Maybe you're considering setting up a limited company. Perhaps you've already done so, but now find you're being swamped by letters from HM Revenue & Customs and Companies House
Setting up a company is quick and easy, but it creates a range of administrative responsibilities. For example, as an accountant specialising in start-ups, I often hear from people who are late filing their accounts or annual return, but have no idea of the consequences.
This is only intended only as a basic introduction, but if you set up a limited company you will need to complete:
A confirmation statement (previously known as the annual return)
This is a snapshot of information about your company (eg shareholders, directors, etc). This must be filed at Companies House together with the relevant fee (£50 if filed electronically or £71 for paper filings from 1 May 2024). The confirmation statement confirms that the information Companies House holds about your company is correct. It must be returned at least once a year along with a copy of your annual report and accounts.
Annual accounts
Although Companies House may only require an abbreviated set of accounts to be filed, which look easy to prepare, HMRC requires a full set of accounts, including a detailed profit and loss account and director's report.
Companies House and HMRC are very different government departments. They do not work together, so don't assume that just because you have filed information with one, the other will automatically get it.
CT 600 Corporation Tax return
Along with the full set of accounts, HMRC will require a CT 600 to be completed. This is not a straightforward form, so unless you have the necessary experience, it's best left to an accountant.
Annual self-assessment
Regardless of how much they earn, each company director may have to complete a self-assessment showing all of their income, not just that received from the company.
Annual employer returns
Any business that employs staff has a number of reporting requirements. Under PAYE Real Time Information (RTI), almost all employers are required to report their payroll information to HMRC online on or before each payday. Payroll information is reported to HMRC each time you submit your payroll information.
Quarterly VAT returns
Any business, not just companies, whose turnover exceeds the VAT threshold in the previous 12 months must register and account for VAT. The biggest mistake made here is assuming that the need to register relates to the accounting year, rather than the previous 12 months from the current date.
Registering for VAT means having to complete an online quarterly VAT return. This is due at the end of the month following the quarter-end date. So it is essential that accounts are kept up to date so that this can be completed on time.
Late filing of any of the above returns will result in a fine, penalties and interest payments. In the case of your accounts, both Companies House and HMRC can fine you. Fines start at £100, while punishment for significantly late filing of documents includes criminal conviction.
It doesn't end there, of course. Even when you've stopped trading, you must file dormant accounts each year. And if you decide to close the company down, there is an even more long-winded process to follow.
Administrating a company for tax can cost you a significant amount of time and money to meet the plethora of filing responsibilities. This cost is tax allowable, of course, except for fines. And in many cases there are tax advantages to operating as a limited company. However, just make sure you know what you are getting into before you start, that way there won't be any great surprises later on.
Written by Elaine Clark of Cheap Accounting.
