The Confirmation Statement is scheduled to replace the Companies House Annual Return by June 2016 and will be introduced as part of The Small Business, Enterprise and Employment Act.

All incorporated companies are currently required to file an annual return that encapsulates the key information about the company including registered office address, directors, register location, statement of capital and shareholdings. The new Confirmation Statement is designed to simplify the annual return by requesting a confirmation that the information held at Companies House is up to date and accurate.

Unlike the annual return there will be no set date in the year when a company must file its confirmation statement. Instead the company must ensure that no more than 12 months will elapse between a Confirmation Statement being filed. A further provision will allow a Confirmation Statement to be filed inline with another filing made during the year, this is intended to reduce the administrative burden on the company.

The Confirmation Statement will be very similar to the existing Annual Return but will include some other disclosures also being ushered in under the new Small Business, Enterprise and Employment Act.

The key parts of the Confirmation Statement are as follows:

• The date of the review
• SIC Industry classification codes
• Statement of capital
• Shareholdings
• Persons of Significant Control (PSCs)
• A declaration that all filings are up to date

It is worth noting the addition of the Persons of Significant Control (PCS) section. This was introduced as a measure to combat financial crime and money laundering. All UK companies must now maintain a public register of those persons with significant control this is designed to limit the obfuscation of ownership that in the past has facilitated financial crimes and money laundering.

The new Confirmation Statement is scheduled to take effect from 30th June 2016.

La entrada What is a Confirmation Statement? se publicó primero en Companies UK.

A certificate of good standing is often referred to as a Certificate of Existence or a Certificate of Authorisation. It is used to say that a company is authorized and incorporated to conduct business in a certain state.

The Certificate of Good Standing is used to demonstrate two important things:

1. The company has been in existence from the time of incorporation; and
2. that no action is currently being undertaken in order to remove the company from the register.

In the UK, you can obtain a copy of the Certificate of Good Standing from Companies House. This will be sent out to the Registered Address of the company, however, you can obtain an electronic copy (this will not contain a copy of a signature of a Companies House official and therefore may not always be appropriate to use).

What is included in a Certificate of Good Standing?

The Certificate of Good Standing includes information about the company including:

• The company’s number and trading name
• The date of incorporation
• A statement that the company has existed from the date of incorporation.
• A declaration that no actions have been taken by Companies House to strike off the company and class it as invalid.
• A statement that, as far as the Registrar is aware, the company isn’t in liquidation, isn’t subject to an administration order and no manager or receiver of the company’s property has been chosen.

What’s the point in having one? I know my company has existed since incorporation

Most companies have no need to get one, however some do like to keep their filing up to date and as such can request one for those purposes.

But the main use of the Certificate of Good Standing is if you’re looking at doing business abroad. This is because the Official Registrar in that country (equivalent to Companies House) will request it in order to make sure the company is running as it should be and is fully compliant with its obligations.

Even if your company is fully based within the UK the following reasons could apply to you needing your Certificate of Good Standing:

• If you’re setting up a new business bank account, the bank may request to see it.
• Sometimes lenders will have a clause stating they need to see it when applying for a loan.
• A new business partner or investor may want to make sure your company is running as it should be.

These people/organisations can request to view it because sometimes it’s not enough to have your word that your company is still running and is running correctly. By viewing the Certificate they will be able to see that legally they can trust you.

How can I obtain a Certificate of Good Standing?

A Certificate of Good Standing can be prepared for any company that has been incorporated (even if it has existed for only a few days).

Companies House will not issue a Certificate of Good Standing is the following are true:

• Your company accounts or Confirmation Statement are not up to date.
• The information about the company’s constitution, ownership, or control has not been provided.
• In case the company fails to have an anticipated number of officers. Read more on Officers here.

La entrada What is a Certificate of Good Standing? se publicó primero en Companies UK.

Corporation Tax is paid on any taxable profits that your company has. You’ll need to pay Corporation Tax if you’re set up as a limited company, charity, association or society. Think of it as the equivalent to income tax.

So what is taxable profit?

Taxable profit can include your trading profits (also known as gross profit) and investment profits. Also included are capital gains, which is the profit made on the sale of a property or investment.

Who needs to pay Corporation Tax?

All UK-based companies will need to pay Corporation Tax on all taxable profit, even if the profit only comes from sales to people in other countries.

If the company is based outside of the UK but still has a UK office, then Corporation Tax will still need to be paid, but only on the taxable profits arising from the UK sales and activities.

Corporation Tax rates

For the current financial year (2018/19) the Corporation Tax rate is 19%. It is set to remain at this level until 2020/21 where it’s set to drop to 17% (as set out in the 2016 Budget)¹.

Claiming Corporation Tax relief

If your company has made a loss while trading – then you could claim a relief from Corporation Tax.

You can claim a relief by offsetting your loss against other business profits from the same period. This can then be carried back or forward into other accounting periods.

Other reliefs are available and can be found on the Gov.uk website.

Who is responsible for filing Corporation Tax returns?

