Requirements of a Limited Company
A Limited Company must be registered (incorporated) at Companies House and it must have at least one director (this will generally be you, the contractor). Recent changes in legislation mean that it is no longer a requirement to have a Company Secretary. The company must also have at least one shareholder, this will again generally be yourself as the sole shareholder. The director of a Limited Company makes all the management decisions for that company.
Timesheets and Invoicing
If you trade through a Limited Company, you will need to invoice the agency or client for your services (in the same way that any supplier would). Your invoice is simply the number of hours or days you have worked multiplied by the rate you’ve agreed, plus VAT (if VAT registered). You may also need to invoice the client for any expenses incurred on behalf of the client.
Every company needs a business bank account. Once yours is set up, you will need to give the account details to your agency/client who will enter the information against your record on their system. Each time you submit an invoice to your agency/client, they will pay the funds directly into your business bank account. You will have full control of this account but, using the information you provide us with, we will inform you of payments that are required either to your personal bank account or the relevant authorities to meet your statutory requirements.
Each quarter we will run your company payroll, as per your instructions with regard to salary level and advise you of the salary payments that you need to pay yourself from your business bank account to your personal account. We will also inform you of the amount that needs to be paid to HMRC for PAYE and NI contributions and the date it must be received.
Current Tax Liabilities
The company will be liable for Corporation Tax on its Taxable profits and this will be payable 9 months after the companies year end. The current rate of Corporation Tax for the year 2011/12 is 20% for small companies with a pre-Tax profit under £300,000.If any salaries are paid, the company will also need to collect and pay to the government PAYE and NI for all employees. It will also need to pay Employers NI for all employees. As your accountants, if you choose to use our payroll service, we will inform you of the amounts and the dates that these payments need to be made.
The after-Tax profit a Limited Company makes is available if so desired to be distributed to the shareholders in the form of dividends. As a shareholder this means that any money remaining in the company, after all the outgoings have been accounted for, can be paid to you. Dividends can be declared at any time although we would recommend that this is paid quarterly as we will advise you of the available funds from which you can pay to yourself, in your quarterly management report.
HM Revenue & Customs gives a definition on company expenses which reads: “Broadly speaking you can deduct from your turnover all the costs you incur for the sole purpose of earning business profits”. This basically means that if the purchase is for the ‘company’ then it qualifies as an expense. As a company director any expenses you incur are paid back to you in full and do not qualify for Tax or NI payments.