Running a limited company
As a director of a limited company, the law says you must:
- try to make the company a success, using your skills, experience and judgment
- follow the company’s rules, shown in its articles of association
- make decisions for the benefit of the company, not yourself
- tell other shareholders if you might personally benefit from a transaction the company makes
- keep company records and report changes to Companies House and HM Revenue & Customs
- make sure the company’s accounts are a ‘true and fair view’ of the business’ finances
- register for Self Assessment and send a personal Self Assessment tax return every year
You can ask other people to manage some of these things day-to-day. For example, an accountant can manage your accounts for you - but you’re still legally responsible for them.
You may be personally liable for your company’s business liabilities and be fined, prosecuted or disqualified as a company director if you don’t follow the rules. Contact your professional adviser or trade association to find out more.
As a director of a limited company, you can take money from the company in 3 ways.
Salary, expenses and benefits
If you want the company to pay you a salary, expenses or benefits, you must register the company as an employer with HM Revenue & Customs (HMRC).
The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HMRC, along with employers’ National Insurance contributions.
A dividend is a payment a company can make to shareholders if it has made enough profit.
You can’t count dividends as business costs when you work out your Corporation Tax.
Your company mustn’t pay out more in dividends than its available profits from current and previous financial years.
You must usually pay dividends to all shareholders.
To pay a dividend, you must:
- hold a directors’ meeting to ‘declare’ the dividend
- keep minutes of the meeting, even if you’re the only director
For each dividend payment the company makes, you must write up a dividend voucher showing the:
- company name
- names of the shareholders being paid a dividend
- amount of the dividend
- the amount of the ‘dividend tax credit’
Dividend tax credits
The tax credit means your company and shareholders don’t need to pay tax when the dividend is paid. But shareholders may have to pay tax on it.
Working out the dividend tax credit
To work out the dividend tax credit, divide the dividend amount by 9.
You want to pay a dividend of £900. Divide £900 by 9, which gives you a dividend tax credit of £100. Pay £900 to the shareholder - but add the £100 tax credit and record a total of £1,000 on the dividend voucher.
You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
If you take more money out of a company than you’ve put in - and it isn’t salary or dividend - it’s called a ‘directors’ loan.’
If your company makes directors’ loans, you must keep records of them. There are also some detailed tax rules about how directors’ loans are handled.
Changing your company’s registered office address
You must tell Companies House if you want to change your company’s registered office address. If the change is approved, they will tell HM Revenue & Customs (HMRC).
Your company’s new registered office address must be in the same part of the UK that the company was registered (incorporated).
For example, if your company was registered in England and Wales, the new registered office address must be in England or Wales.
Your registered office address won’t officially change until Companies House has confirmed it with you.
Other changes you must report
You must tell Companies House within 14 days if you make changes to:
- where company records are kept
- directors or their personal details, like their address
- company secretaries (appointing a new one or ending an existing one’s appointment)
You must tell Companies House within a month if you issue more shares in your company.
How to report changes to Companies House
Changes that shareholders must approve
You may need to get shareholders to vote on the decision if you want to:
- change the company name
- remove a director
- change the company’s articles of association
This is called ‘passing a resolution’. Most resolutions will need a majority to agree (called an ‘ordinary resolution’). Some might require a 75% majority (called a ‘special resolution’).
Companies House has more details about the types of changes and resolutions you must report to them.
Your new company name won’t take effect until it’s registered by Companies House - they’ll tell you when this happens.
When you’re working out whether you have a majority, count the number of shares that give the owner the right to vote, rather than the number of shareholders.
You don’t necessarily need to have a meeting of shareholders to pass a resolution. If the right amount of shareholders have told you they agree, you can confirm the resolution in writing. But you must write to all shareholders letting them know about the decision.
Reporting changes to HM Revenue & Customs
You must tell HMRC if your business’ contact details change.
If you want to get an accountant or adviser to manage your company’s Corporation Tax, you must tell HMRC. You do this on form 64-8, or using Corporation Tax Online.
You must keep:
- records about the company itself
- financial and accounting records
Records about the company
You must keep details of:
- directors, shareholders and company secretaries
- the results of any shareholder votes and resolutions
- promises for the company to repay loans at a specific date in the future (‘debentures’) and who they must be paid back to
- promises the company makes for payments if something goes wrong and it’s the company’s fault (‘indemnities’)
- transactions when someone buys shares in the company
- loans or mortgages secured against the company’s assets
You must tell Companies House if you keep the records somewhere other than the company’s registered office address.
Accounting records you must keep
You must keep accounting records that include:
- all money received and spent by the company
- details of assets owned by the company
- debts the company owes or is owed
- stock the company owns at the end of the financial year
- the stocktakings you used to work out the stock figure
- all goods bought and sold
- who you bought and sold them to and from (unless you run a retail business)
You must also keep any other financial records, information and calculations you need to complete your Company Tax Return.
If you don’t keep accounting records, you can be fined £3,000 by HM Revenue & Customs (HMRC) or disqualified as a company director.
How long to keep records
You must normally keep records for at least 6 years from the end of the last company financial year they relate to.
You may need to keep records longer if:
- they show a transaction that covers more than 1 of the company’s accounting period
- the company has bought something that it expects to last more than 6 years, like equipment or machinery
- you sent your Company Tax Return late
- HMRC have started a compliance check into your Company Tax Return
You must send Companies House a company annual return every year, within 28 days of the anniversary of the company’s incorporation.
You can send the company annual return online. It costs £13 to send online.
You can also fill in and send the company annual return on paper using form AR01. It costs £40 if you want to send paper forms.
If you miss the deadline, Companies House can close down your company or prosecute you. You could also be disqualified from being a company director.
What the company annual return includes
It must include details of:
- the company’s registered office address
- what type of business the company runs (eg retail, accountancy, catering)
- the address where the company’s list of shareholders is kept
- the type of limited company (eg limited by shares, limited by guarantee)
- name and address of all company directors (and company secretary if you have one)
- the number and value of shares issued by the company and who owns them
- where details of ‘debentures’ (a type of loan the company has taken out with a promise to repay at a specific time in the future) are kept
You must display a sign showing your company name at your registered company address and wherever your business operates. If you’re running your business from home, you don’t need to display a sign there.
If you’re running 3 shops and an office that’s not at your home, you must display a sign at each of them.
The sign must be easy to read and to see at any time, not just when you’re open.
Stationery and promotional material
You must include your company’s name on all company documents, publicity and letters.
On business letters, order forms, invoices and websites, you must show:
- the company’s registered number
- its registered office address
- where the company is registered (England and Wales, Scotland or Northern Ireland)
- the fact that it’s a limited company (usually by spelling out the company’s full name including ‘Limited’ or ‘Ltd’)
If you want to include directors’ names, you must list all of them.
If you want to show your company’s share capital (how much the shares were worth when you issued them), you must say how much is ‘paid up’ (owned by shareholders).