If you have an accountant, it will be one of their key jobs for you. However, the ultimate decision and responsibility for what gets submitted are up to you as a director. So make sure that:

• Your company’s Corporation Tax liability is accurate
• Your Corporation Tax return is filed on time; and
• You’ve paid all outstanding Corporation Tax to HMRC

Corporation Tax self-assessment

You’ll need to file a Corporation Tax return (form CT600) every year. You will need to include the following when filling it out:

• Your company name and registration number
• Your registered office
• Your tax reference number
• Details about your turnover and profit for the year
• Your tax calculation
• Details for allowances and reliefs.

When do I need to file by?

You can submit your Corporation Tax return any time between your company’s year-end date and your statutory filing date. There are two things to remember though:

1. If your CT600 is filed late, or is inaccurate, you will be charged a penalty. You will have to pay this even if you file through an accountant.
2. You need to pay your liability electronically. If you pay late, you will be charged interest.

Record keeping

Note: you legally have to keep all company records for at least six financial years. This includes invoices, receipts, workings and tax-related paperwork. It is acceptable to store them electronically (such as scans), provided they are easy to read.

La entrada What is Corporation Tax? se publicó primero en Companies UK.

The Coronavirus crisis has further accelerated the shift toward online shopping, even amongst the traditionally reluctant demographics, resulting in e-commerce sales as a proportion of all retail purchases in the UK reaching an all-time high of 22.3% in March 2020.

With minimal start-up costs and the potential to reach consumers all over the world, starting an e-commerce business has obvious appeal. Whilst many physical retail stores will gradually reopen as social distancing restrictions are eased, a return to ‘normal’ is a long way off.

Indeed, many of the changes we’re seeing in shopping preferences and behaviour are predicted to last, leading entrepreneurs and existing businesses to explore innovative ways to sell online, adapt to the changing needs of consumers, and stay relevant during these challenging times.

Whatever your reasons for wanting to set up an online business in the UK, whether you plan to sell on Amazon or through your own e-commerce store, there are a number of important steps you’ll need to take to turn your business idea into a reality.

1. Conduct market research

Conducting market research is an essential first step when starting any kind of business venture. The insight you will gain from this type of research is key to building a solid foundation and maximising your chances of success.

Effective market research will help you to:

• identify your target audience
• determine whether there is demand for your product(s) or service(s)
• identify and evaluate existing competition
• reveal gaps and potential business opportunities in the market
• identify, monitor, and respond to economic shifts and trends
• understand how your potential customer base feels about your products or services
• make informed decisions about product pricing, payment options, and delivery strategies
• establish how your prospective customers shop, how to reach and communicate with them, and how to sell to them
• identify potential problems and minimise the risk of loss
• develop effective marketing and growth strategies
• create a business plan

There is a great deal to learn about the market you’ll be entering before launching your business, but it’s also important to utilise market research as an evaluation tool throughout the life of your business.

By doing so, you will be able to track your progress, monitor competitors and economic trends, and respond to the changing needs and expectations of the consumer.

2. Register your online business

To run a business in the UK, you must officially register a legal business structure. The two most popular options are sole trader and limited company. If you live in the UK, you can choose either structure. If you are a non-UK resident, however, you will need to set up a limited company.

A limited company is generally considered to be the best business structure because it provides a number of unique benefits, including:

• limited personal liability for business debts
• a professional and credible image
• the opportunity to minimise your personal tax liability
• can be set up and owned by one person or multiple individuals
• access to more tax reliefs and allowances

Company formation in the UK is an incredibly straightforward and inexpensive process. Everything is done online, there is no paperwork to sign, and all company registration documents can be provided in digital format, making it an ideal solution for non-UK residents who wish to set up a UK business from overseas.

3. Set up a business bank account

Whether you decide to operate as a sole trader or set up a limited company, you will need a business bank account. Whilst it’s not a legal requirement, we highly recommend that you keep business finances completely separate from your personal finances.

First and foremost, a dedicated business bank account in your company name will provide assurance to customers that your business is legitimate. On a practical level, a separate business bank account will make it much easier to monitor cash flow, identify transactions, and maintain accurate accounting records.

5. Choose how to take payments

If you’re setting up an online business in the UK, you’ll need an electronic payment system to be able to take payments online. There’s a huge selection of third-party payment processors to choose from, such as WorldPay, Stripe, Paypal, Shopify, and SagePay.

There are many factors to consider when deciding on the best payment processing solution for your online business, including fees and pricing options, ease of set-up and management, what cards and types of payments are accepted, and the reputation of the provider.

So it’s important to do your research to ensure the needs of your business will be met now and in the future.

What’s next?

Now that we’ve covered the basic steps required to start an online business in the UK, you’ll hopefully have a better understanding of the initial process and whether it is something which you wish to pursue.

Whilst starting a new business in the current climate may feel highly counter-intuitive, dramatic changes in consumer trends have created an entirely new kind of demand which none of us could have predicted.

Coupled with significant acceleration toward online shopping, the emerging changes in customer preferences and shopping behaviour present a number of commercial opportunities for innovative and determined retailers to close the sales gap through digital offerings.

