Income Made Smart

Limited Companies

Limited companies exist in their own right. This means the Company’s finances are separate from the personal finances of its owners.

Shareholders may be individuals or other companies. They are not responsible for the Company’s debts unless they have given guarantees (for a bank loan, for example). However, they may lose the money they have invested in the company if it fails.

Main Types

• Private limited companies can have one or more members, eg shareholders. They cannot offer shares to the public.
• Public limited companies (plcs) must have at least two shareholders and an issued share capital of at least £50,000 before it can trade.
• Private unlimited companies - these are rare and usually created for specific reasons. It is recommended you take legal advice before creating one.

Set-up

• Must be registered (incorporated) at Companies House.
• Must have at least one director (two if it is a plc) who may also be shareholders. Directors must be at least 16 years of age.
• Private companies are not obliged to appoint a Company Secretary but if one is appointed this must be notified to Companies House. Public limited companies must have a qualified Company Secretary.
• Must set up a Company bank account.

Management and Raising Finance

• A director or board of directors make the management decisions.
• Finance comes from shareholders, loans and retained profits.
• Public limited companies can raise money by selling shares on the stock market, but private limited companies cannot.

Records and Accounts

• Accounts must be filed with Companies House within prescribed time periods to avoid a late filing penalty.
• Accounts must be audited each year unless the company is exempt.
• On filing the Annual Return for the first time a letter will be issued to the Registered Office containing the Company’s authentication code and instructions for use of Companies House web filing services.

Directors are responsible for notifying Companies House of changes in the structure and management of the business.

Profits

• Profits are usually distributed to shareholders in the form of dividends, apart from profits retained in the business as working capital.

Tax and National Insurance

• If a Company has any taxable income or profits, HM Revenue & Customs (HMRC) must be informed of the existence of the Company and its liability to Corporation Tax.
• Companies liable to Corporation Tax must make an annual return to HMRC.
• Company directors are usually also employees of the Company and must pay both income tax and Class 1 National Insurance Contributions on their salaries.

Liability

• Shareholders are not personally responsible for the Company’s debts, but directors may be asked to give personal guarantees for loans to the Company.

Corporation Tax

As a private limited company the directors have to:

• Complete a Corporation Tax Return (form CT600) every year;
• supply a set of accounts with form CT600.

Companies House Filing

As a private limited company the directors have to:

• Complete a (annual) return every year;
• supply a signed set of accounts to Companies House every year.

VAT

The directors may chose to register the business for VAT. Businesses with a turnover of £73,000 (after 1 April 2011) are obligated by HMRC to be VAT registered.

As a VAT-registered business the directors have to complete a VAT return form for each tax period, usually every three months. This details how much VAT the business:

• Has charged the customers;
• has been charged by suppliers;
• owes HMRC or is owed by HMRC.

The directors will be sent the VAT return form towards the end of the businesses tax period. The form must be completed and returned with payment (if appropriate), normally no later than one month after the end of the tax period.

PAYE Deductions and National Insurance

If drawing a salary above the Lower Earnings Limit a PAYE Scheme must be set up.

If the Company pays more than £1,500 per month to HMRC the directors must make monthly payments of PAYE and NIC.

If the Company pays less than £1,500 per month to HMRC the directors may make payments of PAYE and NIC every three months. Form P31 should be used to advise HMRC that the Company are to pay every three months.

After the end of each tax year, the following forms must be completed and submitted:

• P35 Employer’s End-of-Year Return
• P60 End-of-Year Summary (for each employee)
• P14 Employer’s End-of-Year Summary (for each employee)
• P11D or P9D Return of Expenses and Benefits (for each employee)
• P11D(b) Employer Declaration of Return of Expenses and Benefits

IMS support all of the above required tax and accounting responsibilities.

Income Made Smart: Limited Company Services