Company Formation

Starting your own Limited company may appear daunting at first. Our easy guide will summarise everything you need to know:

Company name 

It’s best to have a few names to choose from, as your first choice may not be available. If you do decide to engage an accountant to set up your Company, they will be able to check which names are available with Companies House. The process usually takes less than 24 hours.

Company director

You must legally appoint at least one director, which is usually yourself. There is no longer a requirement for small companies to appoint a company secretary. You will also need to appoint a shareholder and a Person of significant control, both usually yourself.

Business insurance

When you run your own business, certain insurances may be needed. Each one is designed to protect your business against claims from different parties. Also, check your contracts to see if they stipulate insurance requirements, and the levels of cover required.

Business bank account 

Once your company has been incorporated, one of the most important first steps to take is to set up your company’s business bank account. Your limited company is its own legal entity separate from yourself and so you cannot use your own personal bank account. This can be a lengthy process as banks require detailed information from a company director.

Responsibilities and duties of a Company director

As a company director, you are ultimately responsible for the running of your company on a day-to-day basis and have legal responsibilities and duties to uphold under company law. You’re responsible for ensuring that the company maintains accurate accounting records to enable the preparation of the statutory accounts and returns.

Accountants assist in maintaining records for company directors and ensure all statutory deadlines for HMRC and Companies House are met.

Statutory filing requirements & deadlines

Pay as you earn (PAYE) & National Insurance Contributions (NICs)

PAYE is the scheme used to collect income tax and NICs from the gross pay of any employee. If your company is paying you or another employee a salary, you will need a PAYE scheme with HMRC and submit returns under their Real Time Information (RTI) system.

 

Corporation tax

UK limited companies pay corporation tax (CT) on their profits . The rate of tax depends upon the level of profits earned. Profits are calculated on the income (net of any VAT) less the business costs of the company such as salaries and day to day running costs.

The deadline for receiving the Corporation Tax Return (CT600), detailing the company’s annual tax liability, is 12 months after the year end but the tax is usually paid 9 months after the company year end. Interest is applicable on late payments.

Personal tax return of directors

As a director of the company, you’ll have to complete an annual self-assessment tax return detailing your income from all sources. The self-assessment process will calculate any additional tax due which might include tax on benefits you have received, if they have not been taxed under PAYE, or higher rate tax on dividends.

If you’re a director shareholder, you may receive part of your remuneration package as a dividend.The first £2,000 of dividends received are tax free.

Dividends in excess of this amount are taxed at various rates dependent upon your total income and therefore your tax bracket This additional tax will be collected through your self assessment.

Value Added Tax (VAT)

If your company is VAT registered (through choice or obligation), quarterly returns are submitted to HMRC at the end of the month following the quarter end.

So, for example, if your VAT quarter is 1st January to 31st March, the formal deadline will be 7th May, but it’s good practice to ensure that they’re submitted by the end of April.

The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) is currently set at £85,000

Statutory accounts and Companies House confirmation statement

The Companies House deadline for receiving abbreviated annual accounts is 9 months after the company’s year end. Depending on the size of a Company, only minimal detail is needed.

Within 14 days of each annual anniversary of your company’s incorporation date, Companies House requires the submission of an annual confirmation statement. This details the directors, registered office, share capital and the shareholders. There are no financial penalties for late filing, but Companies House may strike off your company from their register if the confirmation statement is late.

Business Expenses

When it comes to claiming business expenses as a director of a limited company, it can be challenging to figure out what you can and cannot claim.

To know which costs are allowable for tax relief, HMRC use the expression “wholly, exclusively and necessarily incurred in the performance of your duties” and they will disallow any expenses that do not fulfill these criteria.

It’s essential to obtain and retain receipts for all expenses incurred in order to be able to justify the expense if questioned by HMRC. This should be a proper till receipt or invoice, not just a credit card slip. Receipts should be kept for 6 years.

Legitimate Business expenses.

Legitimate business expenses are unique to every business and they should contribute towards the company’s future revenue generation. They’re likely to include:

• accountancy fees

• business travel and accommodation

• subsistence

• postage, stationery and printing costs

• business telephone calls (if claiming the cost of the line rental, then the contract should be taken out in your limited company’s name and payment for the line should be made from the business bank account)

• contributions to executive pension plan

• computer equipment and software

• technical books and business

• journals

• training course fees (as long as the skills are relevant to your business)

• business insurances

• certain professional subscriptions – must be a professional body on HMRC’s approved list

use of home as office (a flat £4 per week without receipts is allowed by HMRC)

• cost of advertising and marketing your business

• company bank charges and interest

• eye tests if you regularly use a computer in course of your work

• see HMRC for further details

 

HMRC do not allow

Any expenses deemed to be personal/ non-business related. These can include:

• ordinary commuting

• items for personal use such as cameras and televisions

• rent, mortgage or council tax of your main residence

• private club subscriptions such as gym or golf club membership

• clothing (except safety clothing) such as business suits

• training courses not related to your business

 

How to make expense claim

You claim via accounting software. Our portal allows claims to be made by a company director. 

Our accountants are experts in everything that a Limited company needs to do to stay compliant with HMRC and Companies house. We can also offer tax advice to company directors to enable them to minimize their personal tax payable. For details of our packages for Limited companies, please see