La entrada How to set up an online business in the UK se publicó primero en Companies UK.

Content summary:

• The memorandum of association
• The articles of association
• Altering the model articles
• Changing your articles after incorporation

The memorandum of association

All companies must use the same pro forma memorandum document. It will contain the following information:

• Company name
• Date of incorporation
• Type of company – limited by shares or limited by guarantee
• Act under which the company is registered
• Names and signatures of all subscribers (original shareholders or guarantors)
• Limited liability of shareholders or guarantors

Any person or corporate body that subscribes (adds) their name to the memorandum during the company formation process will immediately become a member of that company. They will continue to be members until they choose to leave the firm. Details of all members are registered with Companies House and displayed on the central public register, which is available to everyone online.

The articles of association

The majority of new limited companies adopt model articles provided by Companies House under the Companies Act 2006, but it is possible to alter this version or draft your own bespoke articles to reflect the different requirements and objectives of your company if you have specific needs not covered in the model articles.
The contents of the model articles cover the following matters:

• Directors’ powers, responsibilities, decision making, appointment and removal, indemnity and insurance
• Shares, share rights, distribution and dividends
• Capitalisation of profits
• Shareholders
• General meetings

You will have to alter the model articles or create your own if you wish to issue any class of share other than ordinary. Likewise, if you want to deviate from the standard version by changing, removing or adding any provisions, you will have to manually alter the document or create your own articles from scratch and submit them to Companies House.

Altering the model articles

If you decide to adopt an amended form of the Model Articles (such as introducing more than one share class), you will have to make the relevant changes yourself and file a copy with Companies House with your company formation package. If you choose to adopt the model articles, you do not have to submit a copy for Companies House. Simply indicate on your registration application that your company is adopting model articles.

Changing your articles after incorporation

You can alter the articles at any time after the company is incorporated. To do so, the members must pass a special resolution agreeing to the changes, unless you wish to alter an entrenched provision (see below). A copy of the final document as altered must be submitted to Companies House within 15 days of the resolution being passed.
Sometimes these changes can be as simple as granting more rights to directors. Other times you may have to make more complicated changes, like creating more share classes or changing the rights of members. Whatever the reason, we advise seeking professional advice beforehand.

La entrada What are the memorandum and articles of association? se publicó primero en Companies UK.

There is no legal obligation for a limited company to have its own bank account, but it is better to have one.

Business finances must be accurate and transparent, so a separate account will make it easier to keep track of your income, expenditure and available profits. This will be of great help when you are preparing annual accounts and tax returns each year.

UK residency is not a legal requirement

There are no legal restrictions that prohibit non-UK residents from opening a business account. However, most banks will not accept applications from overseas due to fraud concerns and the additional administration costs.

You do not have to open a UK bank account

There is no legal requirement for a UK company to have a business bank account in the UK. You can open one in your country of residence. To do so, you must get your company documents apostilled (legalised). Please scroll down for further information on document legalisation.

Business account options for non-UK residents

Companies UK has partnered with TransferWise to provide non-UK residents with a UK business banking solution. TransferWise will provide you with a UK business bank account number and sort code, as well as simultaneously providing you with US, Australian and Eurozone bank details at the same time. You will be able to receive money for free and hold over 40 currencies in your account at any one time. Our Non-Residents Package, which is specifically tailored to suit the needs of non-UK residents, includes a free TransferWise business account.

Opening a business bank account in your country of residence

A useful alternative to opening a UK account for your limited company is to open one in your country of residence. To do so, your company documents must be legalised. This process is called ‘apostilling’. You must obtain Apostille Certificates for these documents to confirm their authenticity.

Apostilled documents are accepted in all countries that are party to the 1961 Hague Convention, There are 105 in total. We are unable to offer advice to non-member countries regarding the acceptance of apostilled documents.

Companies UK in-house Notary Public is available to sign company documents and organise Apostille Certificates with The Foreign and Commonwealth Office. In general terms, two Apostille Certificates are required: one for the certificate of incorporation and another for the memorandum and articles of association.

La entrada Business bank accounts for non-UK residents se publicó primero en Companies UK.

• Capital investment opportunities.
• Flexibility of internal structure and members’ rights.
• The allocation and taxation of business profits.

Choosing the most appropriate legal structure will depend entirely upon the kind of business you currently have, or plan to have in the future.

A company limited by shares is the most popular choice for profit making businesses. A company limited by guarantee is the best option for non-profit organisations. A limited company structure is also best if you plan to employ lots of people and/or you want the option of selling shares in your business to raise capital investment. It is also a more tax-efficient structure for many types of businesses.

The LLP format was introduced in 2001 by the LLP Act 2000 to meet the needs of certain professionals who usually form traditional partnerships, such as solicitors, doctors, accountants and architects.

LLPs provide the same benefits as traditional partnerships with the added advantage of reduced financial responsibility for the partners. An LLP structure is a good choice for businesses with minimal employees (if any) and only a few partners, each of whom makes similar contributions to the business, enjoys equal rights and responsibilities, and takes a similar share of business profits.

