Why it is vital to understand the separation between you and your limited company.

In law a company is a separate legal entity, or legal person from its owners (shareholders) and from its directors. A company can own property, enter into contracts, employ people, sue and be sued and even be charged with criminal offences. It is important to understand that even if you are the sole director and 100% shareholder in the eyes of the law you and your company are different people.

“A company can own property, enter into contracts, employ people, sue and be sued and even be charged with criminal offences”

It is important, if you are a company director and owner to understand the separation because it brings both benefits and also some negative consequences.

Benefits of separation

When the brown stuff comes into contact with the spinning thing this separation can be a huge benefit. If your company is sued or charged with a criminal offence, as a director you are protected by what is known as the veil of incorporation. So as long as you personally have acted legally and fulfilled your responsibilities as a director you cannot be sued or charged personally for things the company has done.

As a company director it is vital to understand your duties as a director because if you breach those duties the veil of incorporation can be lifted. That means you could be personally liable for the actions of the company. For a detailed explanation of your directors duties see 7 Things Every Company Director Must Know.

“…as long as you personally have acted legally and fulfilled your responsibilities as a director you cannot be sued or charged personally for things the company has done.”

Another benefit, especially for small business owners is the opportunities for tax planning that running your business through a limited company brings. At the time of writing corporations tax is a flat 19%. Depending on your income level this could be significantly lower than your personal tax rate.

Once the company has paid its 19% corporations tax the company owners (you) can’t just start spending wildly with what is left. I’ll go into this a little bit more shortly but a company’s post tax profits are still its profits and not yours. This is where is gets a little bit complicated, but it is not until you have withdrawn the money from the company that it becomes yours to spend.

There are essentially three ways for an owner director to get money out of there company. The first is repayment of the directors’ loan. This is covered in detail in Never Dance with the Debit . In short most company directors lend their company money when they set it up and it’s common for directors to pay expenses of the company out of their personal pocket. These, if not reimbursed all add to the directors’ loan account. If a director has a credit directors’ loan account (the company owes him money) then as long as certain conditions are met (covered in Never Dance with the Debit) they can withdraw this amount as a tax free loan repayment.

There are essentially three ways for an owner director to get money out of there company. The first is repayment of the directors’ loan. This is covered in detail in Never Dance with the Debit . In short most company directors lend their company money when they set it up and it’s common for directors to pay expenses of the company out of their personal pocket. These, if not reimbursed all add to the directors’ loan account. If a director has a credit directors’ loan account (the company owes him money) then as long as certain conditions are met (covered in Never Dance with the Debit) they can withdraw this amount as a tax free loan repayment.

The second way a director can take money from their company is by paying themselves wages. Directors’ wages are a tax deduction for the company, so they reduce the amount of 19% corporation tax that the company must pay, however they have other tax consequences, for both the company and the individual that need to be considered.

For the company, any week in which the wages paid is above the National Insurance Secondary Threshold (£169 per week, £732 per month or £8,788 for the 2020/2021 tax year) employers national insurance will need to be paid. This means that the company will need to be registered for PAYE and Real Time Information (RTI) payroll reporting.

For the individual, any week in which the wage is greater than the National Insurance Primary Threshold (£183 per week, £792 per month or £9,500 per year for the 2020/2021 tax year) employer’s national insurance will need to be paid. This tax is paid at source (deducted from your wages by your employer) which also means that the company will need to be registered for PAYE and Real Time Information (RTI) payroll reporting.

For the individual, any week in which the wage is greater than the National Insurance Primary Threshold (£183 per week, £792 per month or £9,500 per year for the 2020/2021 tax year) employer’s national insurance will need to be paid. This tax is paid at source (deducted from your wages by your employer) which also means that the company will need to be registered for PAYE and Real Time Information (RTI) payroll reporting.

If the wages are above the individual’s personal allowance then the individual will also be required to pay PAYE tax. This allowance starts at £240 per week, £1,042 per month or £12,500 per year for the 2020/2021 tax year. However if the individual has total income of over £100,000 then the personal allowance is reduced by £1 for every £2 above £100,000.

