Limited Company Guide A complete accountancy service for the small business across the United Kingdom

What is a limited company?A limited company is a type of business whereby the owner’s liability islimited to the amount they have invested in the shares or guaranteedto the company. In other words, the owners of a limited company arenot personally liable for the debts of the company. Small businesses generally choose to trade through a limited companyas they can be much more tax efficient compared with trading as asole trader or partnership. It does however need to be structured in the right way to take advantage of the savings available.

Incorporating (forming) a limited companyForming a limited company is reasonably straight forward. First youmust decide who the director(s) is going to be, i.e. the person(s) thatwill run the company along with who the shareholder(s) will be, i.e. theperson(s) who will own the company. The directors and shareholdersare often the same people in small limited companies and can be justone person.Once this has been decided, a formation agent or accounting practicecan register your new company with Companies House, usually within24 hours. We can form limited companies on behalf of our clients freeof charge if they have registered with us for an ongoing service.

What is a UTR number?A UTR or Unique Tax Reference is a number assigned to your companyby HMRC. This number is assigned automatically after the company isregistered with Companies House (usually within 28 days) and is thenumber that HMRC uses to identify your company as a tax payer.Please note, if you are a director, you will have your own personal UTR number also, which relates to your personal tax affairs.

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Your business records should be kept for at least 6 years.

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What is a UTR number?A UTR or Unique Tax Reference is a number assigned to your companyby HMRC. This number is assigned automatically after the company isregistered with Companies House (usually within 28 days) and is thenumber that HMRC uses to identify your company as a tax payer.Please note, if you are a director, you will have your own personal UTRnumber also, which relates to your personal tax affairs.

What is bookkeeping?Bookkeeping is a term used to describe the process whereby a record is kept of transactions which have taken place within a business, suchas income earned and expenditure incurred.

Maintaining a good record of your business transactions is beneficialfor many reasons:

1 To comply with the legal requirement that companies have 2 The company’s profit and cash position are more transparent3 The amounts owed from customers and to suppliers are more visible

In addition, HMRC may want to check your company’s accounts andtax return for inaccuracies. If you cannot provide accurate records,there can be large penalties to pay.

How do I do my own bookkeeping?If you are completing your own bookkeeping you should ensure thatthe data you are inputting is accurate and you must keep evidence toback up your entries, such as customer invoices, supplier invoices receipts and bank statements. If your company is chosen by HMRC for investigation, then they will expect you to have kept this documentation.

We highly recommend that you do not leave all of your bookkeeping work until the lastminute, as entering transactions weeks or even months after they have occurred canmake it much more difficult.

Bookkeeping can be completed in various formats such as physical books and ledgers,spreadsheets and bookkeeping software. The most common method for a company issoftware because if used correctly, there is much less chance of errors compared to manual entry or a spreadsheet. Software also has the advantage of extra functionalitysuch as reporting and the ability to import bank statements etc. Our clients have free use of cloud bookkeeping software (www.pandle.co.uk) whichhas been designed to be as simple as possible, whilst providing a comprehensive set ofrecords. Alternatively we can provide clients with a spreadsheet if that is preferable.

• Travel and subsistence

• Bank charges and interest on things like overdrafts, HP agreements and loans.

• Capital expenditure for larger items such as equipment and furniture

And finally,

• Entertaining costs

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What expenses can you claim?Different types of business will have different types of expenditure. For example, a taxi driver will have weekly settle fees and a plumberwill have tools and material costs. But the good news is, as a generalrule the vast majority of business expenditure is allowable. Even expenses you have incurred personally for the business are generally allowable too.

The most common business expenses are:

• Motor expenses The cost and running of your vehicle, or a mileage allowance instead

• Staff costs and wages Materials or goods that you sell

• Use of your home as an office or if you have an office, the rent, rates and utility bills

• Repairs and renewals This can include repairs to equipment or small renewals such as computer peripherals

• Admin costs This includes telephone and internet costs. Postage and stationery

• Advertising and marketing costs

• Business insurances

• Membership and subscriptions fees If you’re a member of an association for your business or subscribe to an industry magazine for example

• Work clothing

• Training

• Professional fees such as accountancy and some legal fees

£

Bank accountIt is not a legal requirement for a company to have a bank account. However,we strongly recommend that you do open a company bank account which is used solely for the business. This will keep your business and personaltransactions separate, which will make your bookkeeping much easier.

What is a dividend? A dividend is a payment from company profits (after tax) to its shareholder(s).To declare a dividend, a dividend voucher and minutes must be produced.Once the paperwork is in place, the money can be transferred from the company bank account to the personal bank accounts of the shareholders. We can provide templates for dividend vouchers and minutes to our clients at no cost.