Content summary:

• The main differences between a limited company and an LLP
• Different tax liabilities of LLPs and limited companies
• Tax efficiency – leaving money in the business
• Internal structure and allocation of profits

The main differences between a limited company and an LLP

1. A limited company can be registered, owned and managed by just one individual – a sole person can act as both the director and shareholder (or guarantor). A minimum of two members are required to set up an LLP. However, one way around this is to set up a dormant limited company as the second LLP member.
2. The liability of company shareholders or guarantors is limited to the amount paid or unpaid on their shares, or the amount of their guarantees. The liability of LLP members is limited to the amount each member guarantees to pay if the business runs into financial difficulty or is wound up.
3. A limited company can receive loans and capital investment from outside investors. An LLP can only receive loan capital. It cannot offer equity shares in the business to non-LLP members.
4. Limited companies pay corporation tax and Capital Gains Tax on all taxable income. LLP members pay Income Tax, National Insurance and CGT on all taxable income. The LLP itself has no tax liability.
5. It is easier to change the internal management structure and distribution of profits in an LLP.
6. A limited company can be operated as a non-profit business. An LLP must be set up with the intention of making a profit.

Different tax liabilities of LLPs and limited companies

Limited company tax liability

All taxable income generated by a limited company is subject to corporation tax of 19%. Any salary a director receives will be liable for Income Tax, National Insurance and employers’ NI. However, directors are often also shareholders. This means they are treated as employees of their own company. The distribution of profits to directors can be done in such a way that much of the money they receive is not subject to corporation tax or personal Income Tax.

By paying a director a salary of no more than his/her tax-free Personal Allowance, and distributing additional profits by way of shareholder dividends, a director can legally minimise his/her personal tax liability. Dividends are paid from post-tax profits and the first £2,000 of payments are tax free. Additional dividend income is taxed according to the tax bracket of the recipient.

LLP tax liability

LLP members are treated as self-employed individuals. They have to register for Self Assessment and pay Income Tax and National Insurance on their individual profits, regardless of whether they take all of the profits as a salary or leave some of it in the business. However, they are not liable for Employers’ National Insurance on their income.

Depending on the amount of profit generated, the tax liability of LLP members can be rather high. If an LLP member’s income exceeds the Personal tax-free Allowance threshold (£12,500 for 2019-2020 tax year), he or she will be subject to the following Income Tax rates:

• 20% on taxable income up to £37,500 (you will start paying this rate on income above the £12,500 Personal Allowance threshold).
• 40% on taxable income between £37,501 – £150,000 (you will start paying this rate on income over £50,001).
• 45% on income over £150,000.

Tax efficiency – leaving money in the business

In instances where you will make more annual profit than you need to take out of your business, a limited company will be more tax efficient. There is no need to withdraw all surplus income immediately. Instead, you could leave some of the profits in the business and defer tax by withdrawing the surplus in a future tax year.

This is not possible with an LLP. Regardless of whether the members take all of their annual profit entitlement or leave some in the business, all profit is subject to Income Tax in the financial year it is generated.

Internal structure and allocation of profits

An LLP can offer greater flexibility than a limited company in terms of altering the rights, duties and profit entitlement of individual members. Such arrangements can be agreed verbally amongst LLP members, and they can be quickly and easily changed at any time. However, it is commonplace to draw up an LLP Agreement.

This document will outline the internal management structure of the business and the various arrangements in place, thus avoiding internal conflict and disputes.

The voting rights and profit entitlement of shareholders are governed by the prescribed particulars attached to their shares. In most instances, companies will issue just one type of share, thus providing equal rights and profit entitlement to all shareholders.

It is more difficult to change the rights and profit entitlement of shareholders because they are stipulated in these prescribed particulars. Most companies will draw up a shareholders’ agreement to outline their rights, responsibilities and duties, and the way in which the company should operate.

La entrada Limited company or LLP? se publicó primero en Companies UK.

A service address is also required by all company directors, subscribers, company secretaries, LLP members and PSCs (‘people with significant control’ of a company). It serves as the official contact address for the individual where they receive official government mail from UK governing agencies, such as HMRC and Companies House.

A registered office, on the other hand, is the official contact address for the company or LLP itself. It serves as the official contact address for delivering official government mail by post or hand and for the public inspection of the firm’s registers.

About service addresses

• A service address must be provided to Companies House and maintained at all times by the following individuals:
  • Limited company directors.
  • Company secretaries.
  • LLP members.
  • Guarantors with in excess of 25% voting rights in a company.
  • Shareholders who hold more than 25% of the company’s shares or voting rights.
  • Any other person or registrable legal entity with significant control or influence over a company (these individuals are known as People with Significant Control, or simply PSCs).

• It is the official contact address where the aforementioned individuals receive official government mail and correspondence from UK governing agencies (e.g. Companies House and HMRC) regarding their role in the company or LLP.

• Companies House will display the address information on the public register.

• All members of the public have access to these contact details.

• Can be located anywhere in the world as it does not have to be in the UK.

• May be a residential or non-residential address.

