Maintaining Your Limited Company: Ongoing Requirements
Maintaining Your Limited Company: Ongoing Requirements
A lot of freelancers and sole traders dream of setting up a limited company, and for a growing number, that dream is becoming a reality. But, it's not simply a case of setting up a limited company and hitting the ground running, throwing yourself into projects and clients. Though you can certainly dedicate a lot of your time and energy to your work, don't forget that limited companies have various ongoing requirements that need to be managed.
At Go Limited, we've seen the mistakes contractors make, one of which is overlooking the additional responsibilities that come with being the director of a limited company. Ignoring them isn't an option. Below, we've taken a look at how to maintain your limited company, the ongoing requirements for you as a director, and how you can make the process slightly less daunting.
Limited Company Maintenance: Don't Underestimate Its Importance
Whether you're thinking about setting up a limited company, you're in the middle of getting everything organised or you're a brand new limited company director, you can't underestimate the importance of keeping on top of the ongoing requirements. It's one thing to take the lead and set up your own limited company, it's another to navigate the maintenance side of things.
Registering your new limited company with Companies House is a milestone, and it's something to celebrate. But, it's only the first of many steps. Running a limited company is an ongoing commitment, not a one-off task that you can forget about. As a limited company contractor, and likely the only director, you're legally responsible for ensuring that your business stays compliant with HMRC and Companies House, and keeps on the right side of all other requirements.
Adding Admin and Responsibility to Your Contracting
A lot of contractors underestimate just how much admin and responsibility comes with running a limited company. Though it's not worlds away from what's required of you as a sole trader, there's definitely more to do. If you neglect the requirements, you could face financial penalties from HMRC and Companies House, interest charges on late tax payments, loss of credibility from clients, and even being forced to close if it's an ongoing issue.
Thankfully, there's a lot of help out there and once you understand the requirements - and put systems in place to manage them - maintaining your limited company becomes much more manageable.
Ongoing Requirements of Having a Limited Company
As a limited company contractor with your own limited company, you need to fully understand the ins and outs of your obligations. Here's what you need to know:
Filing Annual Accounts - Every year, you need to prepare and file your annual accounts with Companies House. These accounts provide an insight into your business' financial activity over the year, including your turnover, expenses, profit or loss, assets and liabilities. This is usually quite straight forward - once you've got your head around the different statements and documents - but accuracy is key. Even if you haven't traded yet, you'll still need to submit accounts.
Submitting a Confirmation Statement - Once a year, you need to submit a confirmation statement to Companies House. This document confirms the directors' details, your registered office address, information about shareholders and shareholdings, and the type of business you do. This confirms to Companies House that all of your business' details are up to date.
Corporation Tax Return and Payment - As a limited company, you're required to pay corporation tax on your profits. The process involves filling in a tax return - which shows your income, expenses and profit - and sending it to HMRC, and then paying the tax that's due.
Running Payroll and PAYE - Even if you're the only employee, you need to handle payroll through HMRC's PAYE system. Usually, contractors pay themselves a small salary and the rest of their income as dividends, as this often works out to be the most tax-efficient approach. Running payroll involves registering as an employer with HMRC, reporting salary payments and handling Income Tax and National Insurance.
VAT Registration and Returns - If your business' turnover exceeds the VAT threshold - this is currently £90,000 but it does change from one year to the next - you must register for VAT. Some contractors register voluntarily because they want to reclaim VAT on expenses, or because they benefit from the Flat Rate Scheme. Once you're registered, you need to charge VAT on invoices, submit VAT returns and pay any VAT that's due.
Accurate Record-Keeping - There's a fair amount of record-keeping required when you're a limited company contractor. This isn't an option, it's a legal requirement and keeping on top of everything should be a priority. You must keep records for at least six years, including sales and purchase invoices, receipts and expenses, bank statements, payroll reports and dividend paperwork. If HMRC asks for your records, you need to have them readily available.
Handling Personal Tax
- As a limited company contractor, you'll still need to complete an annual Self Assessment Tax Return, in the same way you would as a sole trader or freelancer. This is how you declare your salary, dividends and any other personal income.
