,
HMRC
BX9 1AX

 

10th Jan 2017

Dear Sirs,
Sub: Company now Active

Unique Taxpayer Reference (UTR): 6666 6666 66
Company Name: THE ABC LTD
Company Number: 09000000

Please make the above mentioned company ACTIVE in your records. The company started trading from 5th Oct 2015.

Please can we request you to make the following accounting period live to enable us to file the tax return:

Period: 1st Oct 2015 to 30th September 2016.

In case you have any questions, please do not hesitate to contact us. We are their HMRC Agent. Our Corporation Tax Agent Reference is: H2102A

 

Yours faithfully,