You can form your own limited company for around £25 in minutes – simple, job done! Your mate down the pub probably told you that you pay less tax this way too. So now you’re a Director of your own company and you’re the boss. Do you understand your legal responsibilities as a Director? If not, spending that £25 may prove costly than you imagined!
It’s a familiar story. “I set up my own company last year and now I’m being chased for accounts, tax returns and annual returns – I don’t know what to do?!” The regulations involved in running a limited company can be complex so if you don’t know what you’re doing, get an accountant!
To ensure avoidance of penalties, companies should notify HMRC (HM Revenue & Customs) within 3 months of commencing trading which is normally done by means of completing form CT41G.
2. Annual Accounts
You will be required to produce annual accounts for your company. Two sets are required – a full set of accounts need to be submitted to HMRC along with the corporation tax return (see below) and an abbreviated version for Companies House (which will be held on public record).
3. Filing Date for Corporation Tax Return
The corporation tax self-assessment return (CTSA) must be submitted to HMRC along with the full accounts and tax computations. The filing deadline for the CTSA return (plus accounts and tax computations) is normally 12 months from the end of the accounting period. If the return is late there are penalties as follows…
■ Up to 3 months late – £100 (increasing to £500 for a third consecutive late return)
■ Over 3 months late – £200 (increased to £1000 for a third consecutive late return)
■ 18 to 24 months late – Extra tax geared penalty of 10% of the unpaid tax.
■ More than 24 months late – 20% of the unpaid tax.
Completing the corporation tax return can be complex and this is best left to an accountant to avoid mistakes.
4. Payment Dates For Corporation Tax
This is usually 9 months and 1 day after the end of the accounting period for small companies. However large companies (£1.5 million of profits) pay under 4 quarterly instalments, that commence 6 months into the accounting period, so they must use an estimate of their eventual tax liability for the year. Companies that form a group may fall into the definition of “large” and be required to pay corporation tax by instalments. Interest runs on late payment.
5. Companies House Annual Return
This is a completely different return to the corporation tax return but the two are often confused. The annual return needs to be completed each year and submitted to Companies House. It is a summary of company information such as who the current Directors and Shareholders are. The online filing fee is £13.
6. Annual Self Asssessment Tax Return
All Directors, regardless of their salary, are usually required to complete a self assessment tax return.
7. Payroll & Annual Paye as Your Earn (PAYE) Reporting
If you’re employing staff, you will need to register as an employer with HMRC and operate a payroll system. As well as quarterly tax and national insurance payments and returns, you will also be required to complete regular RTI (Real Time Information) submissions and annual reporting requirements including P60 and P11D.
8. Value Added Tax (VAT) Registration
You will need to register for VAT if your turnover reaches the VAT threshold (currently £85,000). You will then be required to complete quarterly VAT returns and in order to do this you will need to have accounts available. VAT returns are filed online with payment being made electronically.
9. Fines & Penalties
If you are late in submitting any of the above documents, fines and penalties will apply and can be hefty. Make sure your documents and payments are submitted on time!
Records must normally be kept in support of the return for 6 years from the end of the accounting period. The penalty for non compliance can be as much as £3000 for each accounting period.
There are many advantages to operating a limited company but this trading vehicle may not necessarily suit all so make sure you’re aware of the responsibilities before taking the plunge! Be aware that accountancy costs will also be considerably more than a sole trader business.