If all of this makes you think it is too complicated to pay wages from the company think again. There are two reasons why you should. Number one is that as long as you keep the total below the National Insurance thresholds you will reduce your corporations tax and get (currently) around £8,500 out of the company tax free (as long as your personal allowance hasn’t been reduced to much due to your earnings over £100,000)

The second reason is qualifying years for national insurance. This will be covered in detail in Protect Your Pension. In short, in order to qualify for state pension you need at least 10 qualifying years and in order to get the maximum state pension you need 35 qualifying years. A qualifying year is any year in which your total wages was above the national insurance Lover Earnings Limit. For the 2020/2021 year this was £6,240.

“…get a qualifying year for state pension, reduce your corporations tax and get money out of the company tax free…”

So if you pay yourself a wage for the 2020/2021 year of more than £6,240 but less than £8,788 you will get a qualifying year for state pension, reduce your corporations tax and get money out of the company tax free. I hope you followed that!

The third way of getting money out of your company is by paying dividends.

Dividends are how a company distributes its post-tax profits to its owners (shareholders). So when you take money out as dividends you have already paid 19% corporations tax on that money. The good news is that to take account of this dividends are taxed as lower rates than other personal income.

At present, where normal personal tax is 20% dividend tax is 7.5%, where normal personal tax is 40% dividend tax is 32.5% and where normal personal tax is 45% dividend tax is 38.1%. As well as this there is currently a £2k dividend tax free allowance, which is additional to the usual £12.5k personal tax free allowance.

Importantly dividends do not attract national insurance. This makes paying dividends more tax efficient than just paying wages, but also means that you will not earn state pension qualifying years by paying dividends. That is why it is important to combine dividends with the right level of wages.

Consequences of separation

How you get your money out of your company is fundamental to this topic because it highlights the distinction between the company’s money and your own. Once you have got your money out of the company you are free to do what you want with it – although don’t forget you may have to pay personal tax on it!

Importantly while the money is still in the company it is not your money. You are not at liberty to use it for your own purposes. This also goes for the company’s assets. It is too big a topic to go into detail here, but there are tax consequences if you use the company’s assets personally. The obvious example here is the company car.

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It used to be popular for people to buy their car in their company so that its cost could be deducted for corporation’s tax purposes. However if the car belongs to the company it is the company’s car and not yours. Using the company car for personal journeys is a benefit in kind, and for a long time now the personal tax payable on this has outweighed any corporation’s tax benefit.

What it all means

When you are the owner / director of a profitable limited company you can take the profits out throughout the year to fund your living costs. You just need to always be aware of two things:

  1. How much you can take out. As a general rule as long as you leave enough money in the company to pay your creditors and tax bills you can take out as much as you like (see 7 Things Every Company Director Must Know).
  2. Once you’ve taken it out, how much must you put aside for personal tax.

Keeping on top of these two things can be devilishly complicated, especially the 2nd one. The great news is that as an LCCS client you have access to our unique Live Tax Report. With just a few simple inputs this report will tell you exactly how much you can take out of your company and importantly, exactly how much you need to put aside for personal tax. What’s great about this is that come the end of the year you know how much corporation’s tax and how much personal tax you’re going to have to pay. You don‘t have to wait months for your company accounts to be done, there are no surprises and if you’ve followed our advice all the money has already been put aside.

See: Never Dance with the Debit (Directors’ Loan Account)

See: The seven things all company directors must know and why it’s necessary.

See: Protect Your Pension – What every company owner needs to know about NIC’s, Qualifying Years and State Pension (Coming soon)

Welcome to the LCCS Blog. This is just a very short introduction to tell you a little bit about LCCS, and why this blog is now a thing.

LCCS is an accounting firm for the modern age, aiming to disrupt a very traditional, conservative, old school profession. The accounting profession, especially at the smaller end of the market has historically moved very slowly and been either unwilling or incapable of embracing modern technology.

When I say the smaller end of the market, I mean the firms that service small companies like bootstrapped start-ups, contractor personal service companies and traditional small businesses like tradesmen and mum and dad corner shops. Historically these clients have been serviced by small local firms for whom modern technology means receiving client data on a spreadsheet on a USB stick, rather than hand written in a ledger book.

