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Limited Company Obligations

Limited Company Fundamentals

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Limited Company Obligations

A limited company is bound by a few obligations each year, some of which include, an annual set of accounts, a confirmation statement, VAT returns (if VAT registered) and self-assessments for each director.

To understand the obligations of an LTD further, you must first understand how the corporation is structured.

A limited company is a separate legal entity. This means liabilities of the company are not held by its owners. Instead, the owners are separated from the business’s debts and obligations.

This means that if the business was to get into trouble and be unable to pay its debts, these debts would stay within the company and all shareholders’ & directors’ personal assets would be safe.

It is a popular business structure within the UK and is owned by its shareholders; if limited by shares, or its guarantors; if limited by guarantee.

The shareholders and directors of the company are responsible for its day-to-day operations and producing any documents or returns that are required of it on an annual basis.

What are the obligations of a private company?

The obligations of a private limited company are those that directly affect the day-to-day running of the business as well as its owner. These include debt, creditors, tax, employees, and customers.

All companies, whether public or private, have additional legal obligations throughout their financial year:

  • Confirmation Statement
  • Annual Accounts
  • Company Tax Return
  • Corporation Tax
  • VAT Returns
  • Self-Assessment Returns

Confirmation Statement (Annual Return)

Each year, a limited company must file a Confirmation Statement (previously known as an Annual Return) with Companies House.

A Confirmation Statement is a set of documents that provide a summary of your company’s information for the current financial year; excluding any financial summaries.

The Confirmation Statement is used to provide information held at the register of companies. This includes the:

  • Name and registered number
  • Registered office address
  • Objectives
  • Directors and secretary
  • VAT number (if applicable)
Deadline

The company must then submit this information within fourteen days of the review period. The review period is calculated at either 12 months after you last submitted a Confirmation Statement or 12 months after the date of incorporation.

Fees

A Confirmation Statement can be submitted online for a fee of £13, or by paper filing for a fee of £40.

Penalties

There are no penalties for filing your Confirmation Statement late. However, if this is a regular occurrence or your statement has been due for a long time, Companies House can start legal proceedings against you, which could result in your company being struck off the register.

Annual Accounts

Each year, a limited company must file a set of financials detailing the company’s profit, losses, and expenses; these are known as Annual Accounts.

This comprehensive report will be used to prepare a company Tax Return for HMRC which calculates the amount of corporation tax owed by your company.

Typically, a set of accounts includes a balance sheet, profit and loss account, and notes regarding the current year.

If your limited company is classed as a ‘small business’ you will need to submit a set of micro-accounts. These are a shorter version of annual accounts which only consist of a balance sheet and notes.

Even if a company has not yet traded, a set of accounts must still be submitted to governing bodies. These are known as a set of dormant accounts and will specifically inform regulators that your company is not yet trading.

Once a limited company has produced their financial summary for the year, a copy of the report must be given out to all members of the company, such as shareholders and directors.

Deadline
Each company must submit its accounts within 9 months of their financial year-end. This window of submission will change if this is your company’s first set of accounts.
 
In this case, you will have 21 months after the date you registered with Companies House to submit your annual accounts.
Penalties
You may have to pay penalties if you do not file your set of Annual Accounts on time.
 
If they are filed after the deadline, you will automatically receive a penalty notice, which can be doubled if your accounts are late 2 years in a row.

Company Tax Return

Aside from filing your Annual Accounts, you will also be required to pay tax on the profits your limited company has made.
 
To do this, you must submit a Company Tax Return (CT600) to Her Majesty’s Revenue and Customs (HMRC).
 
You will need to calculate your tax using the amount of corporation tax your company has paid in the past financial year.
 
The profit and loss you submit for Corporation Tax is different from the profit and loss shown in your annual accounts.
 
If your company has not yet made any taxable income, or made a loss, you will still need to submit a Company Tax Return each year.
 
You do not need to submit a Company Tax Return if you are self-employed or in a partnership. Instead, you may need to send a Self-Assessment return.
Deadline
Your Company Tax Return must be submitted to HMRC within 12 months of the end of your company’s accounting period.
Penalties
If you fail to submit your return on time you will have to pay a late filing penalty. The penalty starts immediately at £100 for being 1 day late. This continues to increase after 3 months by another £100.
 
After 6 months you have still not filed your return, you will be issued a penalty based on a 10% estimate of your unpaid tax.
 
