Limited Companies

If you are thinking of setting up a Limited Company, you need to understand the difference from that of a sole trader. It is an organisation that runs your business operations and separates your personal finances from your company finances.

Whether you set up a limited company alone or with others, the company shares that are purchased means that a portion of the company profits can be redeemed. This is made up from the profits after the corporation tax has been paid. The company director(s) is responsible for running the company however, this does not come without legal responsibilities:-

  • A limited company is a separate legal entity, which exists in its own right, and is subject to rules and regulations under company law.
  • For tax purposes, each year a company will pay corporation tax on its profit.
  • The profit of a company is the total amount of sales income earned less any business expenses incurred; usually calculated on a yearly basis.
  • All the cash held in the company bank account legally belongs to the company.
  • You as director (and employee) of the company, are responsible for managing the company affairs. The company will pay you a salary for acting in this capacity.
  • As a director of a UK limited company you will be legally obliged to complete a personal tax return each year.
  • Under company law, as a director you are responsible for ensuring that the company maintains accurate accounting records to enable preparation of financial statements, as well as other returns for HMRC.
  • You as the owner (shareholder) of the company will, receive dividend income from the company’s taxed profits. The frequency and amount of this dividend income is decided by the company’s director(s).
  • For tax purposes, the salary you receive will be subject to income tax and national insurance contributions. The dividend income you receive will not be subject to national insurance contributions and will be tax free if you are a basic rate tax payer. Income tax will be payable on dividend income earned above the basic rate tax threshold.

For further advice on any of the above and setting up your Limited Company, get in touch today. 01424 216817

Talk to us for all your accounting needs inc. bookkeeping and payroll services on 01424 216817.

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