Accounting Inc.

❓ FAQ of the Week: Can I reclaim VAT on costs incurred before I registered? 🧾⏪

Registering for VAT doesn't mean the money you spent getting going is lost. HMRC allows a claim on your first return, but the rules for goods and services are very different.

📦 Goods?
Four years before your registration date, provided you still hold them at that date and will use them in the business. Stock, equipment, tools, computers, vans and fixtures.

🧾 Services?
Six months only. Rent, legal and accountancy fees, software, web development and marketing. There's no discretion to go further back unless your registration date is backdated.

🚚 Do I reduce the claim for use before registration?
No. A van bought three years ago and used only for taxable sales is recoverable in full. The exception is goods previously used for exempt or non-business purposes.

🏢 Costs incurred before the company existed?
Claimable where they relate directly to the business the company goes on to carry on. The same four year and six month limits apply.

📊 On the Flat Rate Scheme?
The normal pre-registration rules still apply on your first return, so the claim isn't lost.

⚠️ Where claims go wrong
Stock already sold, services HMRC treats as fully used up before registration, anything originally bought for private use, and missing VAT invoices. The claim also belongs on the first return you're required to file, not a later one.

📝 Keep on file
A list of goods still held at your registration date with the purchase invoices behind it. Reconstructing that afterwards is where the money gets lost.

🤝 How we can help
We can review your pre-registration costs, identify what qualifies under each time limit, and make sure the claim is properly supported before your first return is filed.

💡 TAX TIP OF THE WEEK 💡

🔤 Alphabet Shares: Not as Simple as A, B, C

Splitting shares into classes to pay dividends flexibly across shareholders? It's a common structure, but not a risk free one.

⚠️ HMRC can recategorise dividends as disguised salary where they're really a substitute for pay to an employee shareholder, bringing income tax and NIC into play instead.

📋 For employee shareholders specifically, HMRC can also look to the employment-related securities rules, particularly where shares carry no real rights beyond a discretionary dividend.

👨‍👩‍👧 In family companies, the settlements anti-avoidance rules are another line of attack. HMRC has successfully argued that dividends skewed toward one spouse's share class, while the other receives nothing, amount to a "bounteous" arrangement caught by these rules.

📜 There's a company law angle too. Shares only qualify as separate classes if their rights genuinely differ. Simply relabelling identical shares as A, B and C, then paying different dividend rates, doesn't create that separation.

✅ Alphabet share structures can work well, but they need proper legal and tax advice at setup, not a DIY approach.

❓ FAQ of the Week: Can my company contribute to my pension? 💰🧓

Many director shareholders default to salary and dividends without asking whether a pension contribution would work harder for the same profit. Often it does.

📈 Tax relief?
Yes, provided it's wholly and exclusively for the trade (HMRC BIM46035): a genuine part of your reward, not just a way to extract cash. Controlling directors get some flexibility, but contributions still need to be broadly commensurate with your role. Take extra care with family members on low hours.

💷 Better than salary or dividends?
Usually. No employer or employee NI, no income tax for you on the way in, and it's a deduction against corporation tax. Salary suffers NI twice plus income tax; dividends come from already taxed profit with no CT relief at all.

🏦 How much?
£60,000 for 2026/27. Unlike personal contributions, this isn't capped by your earnings, so it applies even on a low salary. Unused allowance from the previous three years can be carried forward too.

⚠️ Higher earners?
Where adjusted income exceeds £260,000, the allowance tapers by £1 for every £2 over, down to a £10,000 minimum. Worth checking before a large contribution.

🗓️ Timing?
Relief falls in the period the contribution is actually paid, not when it's decided. Minute it in March but pay it next year, and relief moves a year later too.

📝 Keep on file
A board minute recording the amount and commercial rationale, especially where the contribution is large relative to salary.

🤝 How we can help
We can review your remuneration structure, calculate your available allowance including carry forward, and make sure contributions are paid and documented correctly.

💡 TAX TIP OF THE WEEK 💡

🏦 Writing Off a Director's Loan: The Section 455 Trade-Off

Overdrawn director's loan account and thinking of just writing it off? It's not always the cheaper option.

💰 A written-off loan is treated as a dividend for income tax. If the dividend allowance is available, the first £500 is tax-free, then it's taxed at the usual dividend rates depending on your income band.

