Setting up and Running a Limited Company

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1 Setting up and Running a Limited Company A brief introduction and explanation to some of the legal and financial matters which need to be considered

2 1. Company Set Up You form a limited company at Companies House Key details for the formation: Name a company name (which is not already being used) Directors who will they be - at least one Company Secretary small companies no longer need to appoint a Company Secretary (but you can if you want) Registered Office is the legal address of your company Shares: the allocation of shares the owners and how they are split Once set up check the details to ensure it is formed as you wanted 13/11/2015 2

3 2. Bank Account One of the first actions after the company has been formed is to open a company bank account There are plenty of banks keen to have you open it with them Remember this is the COMPANY account and not your private account To open the Bank Account you will need to take the Certificate of Incorporation and a copy of your share certificate. 13/11/2015 3

4 3. Company Accounts 1. The company is allocated an accounting reference date by Companies House 2. This is usually one year after the end of the month the company was formed in. So if the company was formed on 5 November 2015 the accounting reference date would be 30 November with the first accounts being at 30 November You can change your reference date once every 5 years if you wish. There are times when this can be done and it may be possible to change more than once if certain circumstances exist. 4. The accounts must be filed at Companies House within 9 months of the accounts year end. This is however different in the first year when it is 9 months after the company was incorporated. 5. If accounts are not filed on time there are severe financial penalties. 13/11/2015 4

5 4. PAYE/NIC If you intend to pay salaries then you will need to set up a Pay As You Earn (PAYE) Scheme with HM Revenue & Customs (HMRC). You do this on line at: HMRC will give your company a reference number and the company will be required to deduct tax and National Insurance from any salaries paid to directors and employees if appropriate. Responsibilities: Deduct and pay to HMRC Income Tax and NIC from salary payments File monthly PAYE returns in Real Time (RTI) to HMRC Report benefits and expenses paid to directors and employees on forms P11d after the end of the tax year Getting this right is important as there are various penalties which can be incurred for failure to get it right 13/11/2015 5

6 Basic facts for 2015/2016 Income Tax Rates and Personal Allowances Your tax-free Personal Allowance is 10,600 This is the amount you can earn before you pay tax Income Tax Rates - Taxable Income above your Personal Allowance Basic rate 20% 0 to 31,785 You start paying this rate on income over 10,600 Higher rate 40% 31,786 to 150,000 You start paying this rate on income over 42,385 Additional rate 45% Over 150,000 Example: Taxable Income 35,000 Personal Allowance 10,600 Basic Rate at 20% 24,400 Tax Due 4,880 13/11/2015 6

7 Basic facts for 2015/ There are different types of National Insurance (known as classes. The type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record. 2. If you are employed you pay Class 1 NIC. If your pay is 155 to 815 per week ( 672 to 3,532 per month) Class 1 rate is 12%. If your pay is over 815 per week ( 3,532 per month) it is 2%. 3. The employer (your company) will have to pay NIC at the rate of 13.8% on any salary above 676 per month. 13/11/2015 7

8 5. VAT VAT is a tax normally added to the value of your sales and currently the rate is set at 20%. So, if the invoice for your services is 200 then you would add 40 ( 200 X 20%), making the total invoice 240. You must register for VAT if the annual turnover of the company will exceed 79,000. You can register voluntarily even if your turnover has not reached this threshold. There are several VAT responsibilities you have as a director. They are: a) completing a VAT return on time which must be done electronically and you can pay by direct debit; (It is usual to prepare returns quarterly but you can do monthly and annual) b) the return is due approximately 5 weeks following the return period. Questions to ask: Should I be on a cash or accruals basis? Should I be on a flat rate scheme and if so what %? 13/11/2015 8

9 6. Corporation Tax After the company has been formed at Companies House, HMRC will issue a form - Corporation Tax New Company Details sent to your registered office. By completing this form HMRC will register your company for CT this is tax payable on company profits and be issued a Unique Tax Reference (UTR) CT is charged on profits at 20% for small companies. There are a few CT responsibilities for directors: (a)complete a CT Return every year filed with HMRC together with a set of annual accounts, within 9 months of the period end date; (b) Pay any CT due this is payable 9 months after the period end date. Penalties can be incurred for failure to get this right. 13/11/2015 9

10 7. Insurance Public Liability Insurance to insure you against injury or death to third parties and damage to third party property as a result of your actions. Employer Liability Insurance this covers the employer against claims by an employee for injury etc. This is not required if you are the only employee and you own at least 50% of the shares. Professional Indemnity Insurance to insure you against any claims made against you, for example, if your client suffers financial loss as a result of your mistake or negligence. 13/11/

11 8. Appointing an Accountant Hudddart s are Chartered Accountants - this guarantees certain qualifications and standards and being members of the ICAEW (Institute of Chartered Accountants for England and Wales) We provide the following services: Accounts Payroll & VAT Book keeping Tax Consultancy and Funding advice Business Mentoring Please visit our website for further information or phone for an appointment 13/11/

12 9. Invoicing In order to receive payment for your services you will need to issue an invoice. Legally an invoice must contain the following: Company Name, address and registration number VAT number (if registered) Invoice date Invoice number Itemised breakdown 13/11/

