Limited company beginners guide

Limited company
beginners guide
Unlimited accountant support and online software
033 3311 8000
Contents:
1. Getting started
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7. Salary and dividend
p.12
2. Setting up a business bank account
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8. What’s IR35
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3. Company tax
p.06
9. Annual Returns
p.15
4. Insurance
p.09
Important dates for your company’s
5. Invoicing clients
6. Expenses and what you can claim
financial year
p.16
Additional services & features
p.18
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Taking the first steps to running a limited company can be a daunting affair for new directors. With numerous things to consider you may be at a loss as to
where to begin and what exactly should take precedence. Crunch’s guide will provide you with a clear overview of the essential bases to cover, and do so
without the trappings of complex accountancy jargon.
Constructing good foundations is a good way to secure your company’s smooth operating, so start as you mean to go on by following our blueprint to
beginning a limited company.
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1. Getting started
So the first step is pretty logical, make sure you’re registered as the company director and your business is registered with Companies House, otherwise it’s like
having a ship without a captain and your limited company will not officially exist.
Crunch provides a simple service to assist with the formation of new limited companies. You can either head over to www.golimited.co to sort this out yourself or
for a small fee, Crunch will do everything for you.
Attend live webinars
on a variety of topics
and have your
accountancy questions
answered directly
during the session by
our professionals.
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What GoLimited offers:
Our sister company GoLimited provides a simple and approachable guide to
the quick formation of your company. This is a brief synopsis of what the
service offers.
When registering through GoLimited you will be provided with:
Articles of Association - essentially your company’s terms and conditions
on how it should be run
A Certificate of Incorporation - an official confirmation of your
company formation
A Combined Register - lists all the directors and those involved in the
running of the company, and details of any other company interests a
director may have, such as shares in additional companies
A Memorandum of Association - a sort of mission statement, a declaration
of what your company must undertake and how it must do it
A Share Certificate which demonstrates how the shares are allocated and
what they are worth.
These can all either be drawn up by GoLimited, or by you personally if you
so choose.
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What’s the significance of a
director in a limited company?
Do you need a company secretary?
It’s not necessary as it’s no longer a legal requirement and by using the
Once you’ve created your limited company, try to visualise it as a legal
Crunch system we assist you with the duties of a secretary.
entity which exists separate to you, with its own responsibilities and
accountability. In order to maintain control of the company you need
to appoint yourself as the one governing or ‘directing’ it.
As the director you are responsible for, and have a duty to manage the
Before you get started running your
company make sure you have:
company within the parameters laid out in the Articles of Association
and the law.
The shareholders and directors you want.
A registered office address for your company (this doesn't have to
Shareholders
be where you work from but will be where the legal correspondence
Shareholders are the owners of the company and have certain rights,
Articles of Association & Shareholder Agreement (which we
such as the ability to sanction changes, so make sure you’re happy with
also recommend).
from HMRC and Companies House is sent).
who’s invested in your business. Of course this won’t be an issue for you if
you are the sole shareholder.
A limited company is owned by its shareholders and run by its directors. If
you’re starting your own company then this means you can be both a
director and a shareholder. More information on their roles and
responsibilities is covered in Crunch’s Help Centre.
DID YOU KNOW?
Forming your own company
is actually pretty easy it only takes 10 minutes!
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2. Setting up a
business bank account
You’re probably eager to get trading now that you’ve successfully established your limited company, but it’s imperative that you prepare your company properly
before you start trading.
Set up a bank account
You are legally obliged to set up a company owned bank account regardless
of whether you’re the sole shareholder or sole director, it’s mandatory!
Echoing what was said earlier, the company exists as a separate legal entity, it
has its own legal rights and obligations, and any profits or losses incurred belong
to the company.
BANKBOLT!
Save time uploading bank
statements with our automatic
A company bank account is not your personal account so don’t treat it so. Keep your
transfer service, BankBolt.
personal finances separate and keep a clear and transparent record of everything.
Have your bank statements
transported directly into Crunch
ready for reconciliation.
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3. Company tax
Now that your limited company has a bank account from which to finance
Corporation Tax
its operations, you need to understand what your tax obligations are and
how to meet them.
At Crunch we can assist you with managing and registering for all your taxes.
You will need to register for Corporation Tax with HMRC, which we can
do for you, but this will usually be conducted through your company’s
formation process.
This tax is applied to your company’s profits after it has accounted for
business expenses such as employees’ salaries, but before you are able to
withdraw dividends as a shareholder.
All limited companies are required to pay tax on their profits and must
submit an annual CT600 Return. The initial tax return after starting your
company needs to be filed within 12 months of your company’s first year
end and payment must be made within 9 months and 1 day of your
company’s year end. Although it’s not essential to submit the Return
immediately, when it comes to tax, it’s always better to do things sooner
rather than later. Corporation Tax filing and payment can have different
dates, but Crunch will automatically submit them, with your approval, at the
same time for convenience.