⚠️ Unlike a normal dividend though, National Insurance still applies, at 8% or 2% for the director and 15% for the company. There's also no corporation tax deduction for the write-off.

📈 Leaving the loan outstanding instead means the company pays section 455 tax at 35.75% on the balance. This is fully refundable once the loan is repaid or later written off, unlike the NIC on a write-off, which isn't recoverable.

✅ Depending on the director's tax position, leaving the loan outstanding can work out cheaper overall than writing it off, once NIC is factored in.

Always run the numbers and take professional advice before writing off a director's loan.

❓ FAQ of the Week: Should your trading company buy an investment property? 🏢🏠

Using surplus company cash to buy property may seem sensible, but holding an investment property inside your trading company can create tax and commercial problems.

⚠️ Is the property protected?

No. If the trading business fails or faces claims, the property could be available to creditors because it is owned by the same company.

📉 Could it affect tax reliefs?

Yes. Significant property investment could mean the company has substantial non trading activities.

This may affect Business Asset Disposal Relief on a future sale, Gift Holdover Relief on a transfer of shares and Business Property Relief for Inheritance Tax.

💷 Why not take the money out personally?

Withdrawing the funds as salary or dividends could create a significant personal tax bill, leaving less money available to invest.

🏗️ Is a separate property company better?

A holding company structure may allow profits to be transferred from the trading company into a separate property company without an immediate personal tax charge.

This can protect the property from trading risks and keep the activities separate. However, the investment activity could still affect the trading status of the wider group, so careful planning is needed.

🔄 Can the trading company lend the money instead?

Possibly, but the loan should be properly documented and made on commercial terms.

The loan would remain an asset of the trading company and could be pursued if the company later became insolvent.

🧩 What if the company already owns a property?

It may be possible to separate the trading business and property through a formal company reorganisation, although specialist tax and legal advice will be required.

🤝 How we can help

We can review your plans, compare the available structures and assess the impact on tax reliefs and asset protection before any property is purchased.

Getting the structure right at the start is much easier than trying to separate valuable assets later.

💡 TAX TIP OF THE WEEK 💡

🏦 Discretionary Trusts and Tax Efficient Gifting

Want to pass assets to the next generation without giving them complete control straight away?

A discretionary trust allows trustees to manage assets for a defined group of beneficiaries, such as children or grandchildren.

🔐 This can help protect family wealth where a beneficiary is young, financially inexperienced or potentially exposed to divorce, bankruptcy or other financial risks.

📈 Transferring an asset directly to another person can create an immediate Capital Gains Tax liability for the person making the gift.

However, assets transferred into a discretionary trust may qualify for gift holdover relief. This postpones the gain until the trustees or beneficiaries later dispose of the asset.

⚠️ This does not necessarily make the gift completely tax free.

A transfer into trust is normally an immediately chargeable transfer for Inheritance Tax purposes. Tax may be payable where the value transferred, together with earlier relevant gifts, exceeds the available £325,000 nil rate band.

Trusts can also face charges when assets leave the trust and at each ten year anniversary.

✅ Discretionary trusts can be a valuable estate planning tool, but the tax rules, trust terms and long term objectives must be considered before any assets are transferred.

Always take professional advice before setting up a trust or making a substantial lifetime gift.

FAQ of the Week: How should shares in a family company be structured? 👨‍👩‍👧‍👦🏢

Family companies are often set up with one person owning all the shares. While this may retain control, it is not always the most tax efficient or flexible structure.

🗳️ Do you need to own every share to control the company?

Not necessarily. More than 50% of the voting rights will normally provide control over everyday decisions, while at least 75% is generally needed for special resolutions.

💷 Can sharing ownership reduce tax?

Bringing a spouse, civil partner or adult children into the share structure can allow dividend income to be shared across the family.

However, shares must be genuinely transferred and should carry appropriate voting, dividend and capital rights. Simply diverting income without meaningful ownership could be challenged by HMRC.

👶 Can shares be given to children?

Shares can be gifted to adult children as part of succession planning, with dividends normally taxed on the adult child.

Different rules apply to children under 18. Dividends arising from shares gifted by a parent may instead be taxed on the parent.

🎁 Will gifting shares create a tax charge?

A gift is normally treated as a disposal at market value for Capital Gains Tax. Business Asset Holdover Relief may be available on qualifying trading company shares, allowing the gain to be deferred.

