Mistakes Limited Companies Need to Avoid At All Costs
Running a limited company in the UK is not as easy as some might think. There are an array of things that you need to master, from rules regarding salaries and expenses to taxes and more. Additionally, some things can be problematic if you don’t get them right. It’s truly easy for someone who’s still in the early stages of their business to get overwhelmed.
Here, 1 to 1 Accountants shares the top questions our accountants get from directors and managers, both those starting out and some seasoned ones. These are questions that have to do with things that could be disastrous if they got wrong:
Isn’t the Money My Business Earns Technically Mine?
Mistake: Using Money Earned By the Business
Some business owners make the mistake of treating their business like their personal bank account. This can be quite problematic down the line. It’s important to know how it really is. When you set up a limited company, you are separating yourself from your business legally. This works for liability purposes. However, it also means that whatever’s in the company bank account is owned not by you but by the company. It doesn’t matter if you own a hundred percent of the company shares; the money is not yours.
There are ways you can take money from your business, though:
- You can pay a dividend to yourself
- You can take a salary
- You can reclaim some expenses
- You can borrow money (which gets taxed at 32.5 percent if you’re unable to pay it back in nine months)
If you take money from your company outside of these means, you could end up in big trouble.
Do I Still Need a Payroll If I’m Working Solo?
Mistake: Not Using a Payroll
Because it’s a limited company, you are still legally considered an employee, regardless if you’re the sole director. You should set up an official payroll and make sure it’s registered with the HMRC. Also, you’ll have to inform HMRC each time you make a payment to yourself. These are things that your accountant can take care of for you, so you don’t have to worry about this one that much.
Do I Have to Do Anything If My Company Isn’t Trading Yet?
Mistake: Neglecting to Inform HMRC That You’re Not Yet Trading
Given that your company is still in its formation stage and hasn’t actually started trading yet, you could still be forgiven for thinking you don’t have to do anything official just yet. And yes, indeed, you don’t have to complete a corporation tax return as of now, but you do have to ensure you let HMRC know that you are not trading yet. That said, there are things to take care of, even if you’re a non-trading company. For instance, you need to submit yearly accounts to Companies House. While it might seem a little pointless to you, as you’ll have to fill in ‘0’ on almost every single line, know that it is a requirement. If you do not want to get penalised before you even get things going, you should do things the right way. Remember that Companies House can strike your company off their record if you don’t file your accounts the right way, and it’s not the outcome you want.
All I Need to Take Care Of Are My Payroll and VAT, Right?
You’re already having a great start, but that’s not all you need to do. Once registered for VAT, you must submit regular returns to HMRC, even if you don't owe any tax. This process is changing in April, which will see you having to submit returns quarterly rather than annually. You will be able to do this online. Similarly, if you register a payroll, you must alert HMRC every time you make a payment, and you will even need to submit an Employer Payment Summary when you don't pay anything at all. If you don't keep up with these forms, it may result in penalties and fines. Your accountant can help you with this so that the process isn't as daunting as it sounds!
Understanding how a limited company works and what mistakes to avoid to prevent penalties and other problems in the future is an essential skill that all business owners need to have. This includes understanding the legal structure of the company, the responsibilities of the directors, and the financial obligations that must be met. Additionally, it is vital to understand the risks of non-compliance with specific regulations and to take steps to mitigate such risks. By gaining a comprehensive understanding of the limited company, its stakeholders, and its legal and financial obligations, one can ensure that their business remains in compliance with all relevant regulations and continues to operate successfully and profitably. The good news is that many of the things you need to stay on top of as someone running a limited company can be efficiently handled by a professional accountant.
1 to 1 Accountants offers the expert services of trusted accountants in Hillingdon who can help ensure that your limited company is compliant. Get in touch with our accountants to learn more about the services we offer!