Setting up a limited company in the UK,& things that you need to know.
Starting something new can be a very daunting process for anyone.
The reason why most people are nervous about having a limited company is because of all the compliance issues involved.
Also, most people have heard about daunting stories of penalties that have been received from the revenue.
1 Pre-planning before setting up a limited company in the UK.
Some business owners that have plans of registering a new company have business ideas of how to operate their business but have not planned the properly.
Writing out a business plan will help to know how you intend to run the business in written form
Also preparing a budget and cash flow statement will help to navigate the business properly.
2. Registering the business at the company house.
To have a formerly registered company in the UK, you will have to register with the company house.
The name that you choose to register your business with must be one that has not been used by another business.
You need to confirm the number of shares that you want to have in the company and the details of the proposed directors and shareholders.
Opening a business bank account is also a necessity.
Also, you will be sent various letters from both the company house and HMRC.
They will contain important information that you will need in running business owners.
Information such as company number, authentication code, unique tax reference number, etc.
You will also be needing this information when registering your business at the bank.
3. The compliance requirement for running a limited company.
Immediately after registering your company, your compliance requirement begins.
Just for this reason I usually advise business owners not to incorporate their business until they are ready to start trading.
The month that the business was incorporated would be the year-end until it changed.
For example, James incorporated his business on the 20th of January 2020. His year-end would-be 31st January.
The business must submit a year confirmation statement to the company’s house.
The business also must submit 12-month accounts to the HMRC yearly.
These accounts will be due 1 year after the incorporation date; however, payment is due 9 months after the year-end.
If these are submitted by their deadline, there would be penalties imposed by both company’s house and HMRC.
4. Distribution of profit from the limited company (Salaries and Dividend).
Planning how to distribute the profit from your limited company is very important.
The most common ways of doing this by director salaries and dividends.
Other ways are through providing benefits such as a car, pension, paying for directors’ expenses etc.
They all have different tax consequences.
Directors’ salaries are tax deductible when paid to the director.
To be able to pay the director’s salaries a real-time submission must be made through the PAYE system.
To do this effectively, the company will be registered for Payroll and the RTI submitted before the director must be paid.
When Dividends are paid to the business owner, it is a distribution of the profit from the company after the tax has been paid.
Therefore, it is not tax-deductible, the director would have to declare these dividends on their self-assessment returns.
If the directors were not within the self-assessment regime previously, they would have to register from the date they became shareholders of the business.
To register for self-assessment,kindly click
5. What to deduct as expenses?
This is a very common question that is asked by most new business owners.
The reason is that the more expenses that can be deducted the lower tax the tax they would have to pay to the revenue.
However, the main reason why business owners should be careful when claiming expenses is when claimed wrongly, they could be penalized by the revenue.
While there can be common expenses paid by different businesses such as accountancy fees, office rent, motor expenses, etc.
Expenses vary depending on the type of business, the sector or industry, and the mode of running the business.
But 3 things to questions that you ask always?
- Is the expense of revenue expenditure or capital expenditure?
- When was this expense paid?
- Was the expense made wholly and exclusively for business purposes or does it have a private element?
6 Keeping proper Records helps to save money.
This money saved could be from claiming the right amount of expenses or savings from penalties just in case the HMRC investigates the business.
The fact is it is a legal requirement to keep the records of the transactions that happened for 6 years after the tax year-end of the period the transaction occurred.
Technology has made this easier and we have moved from the stage when keeping a paper record is the only requirement.
Taking pictures of transactions such as invoices or receipt is acceptable by the HMRC.
You can use one of the various software in the market to serve this purpose.
Keeping proper records also helps to preserve the memories of the transaction that occurred and plan.
7. When do you register your business for VAT?
You must register your business for VAT when your turnovers reach the threshold currently at £83,000.
If you expect that your turnover would reach the threshold within 30 days.
For this to apply you must also be supplying taxable supplies.
However, you can still register voluntarily when you are supplying taxable items.
Conclusion on setting up a limited company in the UK.
Thanks for reading this blog.
It seems like a lot of things to consider just before you open your limited company.
But having this information helps to make the right decision on the journey.
We have over the years worked with new starts up and supported their business and ensured their growth.
If you would like to work with a friendly team that supports you on this journey, kindly contact us and one of our team members would contact you immediately.