What is a Limited Company?

Starting a new business venture is exciting, but choosing the right business structure can be daunting. Here we take a look at the Limited Company option.

The main difference between a Sole Trader and Limited Company is that a Limited Company is a separate legal entity from you as an individual. That means that any liability is separate to you and if the worst should happen and the company gets into trouble, the directors are only liable by their shareholding.

How to start a Limited Company

A company is formally incorporated by Companies House and must have at least one director and shareholder. As a director you are responsible for the day to day running of the company. A shareholder owns the shares in the company.

There are a few key things to consider when starting a Limited Company:

1. Choosing a name – this can be the fun part. You need to decide on a name and can choose pretty much anything, provided it is not already taken, abusive, illegal, trademarked or linked to the Royal Family. You can find more info on the UK website.
2. Deciding on director(s) and shareholder(s) – the likelihood is that if you are setting up a company then you will be a director and shareholder, but will anyone else be joining you? It could be your spouse or a business partner. We would be happy to help advise on your company structure.
3. Formally registering with Companies House – the Limited Company must be registered with Companies House. This can be done either via the Companies House website or it is something we can assist you with. A free incorporation is available with all our monthly accountancy packages.
4. Opening a Limited Company bank account – once the Limited Company is formally opened you will need to set up a bank account. Being its own legal entity, the Limited Company must have an account opened in its own name.
5. Record keeping – it is vital that you keep all of the important documents relating to your company. This ranges from your incorporation certificate, any HMRC letters, insurance policies and bank statements through to your day to day invoices and receipts.

Director’s responsibilities

As a director you will be responsible for many tasks throughout the life of the company. You must maintain the formal company record at Companies House – this means updating any changes to directors and shareholders details, and the company’s registered office address. A yearly Confirmation Statement must be filed and is due on the anniversary of incorporation.

Filing company accounts and a company tax return is also an annual requirement. Accounts are required to be submitted to Companies House each year. For the first year the accounts are due 21 months after the incorporation date. Then from the second year onwards they are due 9 months after the company accounting reference date, or company year end.

You must also submit a company tax return to HMRC each year. This will advise them of the corporation tax liability. The company tax return is due 12 months after the year end. Any corporation tax that is payable is due 9 months and 1 day after the year end.

As a director you must also inform all shareholders of the profit the company has made.

Taxes

There are a number of taxes to consider when running a Limited Company.

The main obligation is going to be corporation tax. If the company makes a profit then corporation tax will be payable each year. Currently the corporation tax rate is 19%, but that will be increasing to 25% from 1 April 2023.

VAT must be paid if you register. There is no obligation to register unless your income will be over £85,000 a year. Returns are submitted quarterly and you pay the difference between VAT collected on income and VAT paid on expenditure. We would be happy to discuss VAT registration with you and offer advice on your specific circumstances.

Employing staff

As your business expands, you may need to consider employing additional staff. This could be casual, part time or full time employees. As an employer you will need to register with HMRC for a PAYE scheme, and you would be responsible for deducting tax and National Insurance from your employees, and paying it across to HMRC. Payroll would need to be reported to HMRC each month. Please ask for more information on running a payroll if it is something that applies to you.

How you get paid

If you are a director and shareholder then the most common way of paying yourself will be through a combination of salary and dividends.

We will be happy to look at your individual circumstances and provide advice on how to pay yourself.

How Taxevo can help

If you’re just starting out and need a bit of advice as to which business structure suits you best, our expert team here at Taxevo can help. From discussing your personal and professional needs to understanding what you want to get out of your business, our friendly accountants are on hand to help you find the perfect fit for you. Get in touch to find out more today.