The most important feature of the limited company is that it is a separate legal person from its shareholders and directors. This means that its liabilities are not their liabilities and that the company’s assets are not their assets.
The benefits of limited liability are reduced in some circumstances; for example, where bankers and others lending money to the company require other security or personal guarantees provided by the shareholders. However, limited liability may provide some comfort against the trade creditors in the event of business failure.
What are the key accounting and tax responsibilities for a limited company in the UK?
Keeping of Records
Your company must keep records to meet Companies Act regulations and tax regulations.
If, as a company director, you fail to meet your business record-keeping requirements, you could be disqualified.
Limited companies must keep records about the company and its finance and accounting.
You must keep any minutes of board meetings and resolutions, and your company’s registers will need to be held for the time the company is trading.
You must keep details of:
- Directors, shareholders and company secretaries
- The results of any shareholder votes and resolutions
- Debentures, which are promises for the company to repay loans at a specific date in the future, and to whom they must be repaid
- Promises the company makes for payments if something goes wrong and it’s the company’s fault, known as indemnities
- Transactions of any shares bought in the company
- Loans or mortgages secured against the company’s assets.
You must tell Companies House if you keep the records somewhere other than the company’s registered office address.
You must also keep a register of ‘people with significant control’. This includes details of anyone who has more than 25% shares or voting rights in your company, can appoint or remove a majority of directors or can influence or control your company or trust.
If there are no people with significant control, you also need to record that.
Taxation of profits
Companies are liable to corporation tax on their profits. For financial year 2023 onwards, the main rate of corporation tax is 25%. However, the small profits rate of 19% applies where profits for the year are up to the lower limit; and marginal relief is given where profits are between the lower and upper limits, with the result that the effective rate of tax is between 19% and 25%.
Ensure you calculate and pay this tax on time, usually within nine months and one day after your financial year-end.
Administration
The company must be registered with Companies House. A company must prepare statutory accounts in the format prescribed by the Companies Acts and the accounts must be lodged with Companies House. Further, a company must complete a Confirmation Statement each year and it must notify Companies House of certain developments, such as the appointment of new directors. It is also necessary to formalise some decisions of a company in a written resolution. Larger companies are required to appoint an auditor.
Where a notice has been issued by HMRC, the company must submit a corporation tax return accompanied by supporting computations and accounts. Electronic filing is mandatory for corporation tax returns.
HMRC guidance is that all directors must register for Self-Assessment. The directors will include any remuneration and dividends paid by the company in their tax returns.
There may be other requirements depending on the circumstances, for example:
- where the company is required to, or volunteers to register for VAT, it will need to submit VAT returns to HMRC and pay over the VAT due;
- where the company has employees, it will need to operate PAYE in respect of salary payments; and
- where the company operates in the construction industry, it will need to submit returns, etc. under the Construction Industry Scheme.
Annual Accounts
Your company’s annual accounts – called ‘statutory accounts’ – are prepared from the company’s financial records at the end of your company’s financial year.
You must always send copies of the statutory accounts to:
- all shareholders
- people who can go to the company’s general meetings
- Companies House
- HM Revenue and Customs (HMRC) as part of your Company Tax Return
Where you do not compile reports or returns, you must still approve and authorise the documentation being filed, so you must apply due diligence to verify the accuracy and content of these filings before you sign.
Although this is not an exhaustive list, directors are responsible for the following:
- Filing annual Confirmation Statements with Companies House. These statements verify details such as the company ownership structure and are filed annually.
- Assigning a registered address and updating this accordingly if it changes.
- Maintaining records of transactions, inventory and VAT payments or collections, ensuring VAT and Corporation Tax returns are correct and complete.
- Submitting year-end accounts, VAT returns where relevant, PAYE and CIS reports and making tax remittances on time and in full.
You have different deadlines for sending your accounts to Companies House and your tax return to HMRC, but you may be able send them at the same time.
Remember that accounting and tax regulations may evolve over time, so it’s essential to stay informed and seek professional advice when needed to meet your annual accounts and tax obligations as a UK limited company.
Sources
https://www.gov.uk/government/organisations/companies-house
https://www.gov.uk/government/organisations/hm-revenue-customs
https://www.gov.uk/annual-accounts