13 10. Expenses What expenses can I claim? All expenses must be wholly and exclusively for the benefit of the business Typical expenses include: Purchase of materials or good for re-sale Property rent and running costs Advertising Insurance Business entertaining (not allowable for tax though) Subscriptions to professional bodies Bank charges 13/11/

14 11. Salary Level of salary A decision you will need to take Can be influenced by a number of factors Factors: Capability of the business Income tax and corporation tax rates Salary and/or dividends Pensions 13/11/

15 12. Dividends What are they? They are a portion of post tax profits paid to the shareholders (the owners of a Limited Company) They are always declared and paid net of a notional tax rate of 10% If the recipient of the dividend is not a higher rate tax payer then no further tax will be due. Higher rate tax payers will be liable for an additional charge on any dividends that exceed the higher rate threshold. This changes on 31 March /11/

16 13. IR 35 What is this? It was introduced in April 2000 to combat what HMRC called disguised employment. It is to increase the tax paid by people who set up their own company instead of working as a normal employee. Where a company provides the services of a number of staff to a client (directly or via an agency) and the terms are such that without the company the individual would be an employee of that client, then the IR35 is triggered. 13/11/

17 14. Tax Returns As a director HMRC will usually expect you to complete a personal Tax Return each year The Tax Return will include details of all your income such as salaries, interest, dividends. Allowable deductions such as pension and charity contributions are also declared. It is normally due with HMRC by 31 st January after the end of the tax year. Requests to complete a tax return are normally issued by HMRC in April each year. If you have not been issued with one you should contact HMRC to request one. 13/11/

18 15. Dates to be aware of ITEM DATES AND DEADLINES TO BE AWARE OF Companies House Annual Return (AR01) HMRC Corporation Tax VAT Returns and Payment PAYE payment submissions P11d & P11d(b) PAYE/NIC Class 1A NIC Abbreviated Annual Accounts to be filed at Companies House within 9 months of the year end. (Earlier dates apply to the first year). This is prepared at the anniversary of the company s incorporation, it is then due 28 days after this date. Full Annual Accounts & Corporation Tax Return (CT600) to be filed on line with HMRC within 12 months of the year end. Payment of Corporation Tax is due 9 months after the year end These are due at the end of the month following each quarter. For example: Q Ending 31 March will be due by 7th May Q Ending 30 June will be due by 7th August Q Ending 30 Sept will be due by 7th November Q Ending 31 Dec will by due by 7th February These are due to HMRC on or before each employee s payment date These are due after the end of each tax year. The should reach HMRC by 6th July after the end of the tax year. Deductions from salary should by paid no later than the 22nd of the end of the month/quarter, if paying electronically. Assuming the company is eligible for quarterly payments they will be due: Q Ending 5th April payment will be due by 22nd April Q Ending 5th July payment will be due by 22nd July Q Ending 5th Oct payment will be due by 22nd October Q Ending 5th Jan payment will be due by 22nd January If you do not pay electronically payments are due 3 days earlier This relates to National Insurance on certain benefits such as company cars. It this applies then payment is due by 22nd July following the end of the tax year. 13/11/

19 16. Glossary forms and codes FORM PURPOSE AA01 Companies House form to change the year end of the company AD01 Companies House form to change the registered office of a company AP01 Companies House form to appoint a new director AP03 Companies House form to appoint a new company secretary TM01 Companies House form to remove a director TM02 Companies House form to remove a company secretary CH01 Companies House form to change any details of a serving director CH03 Companies House ofrm to change any details of a serving company secretary AR01 Companies House Annual Return 64-8 Form to authorise HM Revenue & Customs to provide company details to your accountant DS01 Companies House form to strike a company off the register SH01 Companies Houe form to issue additional shares in the company CT41 G New Company Enquiry form issued by HMRC soon after the company is formed. This informs HMRC who the directors are. Penalties may be charged for late submission. CT600 Company's Corporation Tax Return - submitted annually. It is due within 12 months of the year end. P11d Annual Statement of benefits and expenses paid to each director and employees. P11d(b) Annual company declaration that P11d's have been filed. P45 Leaving statement of payments and tax deducted from an employee P46 Notice to complete if you do not have a P45 P60 Annual Statement for each employee provided to the employee by the employer VAT1 VAT Registration application form VAT7 VAT Deregistration Form VAT100 Quarterly VAT Return VAT101 VAT EC Sales List - for reporting sales to EU Customers VAT600 VAT Flat Rate application form SA1 HMRC form to register for self-assessment SA100 Self Assessment Tax Return 13/11/

20 17. The 10 point checklist 1. Form the company check the formation documents 2. Open a bank account 3. Register a PAYE scheme with HMRC 4. Register for VAT if necessary 5. Apply to join the VAT Flat Rate Scheme if appropriate and applicable 6. Register for Corporation Tax will be done for you 7. Purchase the relevant insurance policies 8. Create your invoice 9. Put the key deadlines in your diary 10. Choose the right accountant and get them to help you carry out items 1-6, produce your Annual Company Accounts and complete the form 64-8 (authorising the accountant to act as your agent) 13/11/

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