Limited Companies
Richard Branson
"Fortunately we’re not a public company. We’re a private group of companies - and I can do what I want."
What obligations do company directors have?
Running a limited company and holding the office of director is a serious undertaking. As a company director you must comply with company law as well as tax law.
As a director you will usually be an employee of the company. There is more information on our Employees page.
The statutory duties of company directors are set out by Companies House at the link below :
https://companieshouse.blog.gov.uk/2019/02/21/7-duties-of-a-company-director/
What does Companies House require?
A company must file statutory accounts each year at Companies House.
For small companies no audit is required. The accounts normally have to be filed at Companies House within nine months of the end of the company accounting period.
Companies House will also require an annual confirmation statement / annual return, which discloses director and shareholder details. This is separate from the annual accounts and will often be filed at a different time. It is important that it is filed within the time limits as the company may be struck off for failure to file.
There are penalties for late filing of accounts with the penalties scaled, dependent upon the size of the company.
There are currently proposed changes for filing UK limited company accounts -
The Economic Crime and Corporate Transparency Act 2023 is intended to help tackle economic crime and provide more information for enforcement agencies. As well as greater disclosure of director personal details it will change the filing requirements for small companies.
The major change is to improve transparency by making more financial information available to the public.
At some future date (yet to be announced), all small companies will have to file a detailed profit and loss account at Companies House so full details of the company income and costs will be in the public domain and available to competitors, employees, friends, neighbours, family and anyone else who cares to look.
At the moment the proposed format of the profit and loss account required to be lodged with Companies House is not known - the detail will be set out in secondary legislation. The timescale for implementation of these new rules has also yet to be confirmed.
What does HM Revenue & Customs require?
Annual accounts must be filed within one year of the end of the company accounting period. HMRC require accounts for be filed electronically in iXBRL format with the company tax return.
The company must also file a corporation tax self assessment return.
HMRC require full corporation tax computations in most cases and these must also be filed electronically in iXBRL format. Any corporation tax is due for payment within nine months of the end of the relevant accounting period.
Most companies are employers, even if the only employees are the company directors and in the case of an employing company the PAYE regulations require the company to file -
• Monthly PAYE electronic submissions in a specified RTI format.
• Annual P11D returns of benefits in kind - by July 6th following the tax year
There are penalties for late filing of any of the above documents.
We can help small companies comply with PAYE and RTI obligations. Contact us for assistance.
What tax will the company pay?
A company is taxed separately from the company directors.
The company is chargeable to corporation tax (CT) on it's profits. From it's gross income, most expenses paid by the company are deductible and will reduce the profit for CT. The expenses will include anything the company pays to it's directors by way of salary, bonuses and benefits in kind. Companies pay CT on their capital gains, not Capital Gains Tax.
The current rate of corporation tax is 25%, with a small profit rate of 19% on profits of up to £50,000 and marginal relief on profits of up to £250,000.
The company's taxable year is the same as it's financial year, not the year to April 5, as for income tax.
CT is payable 9 months after the end of the relevant CT period.
Should my company be a PLC?
A plc is a 'public limited company'. Most limited companies are not PLCs.
A PLC is a company which is registered as such and complies with the following:
• It must state that it is a public limited company both in its memorandum and in its name. The memorandum must contain a clause stating that it is a public limited company and the name must end with "Public Limited Company" or "PLC"
• It must have an authorised share capital of at least £50,000 before it can commence business, a quarter of which must be paid up in cash.
There are also other technical stipulations and generally a plc is more tightly regulated than an ordinary company. An ordinary company can become a plc.
Can I file abbreviated accounts?
All small companies can file a short version of accounts at Companies House, consisting mainly of a balance sheet and supporting statements. HMRC require the full version of accounts, including a detailed profit and loss statement.
The smallest companies may be entitled to prepare and file micro-entity accounts. Further details are on our micro-entities page. A PLC cannot file micro-entity accounts.
How do I draw money from a company?
A limited company must have it's own bank account to keep the company money distinct from that of the owners / directors. If this is not done there can be a tax cost.
The most costly mistake made by company directors is withdrawing money from their company without considering the tax implications.
To be tax effective, a director will need to plan the best way to extract money from their company - either as salary, dividends or benefits in kind.
At any time money is taken from the company there will be a tax charge, usually PAYE. HMRC will insist that PAYE is operated on all forms of cash drawings such as salary, bonuses, etc.
We can offer a payroll service for small companies - contact us for details.
Drawings from a company must be accounted for in one of the following ways:
• salary - on which you must operate PAYE
• benefits in kind - which must be reported on a P11D or included as part of the payroll
• dividends
• repayment of business expenses which you have incurred personally
The company records should be able to identify the nature of all such payments, for reporting to HMRC.
There are benefits and disadvantages to each of the above categories and we would recommend that you seek advice on the most tax efficient methods of withdrawing money from the company.
What is a Dividend?
A company can pay a dividend to it's shareholders out of profits. Because the payment is made out of profits it does not reduce the profit for corporation tax (CT) purposes.
Should my company be registered for VAT?
If turnover exceeds £90,000 in any 12 month period the company must register for VAT. You must tell HMRC within 30 days of turnover reaching this level.
The company can voluntarily register with a smaller turnover and this will allow the reclaim of the VAT element of all of the company costs.
If the company registers for VAT, there are strict regulations about record keeping. Unlike corporation tax, VAT relates to single transactions so the VAT invoice or receipt must be kept for every transaction related to the business.
There is more information on our VAT page.
A Word about Money Laundering Regulations
You may need to consider whether your business needs to be registered with a supervisory body and to comply with money laundering regulations.
The regulations are in place to stop criminal and terrorist activity by requiring businesses to take a risk based approach to their clients and report any suspicious transactions to the National Crime Agency.
The regulations apply to a number of different business sectors, including accountants, financial service businesses, estate agents and letting agents, art dealers, solicitors, bill payment service providers, telecom or digital payment service providers and providers of trust or similar company services. It also applies if your business has high value (over €10,000) cash transactions.
Every business covered by the regulations must be monitored by a supervisory authority. Your business may already be supervised, for example, because you’re authorised by the Financial Conduct Authority (FCA) or belong to a professional body like the Law Society.
There is guidance by business sector at the link below
Details of how to register will depend on your business sector and there is a guide at the link below
https://www.gov.uk/anti-money-laundering-registration
Need Help?
Do you need help with any of the issues discussed on this page?
If you need assistance with UK tax filing we can complete and file a return for you with all tax calculations taken care of.
We can agree a fixed fee in advance.
Contact us for details
What is a limited company?
Under English law a limited company is recognised as a legal person.
The company is legally separate from its directors and shareholders and files its own tax returns, paying corporation tax on its profits.
Directors must be aware that company profits belong to the company and there are tax issues related to drawing those profits for themselves or for the shareholders - see below.
If you are considering accounting software, have a look at our Business Software page.