A Guide to Managing a Limited Company: Essential Insights

Running a limited company offers many advantages, but understanding its structure and financial processes is essential for reaping its benefits.

This is an overview of some key aspects, from managing year-end processes to claiming expenses and capital allowances.

1. Understanding the Structure of a Limited Company

A limited company is a separate legal entity, which means that the company’s finances are separate from your personal finances. As a director, you are responsible for the company’s legal and financial obligations. Your liability is generally limited to the amount you invested in the business by way of shares.

Shareholders and Directors:

Shareholders own the company, while directors manage its operations. Many small businesses combine these roles, with directors often holding all the shares in the company.

Registered Office:

Every limited company must have a registered office address, which is publicly accessible. This generally the accountant’s address rather than the director’s home address to keep some distance between the company and its owners/directors.

2. Year-End Responsibilities

The financial year-end, often chosen at the time of company setup, is a critical date for tax and reporting obligations.

Annual Accounts:

Directors are responsible for filing annual accounts with Companies House within nine months of the year end. These will show the company’s financial position and performance and will include a balance sheet and other required disclosures.

Corporation Tax Return (CT600):

The company must pay any corporation tax owed within nine months of the year-end. The filing of the return must be done within 12 months and it is important to work with an accountant to meet these deadlines accurately and efficiently.

3. Taking Dividends from your Company

Dividends offer a tax-efficient way to take income from your business, but it is essential to follow the proper procedures to remain compliant.

Declaration of Dividends:

Dividends can only be distributed from post-tax profits, provided there are sufficient reserves available. Each time dividends are issued, a formal declaration must be made and dividend vouchers should be provided to shareholders

Tax on Dividends:

While dividends are generally more tax-efficient than salaries, they are still subject to dividend tax. As a minimum, you are recommended to take dividends which at least match the annual dividend allowance which is currently £500, as, assuming you have received no other dividend income during the year, you will not pay tax on this amount. RBP can assist you in developing a strategy to balance salary and dividends for maximum tax efficiency.

4. Claiming Business Expenses

One advantage of a limited company is the ability to claim legitimate expenses incurred for business purposes, reducing taxable profits. Below are common expenses that can be claimed:

Travel and Subsistence:

Business travel costs – Typically, this can include accommodation, meals and transport.

Office Costs:

Generally allowable expenses are rent, utilities, and equipment that are used exclusively for business purposes. If you don’t use a separate office or surgery, you can make a small claim for use of home as office.

Professional Fees and Subscriptions:

Fees for accountancy, legal advice and certain professional subscriptions may also be deductible.

Please note: Only expenses incurred "wholly and exclusively" for business purposes can be claimed. Keeping clear records and receipts is essential.

5. Claiming Capital Allowances

When you purchase equipment or machinery for your business, you can claim capital allowances to reduce your taxable profit.

Annual Investment Allowance (AIA):

This allows you to claim the full cost of qualifying assets, for example; medical equipment, computers and office furniture. This is up to a certain limit within the tax year. Currently the limit is £100,000.

Writing Down Allowances (WDA):

If you exceed the AIA limit, WDAs allow you to gradually deduct a percentage of the asset's value over several years.

Company Cars:

If you purchase a brand new fully electric car through your limited company, you can claim a First Year Allowance of 100% against your corporation tax bill. Please note, however, that this will then be a Benefit in Kind taxable on the individual, normally the Director, who is using the car.

6. Benefits in Kind

A Benefit in Kind (BIK) refers to any non-cash advantage or service of monetary value provided by an employer to an employee for personal use. In this case, the employer is the company and the employee is normally the director. These non-cash advantages, also known as 'fringe benefits', are not 'wholly, exclusively, and necessary' for business purposes, hence are considered a BIK. Examples of these are company cars, as above, private medical insurance. It must be noted that offering any BIK entails the company to set up a PAYE scheme and a P11D must be submitted by 6^th July each year for each relevant employee.

7. Staying Compliant

Managing a limited company’s finances requires accurate record-keeping and a strong understanding of tax regulations.

Please ensure that you contact RBP or your own accountant, if you need further advice on any of the above.