Running a Ltd Company
Initial set up
Check that the initial company is structured as you intended. The main areas are:
Banking
One of the first things to do after the company has been formed is to open a bank account as this will be needed to to receive money and pay any bills.
It is advisable to use the bank account only for business transactions and not for personal transactions to ensure that there is a clear audit trail of your activities.
A separate account can be opened to transfer monies to pay for any taxes.
Taxes
It is important that you ensure the Company is registered with HMRC for the correct taxes. The three main taxes are as follows:
In addition a Director should complete a self assessment tax return if their dividend income exceeds £10,000 or if they have received a notice to file a tax return from HMRC.
VAT
Corporation Tax
Corporation tax is currently payable at 25% on taxable profits. Taxable profits are the profits as stated in the accounts adjusted for tax purposes to take into account non allowable items such as entertaining and depreciation.
Payroll Schemes/Benefits in Kind
The Company maybe required to set up a payroll scheme to facilitate monthly salary payments.
If a Director receives any benefits from the company, then P11Ds may be required.
Directors Loan Account
It is important that there is an audit trail of monies introduced into the business and taken out of the business.
Any money introduced into the business should be booked to a Directors loan account and the money can be repaid by the company.
Any money taken out of the company for personal use should be booked to the Directors loan account and offset by salary or dividends.
Expenses
Business expenses incurred ‘wholly and exclusively’ for the purpose of the trade may be deductible for tax purposes.
Examples of common expenses are as follows:
Travel and subsistence - if a Director works from home then travel to clients and business meetings can be claimed with subsistence related to that travel. Travel includes overnight stays and overseas trips.
Travel by car/motorcycle/bicycle is repayable by a fixed amount per mileage to cover the costs of fuel, depreciation and other running costs.
Mobile phone – it is best to register the phone in the name of business
Use of Home – there is a fixed approved HMRC rate of £18 a month if a Director works from home.
The company can pay rent for the use of a Directors home but the net rental income (after allowing for deductions) should be included in the Director’s (and any joint owner’s) personal tax return.
Extracting Money from the Company
Profits are extracted from the business through the payment of salary and dividends.
Salary – a basic salary is recommended to preserve your National Insurance record.
Dividends – profits can be distributed as dividends.
There is a no tax to pay on dividends up to £1,000, basic rate taxpayers will be liable for tax of 8.5% and higher rate tax payers will be liable to tax of 33.75% on dividends received in excess of £1,000 (£500 2024/25)
Bookkeeping
There is a legal requirement to maintain adequate book keeping records. There are many packages (such as FreeAgent) to help you.
Accounts
Confirmation Statement
Auto-Enrolment Pension Scheme
Initial set up
Check that the initial company is structured as you intended. The main areas are:
- Shareholders – these are the owners and entitled to a share of any distributions (dividends) made from the company’s profit
- Directors – appointed by the company to manage the business (in many cases the Directors and shareholders will be the same people)
- Registered Office – the legal address of the company
- Share capital – this represents the capital tied up in the company
Banking
One of the first things to do after the company has been formed is to open a bank account as this will be needed to to receive money and pay any bills.
It is advisable to use the bank account only for business transactions and not for personal transactions to ensure that there is a clear audit trail of your activities.
A separate account can be opened to transfer monies to pay for any taxes.
Taxes
It is important that you ensure the Company is registered with HMRC for the correct taxes. The three main taxes are as follows:
- Corporation Tax – automatic registration following company registration
- VAT
- PAYE
In addition a Director should complete a self assessment tax return if their dividend income exceeds £10,000 or if they have received a notice to file a tax return from HMRC.
VAT
- Required if sales in any rolling 12-month period reach £85,000 (tax year 2023-24)
- Your VAT registration number should be included on all invoices and VAT charged at 20%
- VAT of 20% is payable on a quarterly basis and returns are due 1 month and 7 days after the end of each quarter.
- Voluntary registration maybe beneficial before reaching the threshold. There are certain schemes available such as the Flat Rate Scheme.
Corporation Tax
Corporation tax is currently payable at 25% on taxable profits. Taxable profits are the profits as stated in the accounts adjusted for tax purposes to take into account non allowable items such as entertaining and depreciation.
Payroll Schemes/Benefits in Kind
The Company maybe required to set up a payroll scheme to facilitate monthly salary payments.
If a Director receives any benefits from the company, then P11Ds may be required.
Directors Loan Account
It is important that there is an audit trail of monies introduced into the business and taken out of the business.
Any money introduced into the business should be booked to a Directors loan account and the money can be repaid by the company.
Any money taken out of the company for personal use should be booked to the Directors loan account and offset by salary or dividends.
Expenses
Business expenses incurred ‘wholly and exclusively’ for the purpose of the trade may be deductible for tax purposes.
Examples of common expenses are as follows:
Travel and subsistence - if a Director works from home then travel to clients and business meetings can be claimed with subsistence related to that travel. Travel includes overnight stays and overseas trips.
Travel by car/motorcycle/bicycle is repayable by a fixed amount per mileage to cover the costs of fuel, depreciation and other running costs.
Mobile phone – it is best to register the phone in the name of business
Use of Home – there is a fixed approved HMRC rate of £18 a month if a Director works from home.
The company can pay rent for the use of a Directors home but the net rental income (after allowing for deductions) should be included in the Director’s (and any joint owner’s) personal tax return.
Extracting Money from the Company
Profits are extracted from the business through the payment of salary and dividends.
Salary – a basic salary is recommended to preserve your National Insurance record.
Dividends – profits can be distributed as dividends.
There is a no tax to pay on dividends up to £1,000, basic rate taxpayers will be liable for tax of 8.5% and higher rate tax payers will be liable to tax of 33.75% on dividends received in excess of £1,000 (£500 2024/25)
Bookkeeping
There is a legal requirement to maintain adequate book keeping records. There are many packages (such as FreeAgent) to help you.
Accounts
- Each company has an accounting period for which accounts are drawn up and submitted to Companies House within 9 months of the end of the accounting period.
- An accounting period is set depending on the month of incorporation and can be changed.
- Financial statements include the profit and loss account and are submitted to HMRC within 12 months of the accounting period together with the CT600 corporation tax return. Filletd accounts excluding the profit and loss accounts can be submitted to Companies House.
Confirmation Statement
- An annual confirmation statement is required to be filed with Companies House 28 days after the anniversary of incorporation and annually thereafter.
Auto-Enrolment Pension Scheme
- An auto enrolment pension scheme is mandatory if the Company employs eligible workers (Directors are not workers).
- There are significant penalties for non-compliance.