“These clients deserve far better service, using a modern model and at a far more competitive price than they have ever had before.”

These clients deserve far better service, using a modern model and at a far more competitive price than they have ever had before. This is what LCCS plans to provide.

The traditional model

Traditionally small local accounting firms have serviced these clients once a year by contacting them to “get the books in”, manually processing the books and preparing accounts and tax returns and then invoicing based on hours worked.

This leaves the client completely in the dark in terms of what their tax bills will be until well after year end and with no idea of what their accounting bill will be until they receive the invoice. Not only this but it means the client neglects their record keeping all year and then has a ghastly stress trying to work out what the earned and what they spend in a year that ended nine months ago.

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In a world where Tik Tok can provide 8.7 million videos on how to make beetroot chocolate cake in an instant these clients deserve better.

The LCCS Model

Firstly LCCS charges differently, so there are no surprises. LCCS is a subscription service with a low monthly fee which covers all of the HMRC and Companies House compliance work that a small company is legally required to adhere to. The fee is collected by direct debit each month, so the business owner never even has to give it a thought. Accounting fees are sorted.

“…a well-run limited company needs to be fully aware of its tax situation at all times

Secondly, LCCS believes a well-run limited company needs to be fully aware of its tax situation at all times. And when you are a small company understanding your tax position means not just understanding how much tax the company will need to pay. You also need to know how much you as the owner can take out of the company to fund your life, and how much personal tax you will have to pay on the money you have withdrawn. And you need to know this all throughout the year, not just 9 months after year end when your accountant completes your accounts. This is why LCCS developed the Live Tax Report.

LCCS Live Tax Report

The LCCS Live Tax Report is an unlimited and instant report that tells the company owner how profitable their company is and how much companies tax they are presently liable to pay at tax time. That’s the easy bit, anyone could do that, but for a small company owner it is only half the story. We believe that at present LCCS is unique in the market place in that it also tells the company owner how much money they can afford to take out of the company, how much personal tax they will have to pay on that money, and therefore how much of their earnings they can actually spend. And all of this is provided instantly and on demand.

LCCS achieves this with a very simple form for the owner to fill out, backed by a very complicated algorithm to generate the report. So every time you want to withdraw some money from the company you simply enter a few details about the companies income and expenses as well as a little bit about any non-company related income you may have received personally. The Algorithm does the rest and you are instantly presented with everything you need to know.

LCCS Year End

You’ve heard tax time needn’t be taxing. Well with LCCS its not. Because all of your information has been continuously submitted throughout the year to generate Live Tax Reports, come year end everything is already sorted and there is very little to do. A summary of your submissions for the year is provided and it makes up the basis of your year-end accounts and tax returns. All you have to do is check it over to ensure you are happy and haven’t missed or misstated a submission anywhere. You then provide some simple year end details like how much was in the company bank account and did anyone owe you money or did you owe anyone else money. And that’s it. LCCS prepares your accounts and tax returns, sends them to you for final approval and submits then to HMRC and Companies House. And because you’ve had tax updates all year, and been paying your accounting fees by subscription, there is no nasty surprises with your tax return or your accounting invoice.

“…no nasty surprises with your tax return or your accounting invoice…”

So that’s LCCS. What about the blog?

The LCCS Blog

The LCCS blog is a collection of articles written by LCCS to assist limited company owners in getting the most out of their limited company and understanding the rights and responsibilities that come with being a limited company director.

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Starting a new company can be daunting. Understanding the legal implications of a limited company structure can be bewildering. Ensuring you don’t pay more than your fair share of tax while also  not raising the ire of the taxman can be overwhelming.

The LCCS blog aims to demystify these and other topics related to being a company founder so that you can focus on running your business. Our goal is to make the articles simple enough to understand, short enough to hold your interest but comprehensive enough to provide all of the information you require. We know this is a balancing act and if you feel we have erred one way or the other please tell us in the comments.

If there is a topic you would like covered please specify it in the comments and we’ll do our best to oblige.

Good luck with your limited company journey and happy reading.