Limited Company Maintenance: Don't Underestimate Its Importance
Whether you're thinking about setting up a limited company, you're in the middle of getting everything organised or you're a brand new limited company director, you can't underestimate the importance of keeping on top of the ongoing requirements. It's one thing to take the lead and set up your own limited company, it's another to navigate the maintenance side of things.
Registering your new limited company with Companies House is a milestone, and it's something to celebrate. But, it's only the first of many steps. Running a limited company is an ongoing commitment, not a one-off task that you can forget about. As a limited company contractor, and likely the only director, you're legally responsible for ensuring that your business stays compliant with HMRC and Companies House, and keeps on the right side of all other requirements.
Adding Admin and Responsibility to Your Contracting
A lot of contractors underestimate just how much admin and responsibility comes with running a limited company. Though it's not worlds away from what's required of you as a sole trader, there's definitely more to do. If you neglect the requirements, you could face financial penalties from HMRC and Companies House, interest charges on late tax payments, loss of credibility from clients, and even being forced to close if it's an ongoing issue.
Thankfully, there's a lot of help out there and once you understand the requirements - and put systems in place to manage them - maintaining your limited company becomes much more manageable.
Ongoing Requirements of Having a Limited Company
As a limited company contractor with your own limited company, you need to fully understand the ins and outs of your obligations. Here's what you need to know:
Filing Annual Accounts - Every year, you need to prepare and file your annual accounts with Companies House. These accounts provide an insight into your business' financial activity over the year, including your turnover, expenses, profit or loss, assets and liabilities. This is usually quite straight forward - once you've got your head around the different statements and documents - but accuracy is key. Even if you haven't traded yet, you'll still need to submit accounts.
Submitting a Confirmation Statement - Once a year, you need to submit a confirmation statement to Companies House. This document confirms the directors' details, your registered office address, information about shareholders and shareholdings, and the type of business you do. This confirms to Companies House that all of your business' details are up to date.
Corporation Tax Return and Payment - As a limited company, you're required to pay corporation tax on your profits. The process involves filling in a tax return - which shows your income, expenses and profit - and sending it to HMRC, and then paying the tax that's due.
Running Payroll and PAYE - Even if you're the only employee, you need to handle payroll through HMRC's PAYE system. Usually, contractors pay themselves a small salary and the rest of their income as dividends, as this often works out to be the most tax-efficient approach. Running payroll involves registering as an employer with HMRC, reporting salary payments and handling Income Tax and National Insurance.
VAT Registration and Returns - If your business' turnover exceeds the VAT threshold - this is currently £90,000 but it does change from one year to the next - you must register for VAT. Some contractors register voluntarily because they want to reclaim VAT on expenses, or because they benefit from the Flat Rate Scheme. Once you're registered, you need to charge VAT on invoices, submit VAT returns and pay any VAT that's due.
Accurate Record-Keeping - There's a fair amount of record-keeping required when you're a limited company contractor. This isn't an option, it's a legal requirement and keeping on top of everything should be a priority. You must keep records for at least six years, including sales and purchase invoices, receipts and expenses, bank statements, payroll reports and dividend paperwork. If HMRC asks for your records, you need to have them readily available.
Handling Personal Tax - As a limited company contractor, you'll still need to complete an annual Self Assessment Tax Return, in the same way you would as a sole trader or freelancer. This is how you declare your salary, dividends and any other personal income.
Limited Company FAQs: Everything You Need to Know
What is a limited company?
A limited company is a business structure that exists as a separate legal entity from its owners. This means the company can enter into contracts, own assets, and be liable for debts in its own right. The "limited" part refers to limited liability — shareholders are only responsible for company debts up to the value of their shareholding.
What is a private limited company?
A private limited company (Ltd) is the most common type in the UK. Shares are privately held and not available to the public. They're typically owned by a small number of shareholders, often family members or business partners. This structure is popular because it provides protection for personal assets while remaining relatively simple to manage.
What is a public limited company?
A public limited company (PLC) can sell its shares to the public and may be listed on the stock exchange. To qualify, it must have a minimum share capital of £50,000, and at least two directors. PLCs tend to be larger businesses looking to raise capital from investors.
