Limited Company Accounting Support & Company Registration

Limited companies provide numerous benefits, from tax savings to limiting your liability.

But the first step is to understand what a limited company is exactly, and whether setting up such a company can help you achieve your goals. This article will clearly explain the pro's and con's so you can make an educated decision.

In a nutshell, a limited company is a private company that's a separate legal entity from its owner(s). For freelancers and contractors, a limited company is one of the three main business structures that you may use to run your business (the others being sole trader and umbrella companies).

In this article, we walk you through:

• What a "separate legal entity" means
• The different types of Limited Companies
• The pros and cons of setting up a Limited Company
• How to start a Limited Company

If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.

As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:

• Sole proprietorship
• Limited company
• Working through an umbrella company

It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics - and here's where our guide comes into the picture.

Directors

• Directors have the responsibility of running and managing a Limited company;
• Directors are responsible for ensuring all company accounts are filed with HMRC and Companies House;
• Directors must have board meetings to decide on company activities ‚- including taking a dividend.

Shareholders

• Shareholders are not involved in the running and managing of the Limited company;
• Shareholders are involved in some decisions, like the change of company name, however not day to day running;
• Shareholders are entitled to take dividends from the company, as long as these can be justified from their role in the company.

Employees

• Employees work for the Limited company and are employed. They will receive a monthly salary from the Limited company.
• They are not part of any decision making process and do not have any rights to dividends.

The SIC code is a five-digit Standard Industrial Classification code. These codes are used by government bodies and agencies to systematically identify and categorise the principal business activities of companies operating in the UK.

You can change the name of your limited company through a third party (such as a company formation service), or directly with Companies House.

If you're opting for the latter, you need to complete form NM01. There is a £10 fee payable to Companies House to file the form.

If you're trading as a limited liability partnership, you need to file form LL NM01. A £10 fee applies.

What are the advantages of a private limited company?

In the UK, the majority of self-employed people operate as sole traders. While there are many advantages to being a sole trader, you could take home more money and give your business a professional edge by setting up as a limited company.

In this article, we'll look at the advantages of operating as a private limited company to see how it could benefit you. If you're interested in seeing whether a limited company could be a good option for your business, check out our Business Structure guide. If you're already operating as a sole trader, making the jump to a limited company is more straight forward than you think.

Advantage 1 ‚- You pay less tax and National Insurance Contributions

Who can turn their nose up at the prospect of increased take-home pay? Well, that's the principle benefit of setting up a limited company and one of the main factors that drive people to switch from a sole trader.

As a director of a limited company, the way you pay tax is different from how you pay as a sole trader. As a sole trader, you'll pay 20% or more on everything you earn over the tax threshold. As a limited company, you typically pay yourself a small salary so you incur as little personal tax as possible. The majority of your income will come in the form of dividends that are taxed at a much smaller rate, meaning you're able to maximise your take-home pay.

As well as the tax benefits, paying the majority of your income through dividends means that you're able to pay less National Insurance Contributions (NICs) as these do not apply to dividend payments.

Example - Here's a quick comparison of the difference in take-home pay for a sole trader and a limited company.

1. Sole Trader

   Revenue: £40,000

   Expenses: £1000

   Tax at 20%: £5,300

   Class 2 NIC: £158.60

   Class 4 NIC: £2,655

   **Take-home pay: £30,886.40

   **

2. **Limited Company

   **Revenue: £40,000

   Expenses: £1000

   Corporation tax: £5741.04

   Dividend tax at 7.5%: 1,406.92

   Take-home pay: £ 31,852.04

As you can see, you save £965.64 as a limited company. What's not to like?

When you set up a limited company, you'll enjoy many advantages you don't get as a sole trader. Not only is it a tax-efficient way to run your business, it's also a great way to limit your personal liability and increase your credibility with customers. Additionally, it could open new avenues of work that wouldn't be open to you if you were operating as a sole trader, especially some contractor roles.

One of the disadvantages of running a limited company is that it involves a lot of paperwork, but with the help of this guide, we'll clear away the jargon and tell you exactly what you need.

If you're unsure about whether a limited company is right for you, check out our handy article comparing the differences between Limited companies and Sole Traders to see which business entity is right for you.

If you've got more important things to do than dealing with extra admin, you can always take advantage of one of our accountancy packages and we'll do all the forms and applications for you.

To register a business as a sole trader, you need to:

• Register as self-employed with HMRC
• Choose a business name

Once you've registered, you need to fulfil your responsibilities as a sole trader. These include:

• Keeping records of your sales and expenses
• Submitting a Self Assessment tax return each year
• Paying income tax and National Insurance Contributions

To set up a limited company, you need to:

• Decide what type of limited company you need
• Choose a business name
• Choose how to set up your limited company
• Complete the company formation process
• Open a business bank account
• Inform your stakeholders
• Get your VAT registration or transfer sorted out
• Set up your payroll
• Update your company details
• Get your books sorted out

To set up a business partnership, you need to:

• Choose a business name
• Choose a ‚Äònominated partner'
• Register with HMRC

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

There are a couple of ways to go about registering a limited company:

• Register directly through Companies House
• Go through a third party: An accountant or company formation service can help you process your application, significantly lessening your admin burden. Beyond the application, a good third-party service can also provide accounting advice, help you fulfil your filing obligations and assist with other admin tasks.