With the rise of the gig economy and portfolio careers many people are now taking advantage of the considerable tax and security benefits of running all of their income through a limited company. But while incorporation brings benefits, it also brings obligations that every company director needs to be aware of. Here we spell out the key fiduciary duties and every company director is legally bound to adhere to.

1 – The company’s constitution.

The first thing a company director needs to know is what powers to act they are given by the company’s constitution. Although you are not bound to use them and they can be modified during incorporation and also subsequently, by default all companies registered at Companies House start with the Companies House model articles of association. They can be viewed here.

If a director exceeds their powers it is possible that decisions they have made could be overturned and the director could be personally liable…”

As a director it is important to be familiar with the company’s articles of association as they are the most important part of the company’s constitution and first duty of a director is to act within their powers under the company’s constitution. If a director exceeds their powers it is possible that decisions they have made could be overturned and the director could be personally liable to the company for any resulting loss.

2 – You must promote the success of the company.

When acting for the company a director must always do what they believe to be the best thing to promote the success of the company for the benefit its shareholders. This means that any board decisions can only be justified by the best interests of the company, not by what is best for any individuals or for the board.

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This obligation is designed to protect the interests of the owners of companies where they are not the ones making the decisions. In practice if you own your own company it is likely that your own interests will always be aligned to the interests of the company. However a director is also required to have regard to:

  • The long term consequences of their decisions
  • The interests of the company’s employees
  • The company’s need to foster relationships with key stakeholders such as suppliers and customers
  • The impact on the environment and the community of the company’s activities
  • The company’s reputation
  • Fairness between company members

3 – You must exercise independent judgement.

Directors must formulate their own informed view of the company’s operations and best interests and make decisions based on that view. It is incumbent on all directors to keep themselves apprised of what is going on within the company, how the company is performing and its financial position. If they fail to do this they will be unable to make independent and informed decisions in the best interests of the company.

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4 – You must exercise reasonable care, skill and diligence.

A company director is required to exercise both the skill care and diligence that could be reasonably expected of a person in their position and the level of skill, care and diligence that they actually possess.

It is not an excuse to say that you acted to the best of your abilities if your abilities were less than what could be reasonably expected. At the same time you cannot say you did what could reasonably have been expected of you, if you actually had the knowledge and experience to know better.

“…corporation’s tax is a legal debt even if you haven’t lodged your tax return…”

Part of exercising reasonable care, skill and diligence is having an understanding of the financial situation of the company, and in particular insuring the company does not trade while insolvent. Insolvent trading is where a company incurs debts it is unable to pay.

For most contractors with personal services companies it is unusual to take on debts, so this obligation is easy to overlook. However it is important to understand that taking money out of the company, leaving it unable to pay its debts, is as much a breach as incurring debts that cannot be repaid. Furthermore it must be remembered that corporation’s tax is a legal debt even if you haven’t lodged your tax return yet. So if a personal services director takes dividends that leave the company unable to pay its corporations tax they can be in breach of this duty.

Before taking any money out of a company as dividends it is vital for the director to be aware of the company’s tax position. Further to this the company director must understand the impact of the dividend on their own tax position so that they are able to ensure that they are able to meet their own personal tax liabilities. Personal bankruptcy disqualifies a person from holding the position of company director. This is why it is vital that LCCS customers submit their income and expenses and review their Live Tax Report prior to withdrawing money from the company. This will ensure you are informed of and prepared for your company and personal tax liabilities at all times.

5 – You must avoid conflicts of interest.

A conflict of interest is a situation where you may be able to use your position as a director of the company to make a personal gain, at the expense of the company. For example if you have an interest in a customer, supplier or competitor of the company you may be able to use your position to influence the company to trade with you on favourable terms or use the knowledge you have gained as a director to gain an advantage for the competitor.

You must avoid any situation where you have, or could have a conflict of interest with the company, regardless of whether or not you take advantage of the situation. Sometimes it is not possible to avoid conflicts, or potential conflicts. However this duty is not infringed if you receive prior authorisation.

Prior authorisation can be granted by the articles of association, by a specific shareholder resolution, or by the board of directors. Where a director is conflicted on a particular issue they should declare the conflict and excuse themselves from any discussion or vote on the issue.

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6 – A director must not accept benefits from third parties.