How do you set up a limited company?
To set up a limited company in the UK, you'll need to:
1. Choose a company name.
2. Register with Companies House (this process is called incorporation).
3. Provide details of directors, shareholders, and a registered office address.
4. Prepare key documents like the memorandum and articles of association.
5. Register for Corporation Tax with HMRC.
This can be done directly online or via an accountant or formation agent.
What are the advantages of a limited company?
1. Limited liability: Your personal assets are protected.
2. Professional image: Many clients see companies as more credible.
3. Tax efficiency: Profits are subject to Corporation Tax, which can be more favourable than sole trader tax rates in some cases.
4. Investment opportunities: You can raise funds by issuing shares.
Are there any disadvantages to a limited company?
Yes, there are a few considerations:
1. Administration: More paperwork and annual filings.
2. Costs: Accountancy fees and compliance costs can be higher.
3. Transparency: Company information (like directors' details and accounts) is published publicly at Companies House.
Can a limited company be a trustee?
Yes, a limited company can act as a trustee, for example in the management of a trust or pension scheme. This is often done to provide continuity and professional management.
Do directors of a limited company have to disclose other directorships?
Yes, directors are legally required to disclose other directorships when registering a new company. This ensures transparency and prevents conflicts of interest.
How is a limited company taxed?
A limited company pays Corporation Tax on its profits (currently 25% for most companies, with a lower rate for small profits). Directors and shareholders then pay personal tax on salaries and dividends. This separation of company and personal tax often creates opportunities for tax planning.
What is the difference between a limited company and a sole trader?
1. Liability: A sole trader is personally liable for all business debts, while limited company owners have limited liability.
2. Tax: Sole traders pay Income Tax on all profits, while companies pay Corporation Tax.
3. Complexity: Sole traders are simpler to run, while companies require more compliance.
4. Perception: Limited companies often appear more established.
What records must a limited company keep?
Limited companies must maintain:
1. Records of directors, shareholders, and company secretaries.
2. Details of shareholdings and transactions.
3. Accounting records (invoices, receipts, bank statements).
4. Annual accounts and confirmation statements filed at Companies House.
What happens if a limited company goes bankrupt?
If a company cannot pay its debts, it may enter liquidation. Creditors can claim against company assets, but shareholders' liability is limited to unpaid shares. Directors must act responsibly to avoid accusations of wrongful trading.
Can I change from sole trader to limited company?
Yes, many businesses start as sole traders and later incorporate as limited companies. The process involves registering with Companies House, transferring business assets, and notifying HMRC. It's often done once profits grow and limited liability or tax benefits become more appealing.
Do I need a business bank account for a limited company?
Yes. Since a limited company is a separate legal entity, it must have its own bank account. Mixing personal and business finances is not permitted.
Can I close a limited company?
Yes. Options include:
1. Striking off: For companies that are no longer trading and have no debts.
2. Voluntary liquidation: If the company has debts but can still pay them.
3. Compulsory liquidation: If creditors take legal action.
What is the role of Companies House?
Companies House is the UK government body responsible for registering companies. It maintains a public record of company information, including directors, shareholders, and annual filings.
Should I go for a limited company as a contractor?
Limited companies are a flexible, widely used structure that provides legal protection and potential tax advantages. While there's more paperwork than operating as a sole trader, many find the benefits worthwhile. Whether you're setting up a new company, managing compliance, or weighing up the pros and cons, understanding the basics will help you make informed decisions and choose the path suitable for you and your circumstances.
Does a limited company have to be inside IR35?
No. A limited company itself is not automatically inside IR35. The rules apply to individual contracts, not to the company as a whole.
1. If a contract is judged inside IR35, HMRC treats the income as employment income, so PAYE tax and National Insurance must be paid.
2. If a contract is outside IR35, it is considered genuine self-employment, and you can pay yourself in the usual way through salary and dividends.
This means a limited company can have a mix of contracts — some inside IR35 and others outside — depending on the nature of each engagement.
Important:
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.