What is the financial year?The financial year is a period of time for which a company will prepare its accounts and tax returns. The tax payable will be based on the amount ofprofit a company makes during its financial year. A limited company’s financial year will usually run to the end of the samemonth of formation a year later, although this date can be changed.

How much tax will my company pay?Company tax/corporation tax is currently set at 20%. This means any profitsmade during your financial period will be taxed at 20%

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When and how do I pay tax?Your corporation tax is due not later than 9 months and 1 day after yourfinancial year end. Failure to pay your corporation tax on time could result in surcharges and interest being charged to the company.

You can pay your corporation tax bill using the following methods:

• Faster payment You can transfer the tax you owe directly into HMRC’s bank account through faster payment. This means it will reach HMRC instantly.

• Direct Debit If you're registered for corporation tax online you can set up a direct debit for HMRC to collect payment. This method allows you to set up future payments as soon as you know how much is due - for example when you complete your calculation. HMRC will only ever collect the amount you ask them to by direct debit.

• Billpay This online service allows you to pay your corporation tax bill online with your debit or credit card. You can register for Billpay at the following link https://www.santanderbillpayment.co.uk/hmrc/scripts/index.asp

• Bank Giro If your bank or building society offers the bank Giro Service then you can pay your corporation tax bill at your own branch with cash or cheque.

• Post Office You can pay your corporation tax bill at the Post Office with cheque or cash.

For further information about paying your corporation tax please contactyour local tax office or see the following link http://www.hmrc.gov.uk/payinghmrc/corporationtax.htm

What is the Annual Return, which is submitted to Companies House?The annual return simply notifies Companies House and the public as to thecurrent company appointments, such as directors, shareholders and the company’s registered office address.

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We include the submission of your annual return within thefees that we charge.

What is the process for completing my accounts and returns?Once your bookkeeping has been completed up to the financial year endthen it can sent to us. We will check the bookkeeping thoroughly and usethis as a basis to compile your annual accounts and corporation tax return.Once completed, we will send you a copy of the accounts and tax return foryour approval. Once approved, we will make the submissions to CompaniesHouse and HMRC on your behalf.

What are the deadlines and penalties for late submissions?Your accounts to Companies House are due no later than 9 months after your financial year end. Failure to submit the accounts on time will result in a £150penalty which will continue to increase until they have been filed. For more information, please seehttp://webarchive.nationalarchives.gov.uk/20140711134921/http:/www.companieshouse.gov.uk/companiesAct/ca_lateFilingPenalties.shtml

Your accounts and corporation tax return are due to HMRC no later than 12 months after your financial year end. The penalty for late submission of the tax returnis £100 which will continue to increase over time. For more information, please see http://www.hmrc.gov.uk/ct/change/problems/penalties.htm

How do I take money from the company? If the company is an owner operated limited company (i.e. the shareholders and directors are the same people) then it is normally more tax efficient for the director(s)to take a small salary up to the national insurance threshold and the remainder of their withdrawals as dividends. By structuring the withdrawals in this way the directors/shareholders do not pay income tax or NI (although contributions are still made). The only tax payable is corporation tax onthe profits of the company.If the company directors and shareholders are not the same people or the shareholdings are unequal then wages should be paid as per the hours worked in thecompany so that the distribution of funds is fair.

When do I need to register for VAT?You must register for VAT if your turnover exceeds £82,000 (2015-16) in any given 12 months. However it’s possible to register for VAT voluntarily before youreach this threshold. This could be beneficial if your customers are registered for VAT also. Please contact us if you would like to discuss this further.

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The high penalties mean that it is very important that you send your records to us in good time before the deadlines. Following your financialyear end we will send you regular automated reminders so that you know exactly when you have to act!

Registering as an employerIf you take on an employee you will need to register as an employer withHMRC straight away and start running payroll. We can complete payroll for youor you can complete it yourself. You can contact HMRC on 0845 60 70 143or give us a call.

What is a HMRC tax investigation?Every year HMRC will select corporation tax returns to investigate. HMRC willselect returns either at random or because the submitted figures do not lookright. It is unlikely that you would be selected for an inspection but if you are,you would be asked to show your paperwork to back up the figures submittedto HMRC. If you are chosen for an inspection then we would represent youat no extra cost.

InsurancesWhen you start a business you must make sure you have the correct insurancesin place. You will need employer’s liability insurance if you have any employees,public liability insurance in case a customer or member of the public suffersloss or injury as a result of your business activity. If you sell your skills orknowledge then it would be a good idea to have professional indemnity insurance. This insurance protects your business against claims for damage or loss made by a customer or third party if you make mistakes or are negligent with some of the services you have provided.

Why not speak with our insurance broker. He will guarantee you thebest policy available at the best possible price, please contact us forfurther details.

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