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While it takes only a few hours to set up a Limited Company, running the company is a whole new ball game. Limited Companies need to fulfill a lot of responsibilities, and a failure to carry out some of these can lead to severe penalties. As part of our series, "Path of Education for New Contractors," we talk about the key legal and accounting responsibilities of Limited Companies.
A Limited Company is required to file annual returns with the Companies House. Annual returns filed with the Companies House include a summary of your company, such as information about the Directors, the company's registered address, details of shareholders, the company's shareholding structure, etc.
Every year, Companies House sends a reminder to companies, either through an email or a letter, informing about the due date for filing of annual returns. Typically, the due date is one year after the company is incorporated or one year after the previous annual return was filed. For example, if your company was incorporated on October 24th, 2013, you should file your annual returns with the Companies House by October 24th, 2014. The fee for filing of annual returns online is £13, and for filing by post the fee is £40.
If you don't file your annual returns with the Companies House on time, you may have to pay a penalty of up to £5,000. In serious cases, your company may be removed from the Companies House register.
Filing annual accounts with the Companies House: Apart from filing annual returns, every year a Limited Company in the UK is required to file the company's accounts with the Companies House. The annual accounts should include the company's detailed profit and loss statement and balance sheet, and a report from the Director.
The deadline for filing of accounts with the Companies House is within 9 months of the company's financial year ending. If your company is small (with revenues of under £6.5 million) or if it is a micro entity (revenues of less than £632,000), you can send a shorter version of accounts to the Companies House. Also, such companies can choose whether or not to send the Director's report.
The penalty for late filing of accounts with the Companies House is £150 for a delay of up to 1 month. The penalty goes on increasing, depending on the delay.
Limited Companies are required to pay corporation tax on their taxable profits to the Her Majesty's Revenue and Customs (HMRC). You can determine your company's corporation tax liability based on the taxable profits in your completed account statements.
The deadline for paying corporation tax is 9 months and 1 day after the Company's financial year ending. For example, if your company's financial year ended on 31st March, 2014, you should pay your corporation tax by 31st December, 2014. Even if you don't owe any corporation tax, you are required to inform the HMRC that your corporation tax payable is nil.
Every year, Limited Companies are required to file their corporation tax returns with the HMRC by filling in the CT600 form. You need to create an online account with the HMRC for filing of corporation taxes. HMRC has detailed guidelines on how to fill the CT600 form.
The deadline for filing corporation tax returns with the HMRC is within 12 months of the company's financial year ending. A single day's delay can cost £100 in penalties though it remains the same for a delay of 1 day to 3 months. However, the penalty increases with time, and it can be up to 20% of unpaid tax if you don't file your corporation tax returns within 12 months of the due date.
You should note that the Companies House and HMRC are two separate departments of the UK government, and so you need to file the annual accounts and tax returns separately with both of them. However, it is possible to jointly file the accounts and tax returns with both the Companies House and the HMRC. You can find out more about the steps involved in joint filing of returns on the Companies House website.
Under Real-Time Information (RTI) rules, Limited Companies should update HMRC in real time if they make any payments to employees, which are subject to statutory deductions such as personal income tax or National Insurance. RTI is applicable even for one-man Limited Companies. This means every time you pay yourself a salary, you need to inform the HMRC using their online tools. Note that you don't need to inform about any payments that are not subject to statutory deductions. Examples of such payments are dividends and Director's loans.
Failure to provide payroll-related information to the HMRC in real-time can result in a fine of £100 for each month.
Companies with a turnover above a certain level are subject to VAT (Value Added Tax). The turnover limit for VAT changes every year. For the 2014/15 tax year, the VAT threshold is revenues of £81,000 per year. If you're registered for VAT, you need to charge 20% VAT (as per the 2014 rate) to your customers on all your sales.
Every quarter, you need to file a VAT return with the HMRC informing them of the VAT amount collected from the customers. The VAT return should also include any VAT you may have paid for any of your purchases. If you have collected more VAT than what you have paid, you need to pay the difference to the HMRC.
To summarize, Limited Companies have many legal and accounting responsibilities. Failure to complete any of these procedures can lead to penalties. To avoid penalties, you should set reminders in advance for all these filings. First-time contractors are better of using the services of a professional accountant for fulfilling all their legal and accounting requirements. Of course, there is an additional cost, but the time saved can be employed productively, while also eliminating the risk for penalties.
You can the services of Account Direct that provides a full range of accounting services for Limited Companies. Some of their services includes timely correspondence with HMRC and Companies House, including online filing of RTI and filing of tax and VAT returns.
You may also find the following contractor calculators useful for your salary and tax calculations.