Starting a new business is an exciting time. There are often various advantages of operating your business through a Limited Company. However, it is important that you understand the full implications of incorporating your business. On the following pages, e-ccountant have provided a few tips, common pitfalls and general vital information in order to ensure that your new start-up company has a great chance of success.
A Limited Company is an entirely separate legal entity to its Directors and Shareholders. This means that the management of the Company are not generally liable for the debts of the Company. However, “Directors’ Guarantees” are sometimes requested by credit providers which may reassign some of the liability to you personally if the company is not able to meet its debts.
Company Bank Account
It is highly recommended that you set up a separate company bank account. This will help to ensure that the Company’s money stays separate to your own. Most high street banks will give around 12 months free business banking to new businesses.
Starting to trade
HM Revenue & Customs (HMRC) need to know when the company becomes ‘active’ (generally when it starts to trade). HMRC must be informed within 3 months of the date that the company becomes active.
If the company has any employees (this includes a Director who takes a salary) then the company must register as an employer. This is done by setting up a Pay As You Earn (PAYE) Scheme with HMRC. Tax and National Insurance must be deducted from the employees’ pay where applicable, before the Company passes it on to HMRC.
There are strict rules regarding what must be shown on the Company’s stationery (e.g. Company name, Company number, place of registration and registered office address). The rules apply to hard copies (e.g. letterhead, order forms, invoices etc) and electronic versions of the stationery (e.g. email communications and the Company website).
Depending on your ‘taxable’ sales level and the type of products and services you sell, you may be required by law to register for VAT. Only VAT Registered businesses can charge Value Added Tax (VAT) on sales and reclaim VAT on purchases. You can normally register the Company for VAT voluntarily and doing so may be financially beneficial.
Cash is King
New businesses do not fail just because they make losses in the early years. They fail because they run out of cash to pay suppliers. Take time to estimate how much cash will be required to get the business going until it becomes self-sufficient.
Accounts & Tax Returns
Every Company must prepare Limited Company Accounts in the prescribed format. The accounts must be sent to Companies House and HMRC (normally once per year) within 9 months of the accounting period end, although the first set of accounts are generally required to be filed within 21 months of the date of incorporation.
The Company must also prepare a Corporation Tax Return (CT600) which must be submitted to HMRC within 9 months and 1 day after the accounting period end.
Depending on the personal circumstances of each Director, they may be required to submit a personal Self Assessment Tax Return to HMRC as well.
As mentioned earlier, VAT returns and PAYE information may be required to be reported to HMRC.
Each year, the Company must send an ‘Annual Return’ to Companies House. The document provides up to date details regarding the Company’s Directors, Shareholders, Registered Office Address, Industry in which the Company operates etc. Failure to submit the Annual Return will result in the Company being ‘struck off’ from the company register.
Extracting profits from the Company
There are a number of profit extraction methods available to the Directors and Shareholders of the Company. These include Salary, Dividend, Pension etc or a mixture of methods. There are various considerations needed to be made before concluding which method will be the most beneficial for the Company’s management. These include the individual’s personal tax circumstances, mortgage requirements and future plans for Company growth. Some profit extraction methods are more tax efficient than others. This is a complicated area which should be discussed with a qualified accountant as early as possible in order to maximise the options available.
How we can help
e-ccountant is a professional firm of Online Chartered Accountants. We specialise in helping small businesses all over the country with their accountancy and taxation compliance and advisory needs. Contact us today to discuss how we can help you and your business to succeed.