Limited Companies

Fundamentals

As a Limited Company is a separate legal entity, using this structure through which to operate your business enables you to keep your business affairs separate from your personal affairs.

A limited Company has shareholders who own the business by acquiring a share of the Company’s share capital. The shareholders appoint at least one director to run the Company on its behalf. The director(s) has legal, financial and administrative responsibilities but does not have to have any specific qualifications and can be appointed so long as:

  • They have not been disqualified as a Company Director
  • They are over the age of 16
  • They have not been bankrupt

Tax Status of the Director

For income tax and National Insurance Contributions (NIC) purposes directors are NOT classed as self employed. Directors are officers of the Company and are treated in the same way as employees. Any salary/bonus paid from the Company is subject to PAYE and NIC.

As a director/shareholder you may draw dividends from the Company. If you are a higher rate taxpayer or are required to complete a Self Assessment Tax Return then you will need to register with HM Revenue & Customs (HMRC) and obtain a Unique Taxpayer Reference (UTR) number from HMRC.

  • Dividends from the Company are liable to income tax but not to NIC.
  • Limited companies are subject to Corporation Tax on profits received.
  • Limited companies must be registered with Companies House.
  • Limited companies exist in their own right.

Shareholders may be individuals or other companies. They are not liable 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
  • 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

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.

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 £85,000 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. More on Director’s Salary here at https://incomemadesmart.com/knowledgebase/paye-nic

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