Thinking of going limited? It’s easy to set up a limited company at Companies House. The cost is minimal. And the limited liability and lower tax could well be worth it. But there are all sorts of consequences if you don’t observe the many rules. If you’re the sort of person who hates rules and regulations going limited might not be right for you.

Every year you must:

  • File a confirmation statement, notifying changes in capital, shareholders and persons of significant control
  • File annual accounts no later than 9 months after the year end.
  • Submit a corporation tax return to HMRC and pay any corporation tax within 9 months and one day of the end of the accounting year.

If you don’t file documents when Companies House require them your limited company could be “struck off” the register. That means the company bank account would be frozen, making it almost impossible to continue trading.

There are other rules you must abide by for example if you appoint a director, increase your share capital. If you don’t do things properly you might lose your limited liability status and be personally liable.

Your accountancy fees will cost more than if you’re a sole trader

You’ll need an accountant to draw up the accounts and prepare corporation tax returns and give you lots of other advice. It’s more complicated than preparing a sole trader’s accounts and you certainly shouldn’t attempt to do it yourself.

The company is separate from the owners (or shareholders)

If the company goes bust the shareholders will just lose whatever their shares cost them. Contrast this with sole traders, who are personally liable for business debts. That’s why anyone lending a limited company money is likely to ask for a personal guarantee from the directors.

The company needs its own bank account, as it’s a legal “person”

The company’s money is not your money. To get money out of the company, you are entitled to a dividend, if you’re a shareholder. But dividends are only payable from net profit after corporation tax. This is very different from sole traders, who can take money from their bank account any time whether or not they’ve made a profit.

Directors and how they get paid

Directors run the company on behalf of the shareholders. They may earn a salary from the company, and dividends if they are also a shareholder. They are entitled to expenses as long as these are genuine business expenses.

If you’re a director and you take money out of the company that is not a salary, dividend or refund of expenses, it’s classified as a director’s loan. There could be tax implications for unpaid loans.

Still keen to go Limited?

I can help you set up and work your way through all the regulations. Just call me, Frances Conn on 01737 559211 to discuss the best way to get started

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