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VAT
VAT Flat Rate Scheme
Value Added Tax is an additional sum (currently standing at 20%)
For small companies with an annual turnover of less or equal to £150,000
which is added to the price of most goods and services. Companies
the VAT Flat Rate Scheme was introduced. Essentially this allows you to pay
are not automatically registered for VAT and will not need to register or
HMRC a flat percentage of your sales depending on your industry, which
pay VAT unless their turnover over a 12 month period exceeds
often amounts to less than the standard VAT rate, but still allows you to
£81,000 (2014/15).
charge clients at 20%.
If your turnover is less than £81,000 then you are under no obligation
As an additional incentive to immediately register for the Flat Rate, you will
to register although you can still do so voluntarily. For limited companies
be granted a 1% discount during your first year from VAT registration.
which have a turnover of less than £150,000 in a financial year, they
may be inclined to register for the VAT Flat Rate Scheme and the benefits
that come with it.
However, one thing you need to consider when voluntarily registering for
the VAT Scheme is whether your clients are themselves VAT registered. The
additional sum you’re charging may have a punishing impact on them
financially and potentially lose you clients.
When you come to reconcile your VAT, you pay HMRC a percentage of
turnover rather than working out the VAT on all individual purchases, and
your company can pocket any difference.
Crunch will assist you with submitting quarterly VAT returns and for more
information on registering, either talk to your Crunch accountant or visit;
www.hmrc.gov.uk/vat/start/register/how-to-register.htm
When calculating what you owe HMRC for your return, we will deduct all the
VAT you pay on expenses from the VAT you charge on invoices and the
difference is what you owe.
Note: although these are the main taxes you will encounter, you may also
be subject to other taxes.
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Personal Income Tax
In addition to the tax your company is liable to pay, you must personally pay
tax on any income you receive, usually in the form of dividends and salary
from your company.
If completing your return online you are legally required to complete a Self
Assessment by the 31st January following the tax year in question. If posting
your Self Assessment you must submit it by 31st October following the tax year in
question. So for the tax year 2014/15 you will need to file a paper copy by
31st October 2015 or an online return by 31st January 2016.
You will need to register with HMRC and notify them that you are liable to
personal tax. You can do this at www.online.hmrc.gov.uk/login
For more help with
Self Assessments, see
our community site
Freelanceadvisor.co.uk
Or we can complete it for
a one-off fee starting at £75
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4. Insurance
Insurance can offer peace of mind and security to a company.
For further information and deals on insurance please look at Crunch’s
partner Qdos www.crunch.qdosconsulting.com.
Three fundamental insurance covers your company will need to have, unless
you’re exempt, are:
In addition to these insurances your company may want to also consider Tax
Investigation Insurance which covers the costs that may be incurred during
Employer’s Liability Insurance is a compulsory insurance if your company is
any potential investigation by HMRC into your company, which can take up
employing people, which will protect you against claims by an employee
a significant period of time and money.
for injury etc. If you are the sole employee of the company and own over
50% of the shares then your company is not required to have this cover.
Public Liability is an insurance to cover you against death or damage to
third parties and their property by your company’s actions. Although it’s not
compulsory you have a duty to protect anyone who might be affected by
the provision of your company’s services.
Professional Indemnity is an insurance to cover your company against any
If you work in certain
industries additional
insurances may
be required!
claims made against your work, e.g. negligence.
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5. Invoicing clients
To receive payment for your company’s services you need to raise an
invoice and issue it to your clients.
When creating an invoice there are legal guidelines you have to adhere to
and certain requirements you must include to validate the invoice.
The document must include the word invoice.
An invoice number (this is a unique and consecutive number which
follows on from any previous invoice you have sent).
Your company’s name/registered office address/registration number
Your client’s name/address
A sufficient description of the goods or services being provided.
The time of supply (tax point) if different from the invoice date.
You need to provide an itemised breakdown showing the unit price
before and after VAT, the rate of VAT, the total amount payable and the
total VAT charged.
The invoice template we provide automates all these requirements
for you.
(located on your Certificate of Incorporation).
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All limited companies are required to pay tax on their profits and must
submit an annual CT600. The initial tax return after starting your company
6. Expenses and
what you can claim
needs to be filed within 12 months of your company’s first year end and
payment must be then made within 9 months and 1 day of your
SNAP APP -
company’s year end. Although it’s not essential to submit the form
immediately, when it comes to tax, it’s always better to do things sooner
A quick and practical way to
rather than later.
record receipts on-the-go is with
our additional smartphone
feature Snap. Take a picture and
let Crunch do the rest.
