A guide to using a Limited Company

A limited company is one way to set up, structure and run your business, which normally has certain benefits over other forms of business structure, including legal protection, tax efficiency and a professional appearance.
The company has to be formed, or incorporated (something we can do for you) and is a separate legal entity in its own right, with its own bank account and funds.
The company is owned by its shareholders and run by its directors.
With a limited company come certain responsibilities, such as ensuring that its finances are kept completely separate from your own personal affairs. Any profit which the company makes after it has paid corporation tax can be distributed to its shareholders.

Responsibilities

As a director of a company, you have certain responsibilities which include:

• Filing accurate statutory Accounts with Companies House
• Filing an annual return with Companies House
• Notifying Companies House of certain changes to the company, for example, the
  appointment of new directors
• Paying any corporation tax due to HMRC and filing a tax return with supporting accounts
• Comply with regulations surrounding PAYE and VAT return filing, if relevant
• Running the company in line with applicable company law and not operating insolvently

General day to day activities

As a company’s finances are separate from your personal finances as the shareholder and/or director, a company must have its own bank account.
You will need to raise sales invoices in the company’s name for the services you provide to your customers. The invoice should also include the payment terms and company bank account information, to make sure you are paid on time, and certain other details such as the date, a unique invoice number and the VAT charged and your company’s VAT number if you are VAT registered.
Depending on the level of income that the company will generate and the type of work that you do, the company may have to register for VAT and charge 20% VAT to its customers, on the value of each invoice raised. VAT returns are required quarterly and need to be filed with HMRC online, followed by the VAT payment itself.
You will also need to maintain the company’s books and keep an up to date record of income and expenses (which can be simply done using the online bookkeeping portal and app we provide, or through your own system). HMRC stipulate that receipts for all expenses must be retained for 7 years so these need to be filed appropriately.

Taking income from the company

There are three main ways to take money out of the company’s bank account for personal use, i.e. as income.

Salary

The company pays you a small monthly salary, as a director, to ensure you get the NI stamp for state pension purposes and to maximise your tax-free income allowance

Expenses reimbursed

Where you pay for business-related expenses personally, you can reclaim this money from the company, without incurring tax

Dividends

The company can pay its shareholders a dividend, providing the company has generated sufficient profit after tax. Dividends are generally a tax-efficient way of remunerating yourself.
The most tax-efficient and legally compliant amount of each will vary according to your individual circumstances and there are also things such as loans and pensions to consider. We will always discuss this with you and advise the most appropriate structure for your objectives, as well as make recommendations for changes in circumstances or legislation.

Easily taken care of

While there may be more responsibilities associated with running a limited company than operating as a sole trader, normally it would be considered as a more efficient business structure to operate in. The biggest factor for growing sole traders relates to the potential spike in tax liabilities once their business revenue and personal income increase.