There may also be Inheritance Tax considerations, so advice should be taken before any transfer.

📈 Could different share classes affect BADR?

Yes. A shareholder will generally need at least 5% of the ordinary share capital, voting rights and economic rights for the required two year period.

Issuing new shares without advice could dilute an existing shareholder and prevent them from qualifying.

📄 Why have a shareholders’ agreement?

It can set out voting rights, dividend policy and what happens following death, divorce, a dispute or when someone wants to leave.

🤝 How we can help

We can review your share structure, Articles of Association and shareholders’ agreement to ensure they support your tax position, succession plans and long term objectives.

💡 TAX TIP OF THE WEEK 💡

🏠 Rental Income: Have You Told HMRC?

Receiving income from renting out a property, room, holiday accommodation or even a driveway? You may need to declare it to HMRC, even if property letting is not your main source of income.

📅 If you have not been asked to complete a tax return, you will normally need to notify HMRC by 5 October following the end of the relevant tax year.

You may qualify for the £1,000 property income allowance, but the rules and exceptions should be checked carefully.

⚠️ Failing to notify HMRC on time can result in interest and penalties. The level of the penalty may depend on whether the mistake was careless or deliberate and whether you approached HMRC before they contacted you.

🔍 HMRC receives information from letting agents, online platforms and other sources, so undeclared rental income may not remain unnoticed.

If rental income has been missed from previous tax years, it may be possible to make a voluntary disclosure through HMRC’s Let Property Campaign.

✅ Acting promptly can help reduce penalties and bring your tax affairs up to date.

Speak to an accountant as soon as possible if you are unsure whether rental income needs to be declared.

💡 TAX TIP OF THE WEEK 💡

🔤 Alphabet Shares vs Dividend Waivers

Want greater flexibility over how dividends are paid between shareholders?
Alphabet shares allow a company to create separate classes of shares, such as A, B and C shares. A different dividend can then be declared on each class, without another shareholder having to waive their entitlement.

✅ This can be a cleaner and more practical approach than using dividend waivers, which must be prepared correctly and completed at the right time.

⚠️ However, alphabet shares are not an automatic tax saving solution.
HMRC may challenge arrangements where income is diverted to a lower taxed family member without a genuine commercial basis.

📄 The company’s articles, share rights, distributable reserves and dividend paperwork must all support the payments being made.

Good dividend planning is about:
🏗️ The right structure
🔍 Genuine commercial substance
✍️ Proper documentation

It is not simply about paying more income to whoever has the lowest tax rate.

📞 Always take advice before changing a company’s share structure or declaring different dividends between shareholders.

❓ FAQ of the Week: Selling shares in your own company. Can you claim BADR? 🏢💷

If you are selling shares in a personal or family company, Business Asset Disposal Relief can still be a big saver, but only if you tick the right boxes well before the sale.

💡 What does BADR do now?
For disposals from 6 April 2026, gains that qualify for BADR are taxed at 18%, subject to a £1 million lifetime limit per person. Spouses and civil partners each have their own lifetime limit.

✅ When do shares qualify?
BADR can apply to a sale of shares in your personal company, as long as the company is a trading company or the holding company of a trading group at the time of disposal. There is also a window to qualify if the company stopped trading recently, provided the disposal occurs within three years of cessation.

👤 What does “personal company” mean in practice?
You normally need at least 5% of the ordinary share capital and 5% of the voting rights. On top of that, you must also meet the economic test, meaning entitlement to at least 5% of distributable profits and assets on a winding up, or at least 5% of the sale proceeds.

⏳ How long do you need to meet the rules?
The conditions must generally be met throughout the two year qualifying period leading up to the disposal. You also need to be an officer or employee, such as a director, during that period.

🎁 What about gifting shares to family?
The article highlights that a gift of shares can sometimes qualify for BADR if Gift Hold Over Relief is not claimed, which can be useful in certain succession plans.

🧾 Do you need to claim it?
Yes. BADR is not automatic. It must be claimed, and there is a deadline to do so.

📌 Real world impact
In the article’s example, a shareholder with a £750,000 gain would pay £180,000 at 24% without BADR, versus £135,000 with BADR, a saving of £45,000.

🤝 How we can help
If you are planning a sale, retirement, management buyout, or family succession, we can review whether you qualify, spot any BADR risks early, and help you structure shareholdings, roles, and the timeline so you go into a deal with confidence.

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