We've included further details in our guide on setting up a limited company.

• What is a Limited Company
• 10 step process for setting up a Limited Company

The advantages of operating as a limited company are well known. It can be a great way to maximise your take-home pay, improve your credibility with customers and limit your personal liability. Like most things in life, it's a case of what's best for your situation. While the positives outweigh the negatives for most people, there are a few things you should know before you make the jump to a limited company.

In this article, we'll outline the disadvantages of operating as a private limited company. Bear in mind that there are many advantages to a limited company and in many cases, these advantages will outweigh the disadvantages, so don't think of this as a report of doom and gloom.

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

• A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
• A Limited Company is usually more tax efficient than being a Sole Trader.
• Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.

We'll walk you through how to register your company for free and the perks that you'll get with each.

If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.

Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.

One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.

While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:

• How much tax you pay
• Your degree of personal liability should the business fail
• How much administrative work is involved in the business (both before it comes to fruition and over the course of its life)
• Your ability to finance and fund your efforts

If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.

Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.

Tax season can be stressful for small business owners.

You don't have the convenience of having an employer filing for you. While there are all kinds of tips and strategies for managing your taxes, the first order of business is to get key deadlines noted on your schedule, and determine how and when to make your payment.

Here's what you need to know:

As a contractor running your own limited company, you need to be aware of the following deadlines:

• File end of year accounts to Companies House: 9 months after your company year ends. If it is your first year, the due date will be 21 months from the date your company was incorporated.
• File your confirmation statement: This is due on the anniversary of incorporation each year
• File your corporation tax return: This is due 12 months from your company year end.
• Pay your corporation tax bill: Payment is due 9 months and 1 day after the end of the company year
• PAYE RTI (Real Time Information) Returns: A submission of your company payroll has to be submitted in real time each month to HMRC. This is due on or before the intended salary payment. Any tax due from this can be payable on a quarterly or monthly basis as follows:
• the 22nd of the next tax month if you pay monthly
• the 22nd after the end of the quarter if you pay quarterly
• VAT returns: Usually submitted on a quarterly basis, the company VAT is due to be filed and paid within 1 month and 7 days from the quarter end.
• Self Assessment tax returns: Your Self Assessment Tax Return is always due to be filed by the following 31st January after the end of the tax year. This date is also the same deadline for payment of any tax due but you may also have a payment on account due by 31st July after this.
• P11D: The submission of the company P11D will need to made by 6th July with any payment of National Insurance arising due by 19th July (22nd if paid electronically)

The first accounting year end date for a new company is the last day of the month in which the first anniversary falls on. For example, if your company was incorporated on 15 January 2021, the first accounting year end date will be 31 January 2022.

PAYE

RTI late filing will incur a monthly penalty of £100, depending on the number of employees you have.

Self Assessment

A late filing penalty of £100 is imposed if your tax return is up to three months late. The penalty increases if you're later than three months, or if you pay your tax bill late. Additionally, interest will be charged on late payments.

VAT

You may be required to pay a surcharge if you submit a late return. Surcharges for late payments or VAT return filings are indicated on the HMRC website.

Corporation Tax

HMRC's penalties are as follows:

• 1 day late: £100
• 3 months late: An additional £100
• 6 months late: Your total corporation tax bill will be estimated, after which a penalty of 10% of unpaid tax will be imposed.
• 12 months late: An additional penalty of 10% of unpaid tax will be imposed.

Company accounts

The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:

• Up to 1 month late: £150
• 1 - 3 months late: £375
• 3 - 6 months late: £750
• More than 6 months late: £1,500

As a limited company director, there are several important deadlines you need to be aware of. These are:

• File your Self Assessment tax return: 31st January 2022 for the 2020/2021 tax year
• Pay you Self Assessment tax: 31st January
• Registering for VAT: Register for VAT within 30 days of meeting the conditions for [compulsory registration](https://www.gov.uk/vat-registration/when-to-register#:~:text=Compulsory registration,over the last 12 months)
• Filing and paying VAT returns: 1 month and 7 days after your VAT quarter end date
• Company accounts: First year accounts are due 21 months after incorporation. Subsequent accounts are due 9 months after the year end
• Corporation tax registration: You need to register within 3 months of trading commencing.
• File your corporation tax return: 12 months following the end of your accounting period
• Corporation tax payment: 9 months and 1 day following the end of your accounting period
• File your Confirmation Statement: You need to file a confirmation statement every 12 months, within 14 days after your confirmation date.