Key tax dates and deadlines for 2018/19
It is an inevitable reality that, for anyone earning a livin...
By Jonathan London on 8th October 2015
After enjoying some success working as a freelancer, many professionals start looking to the idea of setting up a limited company as an ideal way of taking their success to the next level.
Though some prefer the flexibility and simplicity of operating as a sole trader, becoming a limited company director can have a wide range of potential benefits and advantages. Doing so can offer financial and tax-related benefits as well as separating your business and personal assets, giving you some protection if you encounter difficulties. It also gives you greater scope to define a strong brand, and provides you with the opportunity to broaden the business’s scope and compete for higher-value work.
However, it’s also essential to remember that running a limited company can be a lot more complex from an administrative point of view, particularly when you’re just starting out. If you’re used to working alone, this process can be challenging, but it’s important not to overlook or fudge any details, as this could create organisational or legal troubles later on.
Paying attention to getting that crucial first month right, on the other hand, can be a big step towards setting your fledgling business on the path to greater success.
Make sure you have the basics in place
Setting up a company requires you to have a certain number of basic pieces of information and provisions in place, allowing you to get started with the incorporation process.
Naturally, this involves creating a name for your company, giving due consideration to your branding strategy, as well as making sure your intended name is permitted by law; you’ll also need to have an address and a minimum of one director and one shareholder.
A written agreement of all initial shareholders, known as a memorandum of association, will be needed to create the company, as well as codified rules on how the business will be run, called the articles of association. Once you have all of these, you’ll be more or less ready to go.
Register with Companies House
Companies House is the body responsible for all limited company registration in Britain, and you’ll need to submit all relevant data to the organisation before your business is legally recognised.
Online applications are usually registered within 24 hours, while postal applications take eight to ten days. A same-day postal service is also available, provided that you get your application to Companies House by 15:00 on the day.
If you have all of your details in order, it can be possible to have your business up and running in only a few hours.
Appoint directors and a company secretary
All limited companies need at least one director, who will be legally responsible for running the business. As the company’s founder, you will probably be one of these, but this early stage is the best time to decide whether you want to bring anyone else in to help out, or if you intend to go it alone.
Company secretaries are not legally essential, but can be appointed to take on some of the directors’ responsibilities. As such, they can be helpful for start-up owners who are trying to get to grips with their administrative responsibilities.
Sort out shares and shareholders
A company limited by shares must have at least one shareholder, which may or may not be one of the directors. By investing in the company, they will gain certain rights and a degree of say over the direction of the business, even though they are not involved in management on a day-to-day basis.
If you’re starting up a limited company for the first time, it’s unlikely that you’ll have dealt with shareholders before, so it’s worth considering whether you’d welcome the additional investment and input they can provide, or if you’d prefer to continue to operate the business more autonomously.
If there is more than one shareholder, we would recommend a shareholders agreement, agreeing how the business is run and what happens if there is a dispute.
Register for Corporation Tax
It’s legally required to register your business for Corporation Tax within three months of starting to do business, or else you may face a financial penalty.
To do this, you’ll need the Unique Taxpayer Reference that HM Revenue & Customs (HMRC) will send to your company’s registered address after registering with Companies House, as well as key information such as the date you started to do business, the type of work you do and your accounting schedule.
As ever with issues of taxation, it’s vital to get this right if you want to avoid legal problems, and the financial and reputational damage that comes with them.
Get educated on your legal responsibilities
Paying Corporation Tax will not be your only new responsibilities as a director of a limited company. Accounts and returns must be completed and filed with Companies House annually, while HMRC will require corporation tax returns each year.
You will also need to personally register for self-assessment and send a personal self-assessment tax return every year, make sure any money taken out of the business is done so in a way that’s above board, and ensure relevant company changes are reported.
Establish a sustainable operating model
The first month of operating your limited company is the ideal time to put patterns of working in place that will serve you and your business well in the longer term. That means putting a comprehensive and sustainable management and accounting model in place, whether this involves investing in additional staff or software tools to assist the company’s smooth running.
As the company is a separate legal entity to you, it will needs its own bank account, which should be set up as soon as possible. As a director you will also need to keep accounting and statutory records about the company itself.
At this stage you should also establish processes with clients to ensure everyone knows how things work, and confer with the company’s other directors to assign defined responsibilities and make sure everyone is kept abreast of what everyone else is doing.
By laying down a sustainable and transparent operating model early on, you can make sure your first month in business as a limited company can act as a reliable template for future success.
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