• Can be the same address as the registered office (you can also ‘link’ the service address to your registered office so that it will automatically change whenever the latter is moved).

• The majority of individuals prefer to use an address that is not their place of residence due to the public nature of this information. Using an alternate one allows individuals to protect the privacy of their home from unwanted visitors and unsolicited mail.

• Address can be changed at any time.

• Companies House must be informed of any change of address.

The original shareholders or guarantors (a.k.a. ‘subscribers’) of a company who become members of the business are also required to supply a service address on incorporation.

Does my service address have to be in the UK?

No, your service address can be located in any country and you can change it at any time, as often as you wish.

Can I use my registered office as my service address?

Yes, you may use the same address as your registered office and service address.

About registered office addresses

A registered office is the official contact address of a private limited company or LLP.

• It must be located in the same UK country in which the company or LLP has been registered.

• Registered office details are disclosed on the central public register at Companies House and will remain there indefinitely, even if your company is dissolved.

• The principle purpose of a registered office is for receiving statutory correspondence and legal notices. These would come form Companies House, HMRC and other government agencies.

• The registered office can be a residential address or any other full physical address.

• A non-residential address is more appropriate for protecting the privacy of your home as well as providing your business with a professional, corporate image.

• You cannot use a PO Box number as a registered office.

• The registered office can also be changed at any time.

• Companies House must be notified of any change of address immediately. HMRC will be automatically notified by Companies House. Meaning there will be no need to contact them separately to report the change. Note that documentation can still validly be served at your old address for fourteen days after the change.

Can I move my registered office to a different country?

No, your registered office must always remain in the country in which your company is incorporated, i.e. England and Wales, Scotland or Northern Ireland. However, if you register your business in England and Wales, you can move your registered office from England to Wales, or vice versa. These two countries are classed as one for the purpose of company formation and registered offices.

Confidentiality of residential addresses

Directors, LLP members, subscribers and PSCs are required to provide their residential address details during the company formation or appointment process, although this information will only be made available to the public if used as a service address or registered office also.

La entrada Service address and registered office address – what’s the difference? se publicó primero en Companies UK.

Content summary:

• Top 10 limited company advantages
• Disadvantages of a limited company
• About sole trader businesses
• Pros and cons of the sole trader structure
• Limited company or sole trader?
• Self Assessment for company directors and sole traders
• Filing and payment deadlines for Self Assessment

Top 10 limited company advantages

The principal reasons for trading as a limited company are limited liability, tax efficiency and professional status. However, there are a number of other limited company advantages to be had, each of which we discuss below:

• Minimising personal liability
• Professional status
• Tax efficiency and planning
• Higher personal remuneration
• Separate legal identity
• Credibility and trust
• Investment and lending opportunities
• Protecting a company name
• Pension
• Splitting income

1. Minimising personal liability

The biggest benefit of forming your own company is limited liability protection. Simply put, should your company run into trouble, your personal assets are secure. A limited company is treated as a separate legal entity; a legal ‘person’ in its own right. Therefore, the business is entirely separate from the people who own and manage it. This separation is known as the ‘corporate veil’. Any debt, losses or legal claims associated with the company are the responsibility of the company – not the owners (shareholders/guarantors) or directors.

As a shareholder, you will have no legal obligation to pay more than the value of the shares you have taken in the business. If a company runs into financial difficulty, the personal assets of shareholders are protected beyond the nominal value of their shares. Therefore, if your company is unable to pay its creditors, you will only be required to contribute the nominal value of your unpaid shares. This could be as little as £1, depending on the number of shares you issue and purchase. This separation is not, however, completely ironclad. Rare instances in which the corporate veil might be ‘lifted’ or ‘pierced’, and so the separation disregarded making shareholders become personally liable, may include certain in cases of fraud and wrongdoing.

Sole traders, on the other hand, run a much higher risk. They are personally liable for any and all business debts, losses and liabilities. As a sole trader, there is no separation between you and your business. If the business owes money, you owe money. Therefore, your personal assets, including your home and savings, could be seized to pay your creditors.

Limited liability is crucial if you plan to provide high-value supply or services that could lead to liability claims. If any such situation were to arise while running your business as a limited company, you would not be forced to use your own assets to cover these liabilities, unless you gave a personal guarantee to the company or you were found guilty of wrongful trading.

2. Professional status

Your professional status and image will increase when you start trading as a limited company. While the activities, ownership structure and internal management of your business may be the same, regardless of which legal structure you choose, companies are held in higher regard and create a better impression.

The difference in perception stems largely from the fact that incorporated companies are more rigorously monitored. They have more complex accounting and reporting requirements, their statutory compliance obligations are much greater, and their corporate details and accounts are published on public record where they can be inspected by other individuals and businesses.

A more professional image, coupled with the benefits of corporate transparency, could also help you in a multitude of other ways, such as:

• Attracting new investors.
• Accessing a wider range of lending opportunities.
• Expanding into different locations or markets.
• Creating a valuable and trusted brand identity.
• Competing on an even playing field with other businesses in your industry sector.