One of the foremost questions asked by new companies is what they are
Notice: This is an isolated tax example to demonstrate how expenses affect
entitled to claim back. We can’t provide a complete overview of every
your tax bill, whereas in reality your tax bill will also accommodate for PAYE
possible expense because the list is so extensive and the decision will often
salaries, VAT Flat Rate and income thresholds.
depend on your trading position.
Expenses must be ‘wholly & exclusively’ for business use and you can hit
What we can do is provide you with the parameters within which HMRC
murky ground when you start wading into personal expenses under
entitle you to claim and the most common expenses your company is likely
business time, so keep it legitimate and locate our guide on allowable
to encounter.
expenses in the Help Centre.
When claiming back expenses, any business expenditure which was paid for
Any expense that holds a dual purpose is unlikely to be accepted as it’s
personally can be recompensed through the company. For business expenses
not exclusively for business use, so buying an Armani suit for work which
which your company incurs it may receive tax relief.
you’re likely to use personally is not going to cut it, whereas buying a
This is where the collective cost of expenses is deducted from the total
specialised outfit for use on a building site is.
revenue, with the difference being taxed. For example, a turnover of £10,000
You may also be able to claim personal expenses for business purposes
with £1,500 in business expenses would pay Corporation Tax on £8,500.
which were incurred during or before the formation of your limited company.
We have a whole separate Crunch guide on expenses available at
www.crunch.co.uk/guides
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7. Salary and dividend
Any profit a company makes is separate to you personally as it is a legal entity unto
itself. If you intend on withdrawing an income from the company this has to be done
through either dividends if you’re the owner, or a salary if you’re the employee.
As both an owner (shareholder) and employee (director) of the company you can
achieve the most tax efficient way to receive an income by splitting your payments
between dividend and salary.
TIP:
Crunch will calculate the
optimal split for you!
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Most effective income for a director
Salary:
Dividends:
You can choose whatever salary is available to you from your company funds,
This is money you may withdraw from the company’s post-Corporation Tax
although if your limited company falls outside IR35 then you may wish to
profits as a shareholder. Make sure your company has the profits available
consider paying yourself a salary at either, the level below the NIC & Tax
to withdraw dividends, otherwise the money paid will be recorded as a
free thresholds, or in accordance with the National Minimum Wage, it’s
director’s loan.
your choice!
Dividends avoid National Insurance liabilities and PAYE Tax, because they
Remember that national minimum wage need not apply to limited companies
are instead taxed by 10% at source. The most tax efficient amount to pay
that do not hold a contract with their directors, as the case will usually be
yourself in dividends is £30,500 to avoid paying the higher rate of 32.5%.
with one man companies.
The most tax efficient income would therefore be a combined salary and
The most efficient salary for your company to pay you as the director is £7,956
dividend of £38,456 (2014/15). You may wish to take more than this,
(2014/15). This is the highest sum before you are required to pay National
however, you will need to consider the higher tax rate.
Insurance and over the £5,885 (2014/15) minimum to qualify for state pensions.
Use our Personal Tax estimator if you’re choosing to exceed this:
https://support.crunch.co.uk/entries/
23265407-The-Crunch-Personal-Tax-Estimator
WANT TO FIND
OUT MORE?
For more information on any
questions, use our
substantial Help Centre or
contact an Account Manager
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8. What’s IR35?
It can be a real headache to determine whether your company falls foul of the legal parameters of IR35 Legislation, especially when HMRC themselves can’t
tell you with any real certainty what those parameters are. As this is one of the main reasons which currently prompts tax inspections you need to make sure
you’re observing IR35 correctly.
To put it simply, IR35 is used to determine whether you are "employed" by your client or providing "self-employed" contracting services through your limited
company. However, the real confusion lies in how they determine this and the legalese they use to describe said process. We have specialists on hand that
can ensure you’re contracts are watertight.
Essentially it boils down to how much control a client exercises over how you supply your personal services, how much involvement they have in the ‘who, what,
where and when’. Ultimately, you are the authority in your company and the parameters for how you work should be drawn out and answerable to you.
For a comprehensive guide to the differences between an employer/self-employed and a worker please check our definition located in the Help Centre.
If you think you fall within the IR35 distinctions then we would suggest it’s best to cover yourself, we have a whole separate guide to IR35 available at
www.crunch.co.uk/guides.
You can also contact your Account Manager.
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9. Annual Returns
As the company director you are required by law to complete an Annual Return
which is simply a summary of your company’s operations. If not submitted to
Companies House in time it could see you prosecuted, your company dissolved
and any potential to become a future director removed. The submission date falls
within 28 days of the anniversary of your company’s formation so make sure you
prioritise your time around this. There is a mandatory £13 fee which Companies
House charge for this service
With the Annual Return you must include:
What type of business your company runs and the address it‘s run from.
The address where your company’s list of shareholders is kept and the
address of all company directors.
The type of limited company (e.g. limited by share or guarantee).
The number and value of shares and who owns them.
