Starting a Limited Company – putting the right foundations in place

20th October 2017

Starting a business is a really exciting time, and it can be incredibly rewarding. But it’s also a steep learning curve, where you are suddenly faced with a range of issues from registering your business and taking out the right insurance, to getting your head around tax and auto enrolment.

It’s very tempting to skip past some of the detail and rush headlong into selling your services. But with more than half of all businesses failing within the first five years, it’s vital to get expert advice and put the right foundations in place from the start.

Structuring your business

While we are focusing here on the key elements for a Limited Company, it might not be the most appropriate structure for your business, as you may be better off starting out as a sole trader, or going down the partnership route. Making the right choice for your business and personal circumstances will depend on a number of factors, so it’s a good idea to ask your accountant for advice first.

Getting started

Having a good business plan in place will help get your business off to the right start, so make sure you have done your research and have a clear idea of what you want to achieve, and how you plan to reach your goals.

Your business must have at least one Director who can also be a shareholder, but you no longer need to appoint a Company Secretary. The next step is to register with Companies House and provide them with some basic information about the business, the directors and the shareholders.  You would also be well advised to take out the relevant insurance to protect your business, employees and the public.

Employment, PAYE and National Insurance Contributions

Depending on whether you intend to pay yourself a salary or employ people, you will need to set up a Pay As You Earn (PAYE) scheme with HMRC, and calculate, deduct and pay Income Tax and National Insurance (usually monthly), taking into account holiday pay, sick pay and pensions.

You also have a legal duty to provide a pension plan for any staff under Auto Enrolment regulations, enrolling eligible workers into a workplace pension as soon as you employ them.

VAT and Tax

You will need to register for VAT if your annual turnover exceeds the VAT threshold in a 12-month period, or if it will exceed it in the next 30 days. But there may be benefits to registering even if you are below the threshold.

Corporation Tax is paid on your company’s net profits after allowable expenses and capital allowances have been deducted. Any directors must file a personal tax return with HMRC to calculate tax liabilities on their income.

Dividends can be paid out to any shareholders out of any post-tax profits. Dividends are treated as ‘income’, so will be taxable on the recipient above a certain allowance.

Record keeping and filing requirements

You are expected to maintain appropriate accounting records and, with the move to Making Tax Digital by 2020, it’s a good idea to start recording as much as you can electronically. There are many excellent bookkeeping software packages available, which can help make record keeping easier and ensure you are on top of your finances.

Every limited company is required to regularly provide the following:

• Annual accounts

• Corporation Tax return and computations

• Confirmation Statement confirming the registered office, officers and shareholders

• A Register of Persons with Significant Control (PSC) with details of anyone who has significant influence in the business

• PAYE - regular reporting requirements including PAYE/NIC deductions, P60s and other forms

If registered for VAT, you must also provide VAT returns – usually on a quarterly basis.

The obligations for Limited Companies are increasingly complex, so it’s important to have the right support in place. A strong relationship with an accountant who understands your business, will help you remain compliant while also helping your business grow.

For a free, no obligation consultation with our Business Advisory team, together with a copy of our comprehensive guide to running a limited company, contact advice@hboltd.co.uk or call 01926 422 292.