3. Tax efficiency and planning

Limited companies currently pay 19% Corporation tax on profits, as opposed to 20-45% Income Tax paid on sole trader profits. This offers greater flexibility for tax planning.

Reinvesting surplus cash
Rather than withdrawing all available profits each year and paying more personal tax on top of your Corporation Tax liability, you can retain surplus income in the business to pay for future operational costs and growth. This makes more sense than withdrawing all profits, paying Income Tax and reinvesting your own finances when the business needs additional capital.

Deferring personal income
You can defer the withdrawal of profits to a later tax year in which a lower rate of business or personal tax is due. This is an efficient strategy if the withdrawal of all available profits would take you into a higher Income Tax or Dividend Tax bracket.

4. Higher personal remuneration

By setting up a company, you could reduce your Income Tax and National Insurance Contributions (NIC) by taking a combination of a salary and dividends. If you keep your director’s salary below the NIC lower profits limit, you will not have to pay any Income Tax or Class 4 National Insurance on these earnings.

The rest of your income can be taken as dividends, which are paid from post-Corporation Tax profits. You will not have to pay any personal tax on the first £2,000 of dividend income in a single tax year. Above this sum, you will be required to pay dividend tax, but this is invariably lower than Income Tax rates.

Depending on your annual profits, you could save hundreds to thousands of pounds in tax every year, simply by operating as a limited company rather than a sole trader.

5. Separate legal identity

Unlike the sole trader structure, a limited company is a legal ‘person’ in its own right, with an entirely separate identity from its owners and directors. As a result, companies can enter into contracts in their own name and are responsible for their own debts and liabilities.

The owners are only liable for the value of their unpaid shares or personal guarantees, rather than the full extent of the company’s liabilities. If a company becomes insolvent, it is the business itself which is declared bankrupt, not the shareholders or directors.

Furthermore, this means that companies enjoy perpetual succession and survive the death or ownership of the original shareholders or guarantors. The business can be sold or transferred to other people at any time, thus enabling the company to continue to exist with minimal disruption to clients and employees.

6. Credibility and trust

The professional, corporate image provided by the limited company structure will add valuable prestige and credibility to your business. In fact, certain businesses and agencies, especially in the IT, finance and construction industries, are only prepared to engage with other incorporated companies. This is usually due to the level of risk involved in the contracts they award.

If you’re likely to be dealing with sensitive information, complex IT projects or large-scale construction contracts, for example, your clients will demand limited liability protection from any contractors they hire, because the associated risk of such work is particularly high. In most cases, sole traders are simply not considered for any such type of work, so a company really can improve your competitive advantage.

7. Investment and lending opportunities

Companies can have multiple owners, so it is possible to raise additional capital by selling portions (‘shares’) in the business to new investors. Generally, companies also have more lending opportunities than sole traders, and certain banks will only lend to incorporated businesses. Furthermore, it is often possible to secure a loan for a company without the need for shareholders or directors to provide security against their own property.

8. Protecting a company name

All company names must be entirely unique, so no two companies can be set up with the same name or names which are very similar to one another. The official name of your company cannot be used or registered by any other business. Sole traders do not enjoy this protection.

9. Pensions

Companies provide the opportunity to invest pre-tax trading income in a company pension scheme, as opposed to investing withdrawn income in a personal pension after the deduction of business tax and personal tax.

10. Splitting income

If you own a limited by shares company, you can issue shares to your spouse or family members. This will allow you to split your business profits and minimise personal tax liabilities. By issuing dividends to a spouse or children, for example, you can take advantage of their tax-free Personal Allowance, basic tax rate and the £2,000 tax-free annual dividend allowance. This is incredibly beneficial if you are the sole or main wage earner and/or you regularly provide financial support to your children.

Disadvantages of a limited company

There are some less favourable aspects associated with limited company formation, as one would expect from anything that provides so many benefits. However, most of these perceived disadvantages pale in comparison to the huge potential for savings and professional improvement, not to mention the financial protection you will enjoy.

• Must be officially incorporated at Companies House.
• Required to pay a registration fee to Companies House to incorporate.
• Company name is subject to certain restrictions.
• Not suitable for undischarged bankrupts or disqualified directors.
• Required to disclose personal and corporate information on public record.
• More complex and time-consuming accounting requirements.
• May need to appoint an accountant to help you with your tax affairs.
• Strict procedures for withdrawing money from the business.
• A confirmation statement and annual accounts must be filed at Companies House each year.
• Must send a Company Tax Return and annual accounts to HMRC every year.
• Must adhere to strict record-keeping requirements, including taking minutes of meetings and recording all decisions taken by directors and shareholders.
• Number of company registers and records must be maintained and made available for public inspection at your registered office.
• If you make any changes to your company details, you must notify Companies House immediately.

About sole trader businesses

Setting up as a sole trader is one of the easiest things to do in terms of registration and administration requirements. However, there is no legal distinction between the business and the sole trader, as there is with the limited company structure.

This means you would be wholly and personally responsible for all business debts and liabilities. Your home and other assets will be at risk if you are unable to meet your financial obligations.

