Limited Company Services

A private limited company is either “limited by shares” or “limited by guarantee”. If your business has been established to make a profit, you must select a company which is limited by shares.

Private limited companies are incorporated at Companies House. A limited company is a “legal person” and it is a completely separate entity from you and other shareholders in law. Limited companies may enter into their own legal agreements, they can take out loans, and they can sign contracts (for example like the lease on an office).

If a private limited company ceases trading, its creditors can approach the directors for recourse however, notwithstanding the presence of a personal guarantee, that recourse is limited to the value of a director’s shares in the business. So, if the value of those shares is £10, the director may only be pursued for a maximum of £10 (as long as the business was not wrongfully trading of course).

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Tools and resources

Shareholding directors often pay themselves using a mixture of salary and dividends for tax planning reasons. When done correctly, the amount of tax payable by a director will be minimal compared to a sole trader or someone who is employed.

If you earn less than £10,000 in dividends, you must contact HMRC to inform them of this and they will update your tax code accordingly. However, if you earn more than £10,000, you must file a self assessment tax returns with HMRC each year. Some individuals file a self-assessment tax return each year even if they earn less than £10,000 in dividends as it can be simpler.

The strategic use of salary and dividends by shareholding directors for tax planning underscores the importance of informed financial decisions. Whether earning below or above £10,000 in dividends, the guidance of a knowledgeable self-assessment accountant can prove invaluable in navigating the complexities of tax obligations and optimizing overall financial management.

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Tools and resources

You can register as a limited company at Companies House, by using Black and White Accounting, or by using one of the many company formation specialist firms.

You will then be issued with both a company registration number and a UTR (unique taxpayer reference) for your business. The UTR is the code used by HMRC for corporation tax purposes to uniquely identify the company and thus make payments to HMRC. Similarly, with Companies House you will be issued an authorisation number, which is a six-digit alphanumeric code. This enables us to submit accounts on your behalf to Companies house and make other filings such as change directors, change shareholders, file confirmation statements and change the length of the period of accounts.

The next key step is to set up a limited company bank account in order to keep everything between yourself and the company separate before you can have the fun of ordering stationery, domain names and whatever else you want to include your brand identity on.

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Tools and resources

The key pros of a Limited Company include:

• Due to limitation of liability the Directors personal finances are protected if the business fails;
• Generally, more favourable tax regime, especially were profits exceed £30,000 or Director is already a higher rate tax-payer, with additional tax planning opportunities, including pensions;
• Likely to give the business an enhanced reputation, so they can win more and bigger contracts; and
• Can have greater access to capital to help accelerate growth.

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Tools and resources

The key cons of a Limited Company include:

• They are more complex to be set up and administer, with a higher regulatory burden, although your Accountant can help you with all of this (at a cost). Similarly, they are difficult to close down, especially without a good shareholder agreement;
• You may be accountable to shareholders and other investors, depending how your structure evolves;
• You have more of your information in the public domain (although this can be restricted to a minimum) about Directors and Limited Company Accounts; and If profits are very high, can lead to being taxed at 19% (corporation tax) and up to 45% (additional rate of corporation tax), without a clever Accountant to help you.

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Tools and resources