You must not accept any benefits or gifts from third parties that could influence your actions or decisions as a director. This duty is not considered to be infringed if it could not reasonably be expected that the gift would give raise to a conflict.

7 – A director must declare any interest they have in either current or potential transactions or arrangements of the company.

Closely related to avoiding conflicts of interest, a director must declare any time where they have an interest in the activities of the company, outside of their capacity as director. In order for this duty to be breached the director had to be aware of the conflict and the conflict had to have the reasonable potential to affect the director’s actions or decisions as director.

As sole director and shareholder why do I need to worry about these duties? I will not take action against myself.

“…a liquidator can also begin enforcement action against a director in an insolvency situation. And if a company fails to pay its taxes HMRC can appoint a liquidator...”

A director’s duties are owed to the company they are a director of and no other party. And while it is true that the duties are there to protect the interests of the company that does not mean you don’t need to worry about them if you are the sole director and shareholder of a personal services company.

As well as the company, a liquidator can also begin enforcement action against a director in an insolvency situation. And if a company fails to pay its taxes HMRC can appoint a liquidator and wind up a company. In this situation the director can be personally liable for the unpaid debts of the company. Further to this certain breaches can result in a criminal fine.

Overdrawn directors’ loan accounts – Why it can be a big problem and how to avoid it.

If you are a company owner and you don’t understand your directors’ loan account, and the implications of having a debit directors’ loan account you could lose not just your company but your own assets as well.

“…you could lose not just your company but your own assets as well.”

You own 100% of the issued share capital of your company. You are the sole director of the company. No one else has any decision making authority over the company and the company has no debt. It is clearly your company and so you think of the company assets as your own assets. This is an attitude that is not only misguided; it has the potential to be catastrophic.

“This is an attitude that is not only misguided; it has the potential to be catastrophic.”

The first thing to understand is that you are not your company. In the eyes of the law your company is a separate legal entity. It has the power to enter into legally binding contracts in its own right, to earn money and to own assets. This is covered in more detail in You are not your company. It is very important to understand this point, so if you aren’t sure you fully comprehend it I urge you to read to read it.

For now it is sufficient to understand that although you may own 100% of the company, the assets of the company are not your own assets until you transfer them out of the company and into your own name. If you use the assets of the company for your personal gain you may need to declare that gain on a P11D and pay personal tax on it. This is all spelled out in You are not your company.

All about Directors’ Loan Accounts

A directors’ loan account is what is owed between the company and the director. If it is in credit the company owes the director. If the director owes the company it is in debit.

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Most company founders, when they start a company, contribute some money to the company to pay for start-up costs and to give the business a bit of cash to get started. You may have done this without fully understanding it and just let your accountant deal with it. That is not uncommon. The usual form of a founders’ initial cash injection is a small amount of share capital (often one or two pounds) and the rest of the money is a non interest bearing directors loan. It is not required by any law or regulation that you do it like this, but it is the most common and the simplest.

If this is how you’ve set up your company then on day one your company has a credit directors’ loan account. The share capital is your ownership stake in the company. It is what signifies that you own the company, and if you were the only one to contribute share capital on formation of the company then you own 100% of the company. You can’t get the share capital back without either selling your stake in the company or winding the company up.

On the other hand, the credit directors’ loan is money the company owes you. At any time you can take that money back from the company. Right? Well not quite, and it is important you understand why, so I’ll explain in shortly.

Most of the time when a director puts money (or any other assets) into a company it will increase the credit loan account, ie the company will owe you more money. You can also make a share capital contribution but it’s less common so I won’t cover it here.

For tax purposes company directors often remunerate themselves with a combination of wages and dividends from their company, but don’t actually transfer the cash out of the company. Along with physically paying money into the company and paying expenses on behalf of the company these are the most common credits to a directors’ loan account.

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On the other hand, whenever a director takes money (or any other assets) out of the company, if it is not accounted for as wages or dividends it is a debit, or a repayment of the director’s loan account. This is not an issue as long as there is sufficient owing to the director to withdraw. However many directors use their company loan account like their personal bank account, leaving the accountant to pick up the pieces. If this leaves the loan in debit it can cause real problems.

