Accounting Services for Limited Companies

Top 5 advantages of a limited company

1. Limited liability
   The liability of the shareholders on the winding up of a company is limited to the nominal value of the shares they own.
2. Credibility
   Businesses sometimes prefer to deal with limited companies from a credibility viewpoint. It makes it easier to obtain new finance or additional borrowing.
3. Exit routes
   It is easier to sell shares in a company than it is to sell a partnership share – a key consideration when planning a strategy of how to exit from the business.
4. Costs and formalities of a company
   There is no requirement for qualified small limited companies’ accounts to be audited. In other words, a costly and often valueless formality has been lifted from the shoulders of many small companies.
5. Taxation
   The rates of corporation tax for profits left in the company are, at present, very low.  Furthermore, director payroll and private pension provision can be more beneficial and flexible with a company.

Top 5 disadvantages of a limited company

1. Personal liabilities
   Individual directors can find themselves personally liable for a company’s legal and regulatory failings and may be obliged to meet financial liabilities from their own funds, rather than those of the business. It is worth being aware when asked for personal guarantees.
2. Privacy
   Companies House register is openly available to the public with information on company accounts, shareholding records, directors addresses and other related information . This information can be assessed by anyone.
3. Shares Issue
   A limited company restricts the transferability of shares by its articles. There is also a limit of maximum 50 shareholders.  A limited company also cannot issue prospectus to the public.
   
4. Higher Admin
   Companies Act requirements do mean higher admin and filing obligations. The cost for accountants of producing limited company accounts is also slightly higher than sole traders and partnerships.
5. Taxation
   There is a tax cost to withdrawing money from the company. Tax legislation is quite complicated for employees and constantly changing.On exit, potential purchasers of the company may look to acquire the trade and assets rather than shares in the company which could increase the taxes on sale. However, there may be ways to accommodate this.

Here is a list of issues you may considered when forming a limited company:

• Have the directors, company secretary and registered office been chosen?
• Are the directors aware of their legal responsibilities towards the company?
• Has a Directors Service Agreement drawn up for each director?
• Have the shares been issued?
• Has a shareholder’s agreement been drawn up?
• Have any additions to the Articles of Association been discussed/drawn up?
• Has it been recorded who is responsible for the Statutory Books and what their responsibilities are?
• Have you discussed any potential disputes that may arise with previous employers or businesses?
• Have you organised adequate insurance to cover public & employers liability?
• Have you reviewed your existing will?
• If you are purchasing an existing business, has a contract of purchase been drawn up, agreed and signed by both parties?
• If the property is under lease, has a new lease agreement been drawn up, agreed and signed by the lessor and lessee?

If your information is readily available to your accountants then it should not take too long to produce a set of accounts. It may depend on the size of your business, however, for a small and mid-size limited company it should not take more than 30 days to complete the task.

A slow turnover time in producing the required information is one of the major reasons business owners get frustrated with their accountants. Slow accounting is very common, unfortunately, and there are several reasons for this such as lack of data quality reviews, inefficient accounting system, prolonged statutory deadlines and the type of accounting firm you work with.

At Heighten Accountants, we fully understand this frustration and tackle our clients’ work on a first come first served basis instead of just waiting for the statutory deadlines to arrive.

As soon as your period ends we will proactively contact you. Our cloud bookkeeping system allows us to retrieve the information instantly. We also run a data quality review to ensure efficiency. All this helps us to complete the accounting tasks a lot quicker and on or before time for our clients.

A director acts as a manager for a limited company on a day-to-day basis. A company cannot act on its own, even though it is a separate legal person.  As a director, you are responsible to act on its behalf and in its best interests.

The decisions you make as a director affect the company’s assets and interests. It also involves a high level of trust and confidence in the ‘fiduciary relationship’ between the company and you as a director.

A director’s general duties includes

• Acting within powers
• Exercising independent judgement
• Avoiding conflicts of interest
• Not accepting benefits from third parties
• Promoting the success of the company
• Declaring an interest in a proposed transaction or arrangement
• And exercising reasonable care, skill and diligence.

It is also the director’s responsibility to ensure that company statutory reporting to HMRC and Companies House has been done in a timely manner. Directors must keep adequate and accurate company accounting records.

The accounting records must show transactions with the company’s financial position disclosure and reasonable accuracy. As a minimum, accounting records must contain day-to-day entries of all money received and used for expenditure, assets and liabilities of the company.

In small and mid-size limited companies, it is common to be a director and shareholder of the company. At Heighten, we support our clients fully to meet their legal and statutory obligations as a company director.

Here is a list of statutory reports a limited company is required to submit to tax authorities and regulatory bodies:

1. Confirmation Statement X 1 to Companies House annually. This is one of the four compulsory reports and failure to submit this report incurs a £5,000 penalty and a compulsory strike of the company.
2. Short Set of Accounts X 1 to Companies House. Another compulsory annual report and late filing penalty for a private limited company ranges from £150 to £1,500
3. A full set of Accounts and Corporation Tax Return X 2 to HMRC – these are two separate and compulsory annual reports for a limited company, however, these are submitted together and also attract late filing penalty, interest, and surcharge.
4. Payroll X 12 to HMRC – the majority of limited companies require this monthly RTI reporting. It is compulsory only if you pay the director or other employees wages. Late filing penalties and interest on late payments apply.
5. VAT Returns X4 to HMRC – This is compulsory once you are Voluntarily or a compulsory VAT registered. There are several VAT schemes, depending on your business and you have quarterly and annual submission options. Various penalties and determinations apply.
6. Director Tax Return X 1 to HMRC – submitted annually, late filing penalties could go up to £1,600 for any tax year.

On average there are 6 reports with 21 deadlines in any one accounting period.

Even if it is your limited company, unfortunately, you are not free to dip into and out of the company’s profits as you see fit. Doing so may result in heavy tax bills.

So how can you legally take money out of your Limited Company then? Money can only be taken out of a limited company in one of three ways, and all three of these methods must be recorded and accounted for.

Director’s salary, expenses and benefits, Dividends, and Director’s loan are the three ways and careful use of a combination of these means can be an enormously tax-efficient way to minimise personal tax liabilities.

You cannot pay yourself dividends only if your company is ‘solvent’ i.e. a company cannot pay out more in dividends than it has in retained profits from current and previous financial years.

Overdrawn directors’ loan accounts attract additional business and personal tax. This is a common problem in insolvent companies.

You must also be careful to only take money out of a company if it is making a profit and once tax and all other financial liabilities have been accounted for.

You may use as many trading names as your business requires. A trading name is generally different from your legal and registered name. The trading name is often used for marketing purposes and it can distinguish your different departments.

Your company name registered with Companies House is a unique name. You cannot choose a name already registered by someone else. Your trading name on the other name is not a registered name so can be used by anybody. You can secure your trading name by registering it under the trademark.

Please note your limited company name is registered with Companies House but it simply cannot stop someone from using it as their trading name. Therefore, registering a company name is different from having a registered trademark.

A trademark is a badge of origin. It gives exclusive rights to the use of that name. It enables you to prevent others from adopting an identical or confusingly similar name or mark in the same sector.