Running a Limited Company
By forming a limited company, you are establishing it as a separate legal entity to yourself. Even if you are the sole director and shareholder, you must always act on behalf of the company.
When running a limited company, you will need to send invoices and keep a record of expenses. These can easily be done if you use online accounting software, which provides templates, automatically calculates VAT (if you’re registered) and enables simple recording of expenses. You must keep on top of these to understand how your business is performing and how much you can take in dividends.
What you must file as a Director
There are also various forms and returns which must be sent to HMRC and Companies House on a regular basis. This is because, as a limited company director, you have a duty to keep both institutions informed about your business.
Every company must maintain financial records for each financial year and prepare a summary at the end of the financial year. These summarised records are collectively called annual accounts or statutory accounts. They cover:
- A profit and loss account listing the company’s sales, running costs and the profit or loss it has made over the financial year
- A balance sheet listing the value of everything the company owns, owes, and is owed on the last day of the financial year
- Notes to the accounts
- A director’s report
- An auditors’ report (may or may not be required depending on the size of the company: you can check the companies exempt from audit)
The statutory accounts should conform to either International Financial Reporting Standards or New UK GAAP.
A dormant company, small company or ‘micro-entity’ can submit simpler/abridged accounts to Companies House. These accounts need not be audited. Abridged accounts include a simpler profit and loss account and balance sheet, along with any notes and a copy of the director’s report. This means less information about the company will be available to the public from Companies House.
Note that all companies, irrespective of their size, need to send statutory accounts to its members and to HMRC as part of their Company Tax Return.
Corporation Tax return (CT600)
The corporation tax return is a summary of the financial transactions of a company during its corporation tax accounting year. This return depicts the taxable profit of a company (after making adjustments), for any allowable tax relief and applying for tax credits. It contains all the details relating to the corporation tax payable to HMRC. It not only consists of CT600 and supplementary pages, but also accounts for the period covered by the return and computations showing how entries on the return have been calculated from the figures in the accounts.
A confirmation statement is filed to confirm that the information held by the Companies House about the company is up to date. This must be filed even if there is no change to the relevant details. Also, every company, whether dormant or non-trading, must file a confirmation statement.
This must be filed to Companies House at least once a year, but a company may choose to file it more often.
It also requires any changes to the following:
- Company’s name
- Registered address of the company
- Address of any Single Alternative Inspection Location (SAIL)
- Directors’ details
- Location of statutory records
- Shareholder details
- Register of ‘People with Significant Control’ (PSC)
- Information about share capital
Any business whose turnover in the past 12 months exceeded the threshold of £85,000 or if it is assumed that the turnover will soon cross this threshold, needs to be registered for Value Added Tax (VAT). Every VAT registered business needs to file a VAT return.
The return shows the amount of VAT owed to HMRC or the amount they owe to you. It shows total sales and purchases, amount of VAT owed, the amount that can be reclaimed and any refund from HMRC for a particular VAT accounting period.
Even if a business does not have any VAT to pay or reclaim, a return must be submitted by every business registered for VAT, regardless of whether a business has registered compulsorily or voluntarily.
Employer (PAYE) returns
Every employer needs to report its employees’ payments and deductions to HMRC before each payday.
Full Payment Submission (FPS)
Through FPS, the employer reports to HMRC all payments made to employees and deductions made. It needs to be sent to HMRC before each payday, even if the payment is made to HMRC monthly or quarterly.
Employer Payment Summary (EPS)
EPS is used to claim refunds/recoverable amounts from HMRC, or declarations made to HMRC. EPS is used to:
- Reclaim statutory maternity, paternity, adoption, or shared parental payments. These need to be reported even if the employee receives an advance payment from HMRC to cover them.
- Claim the employment allowance.
- Reclaim Construction Industry Scheme (CIS) deductions.
- Claim National Insurance Contributions holiday for previous tax years.
- Pay Apprentice Levy.
If no employees have been paid in a tax month, the employer needs to send an EPS instead of an FPS.
It is imperative for a company to ensure that the information about itself in the public domain is up-to-date and correct. It is the duty of a director to report any changes in the key details promptly to Companies House whenever a change occurs.
The above are the important filing requirements that are mandatory during the lifetime of a company. Any failure to comply with such filing requirements can mean that the company could face serious litigation or possibly be dissolved, or the directors may be prosecuted.
Claiming back expenses
If you incurred business costs prior to forming your company, you can claim these ‘pre-trading’ expenses for:
- Computer equipment/software
- Domain name registration
- Office rent
- Business insurance
- Accountancy costs
- Travel costs
Remember: the expenses must be solely for business and not personal use. You can claim any expenses incurred within seven years of forming your company. Make sure you keep every receipt or invoice.
Hope you have enjoyed the final guide in our Limited Company series. You can view the other two articles again right here:
Whether you are an existing business (trading as a sole trader) looking to incorporate or start a new business through a limited company, we are here to help ensure that your company formation is done properly from the start.