A limited company is a separate legal entity from its owners and a separate register of all UK companies is kept at Companies House. Each company name has to be unique and companies have to be ‘formed’. This can be done online on our website by visiting our company formation page. Companies can trade, own assets and incur liabilities in its own right. Your ownership of the company is recognised by owning shares in that company. If you also work for the company, you are both the owner (shareholder) and an employee of that company.
When a company generates profits, they are the company’s property and they pay corporation tax on these profits.
Should you wish to extract money from the company, you must either pay a dividend to the shareholders, or a salary as an employee. Corporation tax is calculated after paying your salary but before your dividend distribution. Effective tax planning requires profits, salary and dividends to be considered together with any other income you may have. The advantage to you is that you can have a balance of these two to minimise your overall tax and national insurance liability.
All limited companies, whether trading or not, must keep accounting records and file accounts for each accounting period with Companies House. Directors are personally responsible for ensuring that accounts are delivered, and can be penalised if the annual accounts are delivered late. Accounts must comply with the Companies Act and generally will include:
- A balance sheet signed by a company director.
- A directors’ report – this is a report signed by a director or the company secretary that usually describes the company’s principal activities.
Accounts must also be filed at the Revenue and, in addition to the above, these must also include a detailed profit and loss account and more detailed notes explaining entries in the accounts.
Note: Some company accounts need to be independently audited, however many small or dormant companies can be exempt from this requirement.
Accounts are usually prepared annually up to the end of the month in which the company was incorporated and are becoming increasingly more complex as the legislation surrounding them places more requirements to ensure that they present a true and fair view of the business.
The companies first accounts have to be filed at Companies House within 21 months of the date of incorporation. For subsequent years the filing deadline is 9 months after the end of the accounting period.
Accounts for the Revenue have to be filed with a Corporation Tax Return 12 months after the end of the accounting period however Corporation Tax is due 9 months and 1 day after the end of the accounting period.
Directors will usually have to complete a Self Assessment Tax Return and this is due by either 31st October (if filing a paper Return) or 31st January (if filing online). Any personal tax due on dividends extracted is due to be paid by 31st January each year.