On the flip side, because there is no legal distinction between your personal finances and business finances, there is no need to go through any complex procedures to remove money for personal use.

Pros and cons of the sole trader structure

The sole trader structure is ideal for many small business owners, particularly freelancers who have only a few clients and/or an annual income below £20,000. However, there may come a time when it is financially or professionally beneficial to consider limited company formation. If you reach that point, your first port of call should be an accountant who can advise on the best course of action.

Limited company or sole trader?

There is no doubt that company formation will reduce your liability in the event your business faces financial difficulty. A limited company also offers many tax benefits, there are numerous advantages to having a prestigious professional image and status, and you can set up a company for non-profit or charitable purposes.

The benefits must, however, be weighed against the additional time and money required for the administration and accounting of a limited company that would not otherwise be required if you operated as a sole trader.

It’s free to set up as a sole trader and there is very little administration associated with running this type of business, which makes it the perfect structure for many freelancers and small business owners who are just starting out or have very few clients.

For many people reading this blog, the decision will be easy. However, every business is unique. To ensure the best structure is chosen, your decision should be based upon your own personal preference, in addition to professional, tailored advice from an accountant or advisor who has a clear understanding of your business objectives and long-term plans.

Self Assessment for company directors & sole traders

Sole traders (and company directors who receive remuneration other than a salary through PAYE) must register for Self Assessment by 5th October after the end of the tax year being reported in the tax return. For the current 2018-19 tax year, you must remember to register yourself by 5th October 2019. You can do this in a matter of minutes by providing the following details online for HMRC:

• National Insurance Number.
• Your full name, address, and contact details.
• Details about the business (name, address, start-date of trading activities, nature of activities).

After registering for Self Assessment, HMRC will send a letter to your contact address. This will contain your personal Unique Taxpayer Reference (UTR) and information about your tax obligations and filing responsibilities.

Filing and payment deadlines for Self Assessment (2018-19 tax year)

The tax year for Self Assessment runs from 6th April – 5th April. Therefore, the current tax year began on 6th April 2018 and will end on 5th April 2019. You can file your tax returns by post or online, and you can pay your Income Tax and National Insurance Contributions electronically.

• Paper tax returns must be received by midnight 31st October 2019.
• Online returns must be filed by midnight 31st January 2020.
• Income Tax and National Insurance must be paid in full by 31st January 2020.

You must send a tax return even if you do not have any tax to pay. If you miss the final filing deadline by more than 3 months, you will receive a £100 penalty. However, this fine may be waived if your make an appeal to HMRC. If you are late paying some or all of your tax, you may be charged a percentage of the outstanding balance.

La entrada Limited company advantages and disadvantages se publicó primero en Companies UK.

Once you’re done registering a company and have begun trading in earnest, you’ll have to complete a number of vital, annual documents — particularly Companies UK annual accounts. Here we outline everything you need to know about a company’s annual accounts, including the ways in which you can process your own company’s accounts.

What Are Annual Accounts?

Annual accounts are usually described as “financial accounts”, “company accounts” or “statutory accounts”.

Annual accounts provide a comprehensive report of a company’s financial activity over the last financial year. The information in the accounts will be used to prepare a Company Tax Return for HMRC and estimate the amount of corporation tax owed by a company.

What Is a Financial Year?

A financial year (commonly referred to as “fiscal year” in the U.S) is usually a 12-month period for which annual accounts are prepared. Companies UK financial year begins on the day after the last financial year ended, or on the day of incorporation for those who have just set up a company.

Note, financial years are determined by reference to the period that ends on a specified date known as the Accounting Reference Date (ARD) (see below). You can choose to set up your accounts to the ARD, or to a date up to 7 days either side of the ARD.

What Is Included in Full Statutory Annual Accounts?

With the exception of dormant and small companies, every company needs to provide comprehensive, statutory annual accounts for Companies House. Company directors have the legal responsibility for ensuring annual accounts are processed in a timely manner by the statutory filing deadline. Shareholders must also be given a copy of the annual accounts.

The following must be included in a company’s full statutory annual accounts:

• A balance sheet outlining the value of everything owned by your company.
• A profit and loss account outlining the company sales and running costs, as well as the loss or profit it made for the period of its latest fiscal year.
• Notes regarding the annual accounts.
• Report from a director.
• The name and signature of director on the balance sheet.
• Report from an auditor unless the company is exempt.

A few businesses are exempt from setting up complete constitutional annual accounts for Companies House.

“Small” businesses and micro-entities are allowed to prepare shortened accounts consisting of a balance sheet and notes, however they must still prepare constitutional accounts for their members.

Small Businesses and Annual Accounts

A company can be assigned a “small business” status if it meets any two of the following caveats:

• a turnover less than £10.2m
• balance sheet total less than £5.1m
• staff of 50 employees or fewer

Should your business be small, you can choose to apply for audit exclusion and decide whether to forward a copy of the director’s report to Companies House.