“…many directors use their company loan account like their personal bank account, leaving the accountant to pick up the pieces. This can cause real problems.”

Debit directors’ loan accounts

During the year a debit loan account is not a problem, as long as it is rectified in time. If, at the end of a company’s financial year a director has withdrawn more money from the company than what the company owed him then at year end the director has a debit loan account. The director owes the company money and not the other way around.

Assuming that the director is aware of this situation within 9 months of the company year-end it is possible to rectify the situation without any serious harm being done. If the director has sufficient funds they can simply repay the company. Alternatively the company can pay wages or dividends to the director and credit them to the loan account rather than paying cash to the director. However this will clearly have personal tax implications for the director and also in the case of wages could have PAYE liability consequences for the company.

“…if a company director is disorganised enough to end the financial year with a debit loan account there is a good chance they are also not going to complete the company accounts within 9 months.”

Furthermore, if a company director is disorganised enough to end the financial year with a debit loan account there is a good chance they are also not going to complete the company accounts within 9 months. This means the window of opportunity to rectify the situation is lost.

In this situation it is likely that HMRC will want to know why.

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In order for a company to have a debit loan account with a director:

  • The company must be solvent
  • It must be in adherence with the company’s articles of association
  • It must comply with the Companies Act 2006
  • If it is over £10,000 a board resolution must be passed giving consent
  • If the funds are required by the company the loan can be no more than £50,000.

S.455

If a directors debit loan account is not repaid by nine months after the company year end the company will be liable to pay S.455 corporation tax. This tax is declared on the company’s tax return and it is levied at 32.5% of the outstanding loan.

While this sounds extraordinarily punitive it is actually not as bad as it seems, and by no means the worst consequence of a debit loan account. This is because if the director does repay the debit loan account the S.455 tax can be reclaimed by submitting a form LP2. However it will only be repaid 9 months after the end of the next company tax year, so the company could have to wait up to 21 months to get the cash back.

Benefits-in-kind

A benefit-in-kind is a non cash payment to an employee or director.

In the case of a debit loan account the director has benefited from a non cash benefit – an interest free loan. This loan will need to go on the directors P11D and personal tax will need to be paid on it. The benefit is calculated as the interest that would have been paid on the loan using HMRC’s published rate. The most recent HMRC rate was 2.5%, so on a £10,000 loan the director would have to pay tax at their marginal rate on £250.

While this may sting a little bit, things could still get far worse.

“…the real doomsday scenario is where the company has been profitable, and therefore has tax to pay, but the director has taken all of the money out…”

As our disorganised director has been taking money out of the company he has probably been spending it, and not thinking about the personal tax consequences. If he has to declare all of his drawings as wages and dividends and he doesn’t have the cash to pay the tax on these he has a problem. But the real doomsday scenario is where the company has been profitable, and therefore has tax to pay, but the director has taken all of the money out.

If the director has taken too much money out of the company and left it unable to pay its tax bills he may be in breach of his fiduciary duties as a director. For more detail on this see The seven things all company directors must know and why it’s necessary. This is where things start to get really bad.

If a director is in breach of their duties as a director the protection from personal litigation that the company gives them can be lifted, meaning they could be at risk of losing their personal assets. Also, if a company is unable to pay its debts then its creditors can appoint a liquidator and have the company wound up. Even if your company is not taking out loans you need to be aware of this as unpaid corporation tax is a debt and HMRC have a history of winding up companies that fail to pay their tax.

The Solution

Once a debit loan account has been outstanding beyond nine months after year end there is not easy solution but to pay the benefits in kind tax and pay the S.455 tax. Then hopefully the director can take enough wages and dividends out of the company, pay personal tax on them and then repay the loan and eventually get the S.455 tax back.

“…keep on top of your directors loan account at all times throughout the year using the LCCS Live Tax Report.”

This is not a tax efficient way to operate. The answer is to keep on top of your directors loan account at all times throughout the year. And the way to do this is using the LCCS Live Tax Report.