After 12 months this increase again and adds another 10% to your total bill.
 
If you are late 3 times in a row, the £100 penalties are increased to £500 each.

Corporation Tax

The Corporation Tax due for a limited company is that of which was calculated in their Company Tax Return.
 
Corporation Tax is calculated based on the profits of a business that are made in association with:
 
  • Doing business
  • Making investments
  • Selling assets for more than they cost
If you are located in the UK, you will have to pay tax on profits earned from the UK and abroad.
 
Make note, you don’t get a notification or bill for Corporation Tax. You must work this out yourself and notify HMRC of any tax due through your company return.
 
Deadline
Corporation Tax must be paid (or reported if you have nothing to pay) by 9 months and 1day after the end of your accounting period.
 
If your company is dormant, you will not need to pay Corporation Tax or file another Company Tax Return unless you receive a notice from HMRC requesting a Company Tax Return. 
Penalties
The penalty is calculated as a percentage of the tax you owe. The percentage applied depends on whether your error (or failure) was: 
 
 
  • careless – a lack of reasonable care
  • deliberate – such as intentionally sending incorrect information
  • deliberate and concealed – such as intentionally sending incorrect information and taking steps to hide the error
Penalties have a maximum rate at different levels, and will again, depend if you have made a genuine mistake or deliberately concealed information.

VAT (Value Added Tax)

VAT; also known as value added tax, is a tax that is added to most products and services sold by VAT-registered businesses.
 
There are different rates of VAT applicable and can change depending on the nature of the items sold.
 
The VAT you will need to pay over to HMRC is usually the difference between and VAT you have charged your customers and any VAT you have been charged by other businesses, such as suppliers.
 
In some circumstances, you may have paid more VAT than you have charged. In this case, you will be eligible for a VAT refund which will be paid over by HMRC.
 
This again will be the difference between the 2 figures above.
 
Registration
Limited companies do not need to register for VAT until their turnover is above £85,000 per year.
 
However, if it is beneficial for your limited company to register for VAT, you can do so voluntarily before you reach the threshold.
 
To pay your VAT over to HMRC, you must submit a VAT Return multiple times throughout your financial year.
 
You will usually need to send one every 3 months; even if you have no VAT to pay or reclaim.
Deadlines
The deadline to file your return and pay over any Value Added Tax due is one calendar month and 7 days after the end of your accounting period.
 
If you submit your returns every 3 months, this will be due each quarter.
Penalties
The first time you default on your VAT Return, you will not be charged a penalty.
 
However, if you default again within 12 months, the surcharge period is extended for another 12 months, meaning you may have to pay extra on top of the VAT you already owe.
 
The surcharge is a percentage of the outstanding VAT for the period and increases each time you default within your surcharge period.

Self-Assessment

A Self-Assessment (also known as a Tax Return) is a document that is submitted to HMRC and used to collect Income Tax. Income tax is usually deducted from earnings such as wages, pensions, and savings.
 
If you’re self-employed you will need to complete one of these returns each year.
 
As a limited company director, you will also need to complete a return if you have earned income from your business over the threshold of £1,000. If you have only earned income from wages you may not need to submit one.
 
However, if you have taken dividends from your limited company, this will need to be submitted via your Self-Assessment.
 
A Tax Return covers the period of 6th April to 5th April in the last tax year and needs to be submitted to HMRC each year.
Deadline
If you are required to submit a Self-Assessment, you must do so; and pay any tax due, by 31st January if you’re filing online, or the 31st of October if you’re filing your return by paper.
Penalties
If you miss the deadline, you will get a penalty notice from HMRC. This notice will be for £100 if your return is up to 3 months late.
 
This penalty will increase the longer you take to pay your bill. You will also be charged interest on any late payments.

Record Keeping

You will need to keep records of all the supplies your limited company makes, as well as any VAT charged.
 
If you are ever questioned by HMRC, it will be up to you to prove your charges were accurate.
 
This is why it is so important to keep thorough records. You should also keep records of any VAT you have had charged to you by other businesses.

Failure to Adhere to Obligations

If a limited company director or shareholder fails to abide by their financial or statutory duties they can in fact be removed from office at any time.
 
If the Courts are involved, they can also remove or disqualify a director for ‘unfit’ conduct.
 
Failure to comply with its limited company obligations means the company itself can face penalties and interest on late returns and regulatory fillings.
 
In severe cases, it can even result in personal prosecution and the company being struck off the register.
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