Micro-entities and Annual Accounts

A micro-entity is a very small business that fulfils a minimum of two of the following criteria:

• Has annual turnover of £632,000 or less
• Has £316,000 or less on its balance sheet
• Has 10 employers or less

Micro-entities are allowed to put together even simpler accounts compared to small companies, while profiting from the same exclusions that are accessible to small companies.

Dormant Companies and Annual Accounts

If you have a dormant company, you only need to put together inactive accounts for Companies House, and there won’t be any need for an audit. Dormant (inactive) accounts consist of notes and a balance sheet.

Limited Liability Partnerships and Annual Accounts

Limited liability partnership (LLP) accounts must be arranged at the end of each financial year to report the collective business activities of all LLP members. The accounts’ duplicate should be given to every LLP and debenture holder, including Companies House.

Similar to limited companies, micro-entities and small companies, LLPs can arrange abbreviated accounts for Companies House, while inactive LLPs only need to arrange dormant (inactive) accounts. LLPs and limited companies share the same qualifying criteria.

The first accounts of an LLP span over the period started on the incorporation date, and not the first day of trading. The accounts end on the accounting reference date, or about seven days either side of that date. Every future account starts on the day after the earlier accounts ended, on the accounting reference date, or about seven days on both sides of the ARD.

Should you be filing your LLP’s first accounts and they span over an excess period of 12 months, you must forward them to Companies House within 21 months of the incorporation date, or within three months from the ARD — whichever is longer. Accounts covering 12 months or less must be delivered to Companies House inside nine months of the ARD.

LLP accounts should be approved by every member and signed on their behalf by a chosen member.

A Company’s ARD Explained

Upon registration at Companies House, companies are given an ARD (accounting reference date) that reflects the end of the company’s financial year (typically a 12-month period).

A company’s first ARD will be the anniversary of the last day of the month in which the company was incorporated. For example:

• You register a company on 1st July 2019 – your first ARD will be July 31st 2020.
• Annual accounts have to be set to this accounting reference date and must be filed at Companies House no later than 9 months after the ARD.

Can an Accounting Reference Date Be Changed?

A company’s ARD can be changed at any time prior to the submission deadline. However, it cannot be changed if a company has overdue accounts (unless the company is in administration).

You can shorten your 12-month financial year by any desired number of months, as often as required. However, a financial year can only be lengthened once every five years and up to 18 months from your incorporation date or the previous year’s ARD.

In order to change Companies UK ARD, the company director has to complete Form AA01.  It’s a simple process and should only take you a couple of minutes. Unless you choose to make other changes to your financial year, the new ARD will be the date to which all subsequent annual accounts will be made.

Notify HMRC if You Change Companies UK ARD

HMRC must be notified immediately when ARD changes are made as it will impact your corporation tax accounting dates.

Accounting periods can be 12 months or under, but unlike the financial year, the accounting period cannot go over 12 months.

If your financial year exceeds 12 months, two Company Tax Returns must be filed — one for the first 12 months and another for the surplus period.

When to File Your Annual Accounts

As outlined, the annual accounts generally span over a period of 12 months. The final date for delivering annual accounts to Companies House is nine months following the ARD. This reflects the end of the financial year and typically falls on the last day of the month of the incorporation anniversary.

Additionally, if Companies UK first fiscal year exceeds 12 months (which is fairly common), you have to file your first annual accounts with Companies House within 21 months of incorporation (instead of 9 months). Subsequent annual accounts will be due in 9 months of the ARD.

Can You Complete Your Own Annual Accounts?

Sole traders may find it easier to complete their annual accounts compared to limited companies since the latter will inevitably have more complex accounting requirements. Limited company annual accounts have to adhere to stringent accounting regulations set by the Financial Reporting Council (FRC).

Company directors are responsible for the upkeep of accurate annual accounts records and the timely filing of relevant documents at Companies House and HMRC. If you do not deem yourself capable of competent bookkeeping or you don’t have the required accounting knowledge, then you should aim to hire an accountant as the risk of incorrect filing could be detrimental.

Additionally, professional accountants can help you minimise your tax bills with insider knowledge on how to handle your finances.

If you hire an accountant for your annual accounts, you must provide the following information:

• Receipts and invoices for all purchased/sold goods and services.
• Utility bills.
• Bank account statements.
• Credit card statements.
• Loan agreements.
• Cheque book stubs.
• Cash books and petty cash books.
• Payroll documentation.
• Dividend vouchers.
• Details of any finances owed to the company, or owed by the company.
• General expenses.
• Investment details.
• VAT records.
• Stock records held by the company at the end of the financial year.

When Are Limited Company Annual Accounts Audited?

Most small to medium-sized companies will not require an audit, unless the articles of association explicitly state that an audit must be carried out and shareholders make a request who own at least 10% of issued shares.

Audits are costly and can take up a lot of time since they involve a complete stock take and thorough analyses and reviews of all accounting documentation, including bank accounts. Audits must also be carried out by independent accountants who are authorised to act as auditors.

Conversely, audits can be highly advantageous as they allow you to review your financial status and further reassure lenders and investors of Companies UK viability and potential profitability.

La entrada Annual Accounts se publicó primero en Companies UK.