Running a limited company

Operating a limited company comes with various challenges and responsibilities. At AHACCOUNTANTS, we offer guidance on reporting and financial responsibilities specific to the Nottingham area.

A limited company is a separate legal entity, meaning its finances are distinct from those of its shareholders and directors. As such, limited companies must adhere to stringent reporting and financial obligations, and the directors bear significant duties.

Key Areas for Shareholders to Consider

1. Administration

Shareholders
Limited companies by shares are typically profit-driven businesses. Shareholders, who can be individuals, another company, or institutions, must own at least one share. By purchasing shares, they invest in the company and can share in its profits. Shareholder liability is limited to their share capital’s value.

The types of shares and their associated rights are specified in the Memorandum of Association, the foundational document for the company. This document outlines the shares’ classes and the rights associated with them, such as dividend payments and voting rights. The Articles of Association detail the company’s operational rules.

2. Dividends
   Dividends are paid from profits after tax liabilities are settled. Companies can pay dividends at different rates for various share types, either as a final dividend after the year-end or as an interim dividend before final profits are established. It is a legal requirement that profits must be sufficient to cover these dividends, accounting for corporation tax.

Dividends count as income for shareholders and are subject to their individual tax rates based on personal circumstances.

3. Limited Liability
   Limited liability means that if a shareholder’s shares are fully paid, they cannot be required to invest more in the company. However, banks may request personal guarantees from directors for loans. This protection generally applies to liabilities owed to other creditors.
4. Legal Continuity
   A limited company enjoys legal continuity, existing as a separate legal entity from its owners. It can own property, sue, and be sued.

Directors

A director may be involved in establishing a new company or appointed to its board. As officers of the company, directors have extensive legal responsibilities as outlined in the Companies Act 2006.

Key duties include:

• Acting within their powers and according to the company’s constitution.
• Promoting the company’s success.
• Exercising independent judgment.
• Exercising reasonable care, skill, and diligence.
• Avoiding conflicts of interest.
• Not accepting benefits from third parties.
• Declaring interests in proposed transactions or arrangements.

If a director’s income is taxed at source, there is no need for them to file a self-assessment tax return if their earnings are below £100,000.

Company Secretaries

Since April 2008, private limited companies are not required to appoint a company secretary unless specified in their articles of association. However, essential tasks typically managed by a company secretary—such as shareholder administration, corporate governance, and statutory compliance—must still be fulfilled by the directors. The company must notify Companies House of any company secretary resignations.

Maintaining Statutory Registers

All companies must keep up-to-date registers of critical details, including:

• Register of members
• Register of directors
• Register of directors’ residential addresses
• Register of mortgages and charges
• Register of debentures
• Details of indemnities
• Minutes of board meetings and general meetings, including shareholder votes and resolutions
• Directors’ service contracts
• Register of People with Significant Control (PSCs)

Failure to maintain these registers can incur penalties of up to £5,000. The registers must be available for public inspection at the company’s registered office or at a single alternative inspection location (SAIL), which must also be recorded at Companies House.

Accounts and Confirmation Statement

Companies must prepare financial statements and maintain accounting records for six years from the end of the last financial year. If a company has significant transactions or assets, longer retention periods may apply.

Companies must file their accounts and confirmation statement (formerly the annual return) annually with the Registrar of Companies. Non-compliance may result in penalties, disqualification of directors, or striking off the company.

Penalties
The Companies Act 2006 allows the Registrar of Companies to impose penalties for late filings, ranging from £150 to £1,500, depending on the company’s status and the degree of lateness. Fines are doubled for consecutive late filings. Failure to file required documents is a criminal offence, with potential fines for directors.

Insurance

Companies should review their insurance coverage, including Public Liability, Professional Indemnity, and Employers’ Liability if they have staff.

Taxation

PAYE, NICs, and Employing Staff
Directors receiving a salary must register for a Pay As You Earn (PAYE) scheme, and the company must deduct PAYE tax, National Insurance contributions (NICs), and pensions auto-enrolment. If the company employs staff, it must manage these deductions and may also be responsible for employer NICs and pensions contributions.

Directors and employees may receive benefits-in-kind from the company (e.g., company cars, private medical insurance), which are typically subject to income tax, with the company liable for NICs on the benefits’ value.

VAT
VAT is charged on sales by VAT-registered businesses. Companies collect this tax and remit it to HMRC, typically on a quarterly basis. They may also claim back VAT on purchases, under certain conditions.

Companies must register for VAT within 30 days if their total taxable turnover exceeds the VAT threshold or if they expect it to do so within the next 30 days.

Corporation Tax and Self-Assessment (CTSA)
Corporation tax applies to the company’s profits. As of April 1, 2023, the main rate increased from 19% to 25% for profits over £250,000. A small profits rate of 19% applies to profits of £50,000 or less, while companies with profits between £50,000 and £250,000 benefit from a marginal relief.

Key features include:

• Companies must calculate their own corporation tax liability.
• Tax must be paid before filing a tax return.
• A ‘process now, check later’ regime applies for submitted tax returns.
• Self-assessment must consider transfer pricing legislation.

Notice to File
HMRC issues a notice to file annually, typically requiring returns within 12 months of the accounting period’s end. Returns must be filed online, using the inline eXtensible Business Reporting Language (iXBRL) format.

Penalties
Late submissions incur a £100 penalty if up to three months late and an additional £100 if over three months late. Further tax-geared penalties of 10% apply for returns six or twelve months late.

Submission of Returns
The return contains the company’s self-assessment, which is subject to amendments, corrections by HMRC, or HMRC inquiries. Companies have 12 months from the statutory filing date to amend their returns, while HMRC has nine months to correct obvious errors.

Payment
Corporation tax liabilities are due typically nine months and one day after the accounting period ends. Interest is charged on late payments.