Details of debentures (an unsecured loan certificate issued by a company,
backed by general credit rather than by specified assets).
Crunch will include all of the aforementioned points for you.
Your Annual Returns can cover a period longer than 12 months and are
submitted on the last day of a calendar month. Your first will be due one year
and 28 days after incorporation and every 12 months after that.
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Important dates for
your company’s
financial year
We will assist with your tax filing
As a limited company you are required to file Company Accounts and Tax
For your Company Tax Return and Corporation Tax you are given an
Returns to Companies House and HMRC respectively. In your initial year of
‘Accounting Period’ which begins when you start business activities and
trading the submission dates of the two are separate as they give different
usually ends on your Accounting Reference Date.
dates for your financial year.
Your Corporation Tax return cannot be longer than 365 days so you are
Companies House give your company an ‘Accounting Reference Date’ when
required to send two Tax Returns to account for the discrepancy in dates
they expect its year end to be, usually the anniversary of the last day of the
between company formation and when your Accounting Reference
month in which your company is incorporated. So the first set of Company
Date is set.
Accounts submitted will often be longer than a 12 month duration. For
example, if your company formed on the 7th July 2013 your Accounting
Fortunately this slightly confusing process is all automated by Crunch.
Reference Date would usually be 31st July 2014.
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Limited company
deadlines
Other dates:
Glossary
Limited company
formation
Annual return
Year end
Statutory return
required by
Companies House
giving a snapshot of
company information
Last day of a Ltd
company’s
accounting year
Companies House
year end accounts
Tax year
Company’s annual
financial statements
Date a company is
incorporated.
Based on a company being
set up on 1st January
6th April to 5th April
Filing your company’s first set of accounts to Companies House:
Limited company
formation
Day 1
Feb
Mar
Apr
May
Jun
Jul
Annual return
Company’s annual
financial statements
& corporation tax
return (CT600)
HMRC return
detailing personal
taxable income,
also known as a
Personal Tax Return
P60
End of year tax
certificate provided
to every employee
confirming earnings
for the year.
Tax needing to be
paid to HMRC on
any taxable profits
of the company
Year 1
365 days preceeding first year end
Jan
P11D
Statutory form
required by HMRC
detailing cash
equivalent of benefits
and expenses
provided to a Director
and employees
during a tax year.
Self-Assessment:
Corporation tax
If you are filing your company's first accounts and those accounts cover a period
of more than 12 months, you must deliver them to Companies House within
precisely 21 months of the date of incorporation, or 3 months from the accounting
reference date, whichever is longer.
Deadlines
HMRC year end
accounts:
Aug
Sep
Oct
Nov
Year
End
Year 2 and each year post first Year End
(based on the preceeding year’s activity)
Dec
Jan
Feb
Mar
Apr
May
• VAT (Value Added Tax) Returns:
Return made to HMRC to show
how many vatable transactions.
For Crunch clients these would
be on a quarterly basis.
• RTI (Real Time Information)
Payroll submissions:
Real time payroll run
submission to HMRC. For Crunch
clients these would be on a
monthly basis.
• PAYE payment:
Payment of any PAYE, or NIC’s
contributions if paying
electronically needs to be with
HMRC by 22nd of each month.
Year
End
Jun
Jul
Aug
Sep
9 mths
Corporation tax
payment
9 mths
+
1 day
HMRC year end
accounts filing
P60
P11D filing
Nov
Dec
28
days
Companies House
year end accounts
filing
Self Assessment filing
Oct
12
mths
31 Jan
31 Jan
19 May
19 May
6 Jul
6 Jul
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Additional services
& features
Personal tax filing: For those who struggle to complete their own Self Assessment
tax returns, we offer a simple and low priced service to assist you.
Has your previous accountant left your books in a bit of a mess? We’ll whip
them into shape, and help you keep them that way!
Expert IR35 assistance: Think you might be a “disguised employee”? Crunch
are PCG accredited, if you’re unsure of your status get in touch and we can
organise a review.
Need help with your employee’s payroll? Payroll includes National Insurance
calculations and production of payslips. Payroll is available for companies of up to
ten people.
References: If you require proof of income for a mortgage application, property
rental or working visa, our team can prepare them for a fixed fee.
Mile Cruncher: Designed to streamline the process of claiming motor expenses
by allowing you to record your business mileage while out and about, and have
the corresponding expense recorded in Crunch automatically.
BankBolt: With our new service BankBolt, all transactions in your business bank
account can be automatically pulled into your Crunch account for even easier
reconciliation - no more manually uploading bank statements.
Note: Some services may carry an additional charge.
This document contains guidance only and is not a substitute for tailored advice from a Crunch
accountant. Contact your Crunch Account Manager for advice pertaining to your specific business
and situation. All content is copyright E-Crunch Ltd 2014-2015.
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