The LCCS Live Tax Report is a very simple to use tool available to all LCCS clients on the LCCS website. It can be used as frequently as you like, but we recommend you at least use it every time you wish to withdraw month from your company. It only takes a minute to enter a few simple numbers like company earnings, company costs and other earnings the director has had outside of the company. The instantly generated report then advises how much corporations tax is owed on the current earnings, how much the director can safely take out of the company and how much personal tax the director will need to pay. This way the director avoids ending the year with a debit loan account and knows exactly how much money to put aside for tax, so there is no nasty surprises or un-affordable tax bills come tax time.

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How to overcome your fears and become your own boss.

If you’ve always wanted to run your own company but don’t know how to get started it can be extremely daunting. The good news is it doesn’t have to be.

The fear is of losing the stability of a regular 9 to 5 income and of the pressure of pitching your dreams to heartless VC executives with no way back if they can’t see your vision.

“…the entrepreneurial highway is littered with the wrecks of the dreams of founders who were unable to get investors to share their enthusiasm…”

The truth is unless you are an experienced entrepreneur or have access to vast cash reserves this is probably an ill-advised way to go about making the transition from employee to business owner. No matter how amazing you think your business idea is you will still need to convince someone to fund it. And the entrepreneurial highway is littered with the wrecks of the dreams of founders who were unable to get investors to share their enthusiasm for the idea. Add to this the need to replace your 9 to 5 income with a steady coupon and you are creating a situation so stressful its doomed to fail before it has begun.

It is far more sensible to keep the day job, start small with your business, test your idea and bootstrap. Bootstrapping is the practice of starting a business as cheaply as possible so as to not rely on outside funding. Clearly it is not possible to bootstrap every business idea. If your plan is to start an airline then you’d have to have very deep pockets to go the bootstrapping route. However if your business has very high initial capital requirements it may not be the best place to cut your entrepreneurial teeth. Far better to gain some experience with a business that you can start small and grow. This will help you gain the knowledge and contacts required, and crucially you will also gain some credibility with the VCs if you have a successful track record.

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There is no doubt that starting a new venture while also keeping your old job is a tough slog. You have to sacrifice your evenings and weekends and whatever spare time you have to work on your business. Obviously this means it will take longer for your idea to come to fruition and start gaining traction. After all, there are only so many hours in the day.  

…watch your expenses and cash burn like a hawk…”

One of the most important things in this phase of the business is to watch your expenses and cash burn like a hawk. If you are spending more than you can sustain with the income from your employment the situation will quickly become unsustainable and something will have to give. It is therefore vital that you do all you can to avoid entering into contracts where you cannot control what the final cost will be. Time based professional services such as accountants, lawyers and consultants are often vital at this stage of a business and these costs can be both expensive and difficult to control.  This is why LCCS is tailor made for the bootstrapping business founder. Your accounting fees are not only low, they are known up front and fixed and they are spread out over the year. For tax and filing compliance reasons all businesses require accounting services. LCCS makes this one less cost to worry about.

Not only is LCCS’s monthly subscription model a dream for lean start-up businesses trying to control the purse strings, but the LCCS Live Tax Report does the same thing for your tax bills. When cash-flow is tight the last thing you need is to be hit with an unexpected invoice from HMRC. The LCCS Live Tax Report keeps you fully up-to-date  with not only your company’s tax liabilities but also your own. Drawing an income through employment and also from a nascent business can be a minefield come tax time. The LCCS Live Tax Report tells you exactly how much you need to put aside from every pay packet and company drawing. This won’t guarantee that your company is a success, but it will make it much easier to look after the pennies and forecast your cash requirements.

The great thing about keeping your business costs under control and maintaining your income is it gives the rookie entrepreneur the time and space to learn and grow and develop their business idea. Without the pressure of VCs demanding a return or rapidly diminishing cash reserves you have the time to learn from your mistakes, alter your course and eventually find a winning formula.

Ultimately whether your business idea is a roaring success or just a fantastic learning opportunity doesn’t really matter in the end. Very few business owners get everything right the first time but you can never make a success of something you don’t even try. So if you’re thinking of starting a business why not give it a go by starting small, bootstrapping and growing. The worst that could happen is you lose a little money but gain a tonne of experience. And you know what they say, “you only regret the things you don’t do”.

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