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Running your limited company

Company directors are the people who hold ultimate responsibility for the overall running of a company. Under law they are obliged to display the utmost good faith towards the company and its dealings. As a contractor with a limited company structure you will therefore be entrusted with a number of financial and legal duties to ensure the company is ran properly.

To qualify to become a director of a company, you must be:

  • A natural person
  • At least 16 years old
  • Of sound mind
  • Not disqualified under the Companies Act 1965
  • Not be an Undischarged bankrupt.

No other qualifications are required, but having a basic understanding of your statutory and financial obligations is invaluable.

General statutory duties for directors:

The general duties of directors are enshrined in the Companies Act 2006.  This piece of legislation dictates that company directors need to exercise reasonable care and diligence, use good independent judgment and act within their powers to promote the long-term success of the company.

The seven general duties are;

  • to act within your powers as a company director
  • to promote the success of your company
  • to exercise independent judgement
  • to exercise reasonable care, skill and diligence
  • to avoid conflicts of interest
  • not to accept benefits from third parties
  • to declare interest in proposed transaction or arrangement with the company

Legal filing duties:

In addition to the general duties of care mentioned above there are various procedures you will need to adhere to and a number of important documents that need to be regularly reported to Companies House (this is the official registrar of companies that deals with regulation and incorporation of all limited companies in the UK).

Each year you must complete the Annual Confirmation Statement – this replaces the Annual Return (AR01) form as of June 2016 and provides Companies House with a snapshot of your company at the time of filing.

You will also be legally required to notify Companies House regarding any of the following:

  • changes to key personnel or their personal details (i.e if you change address or if your name changes etc. – this includes changes to the company secretary (if you have one as they are optional for private limited companies)
  • changes to the registered office address
  • charges or allotment of shares./ any issue of shares or changes to the company’s share structure
  • changes to the company’s accounting reference date (i.e. your year-end)
  • amendments to the Articles Of Association

Financial & accounting responsibilities:

As a director and owner of your limited company you also have several accounting-related obligations to fulfil. A specialist contractor accountant can support you with these tasks to help lighten the workload; however you are ultimately held responsible to ensure that all tasks are completed and conducted professionally.

These duties require that you (or your accountant as your Authorising Agent):

  • Maintain accurate financial records for the company including details of all income and expenditure in line with Generally Accepted Accountancy Practice guidelines.
  • File the company’s Annual Accounts at year end.
  • Submit a Corporation Tax Return (CT600) each year and settle any outstanding tax liabilities due to HMRC.
  • Register for PAYE and pay employees correctly throughout the year accounting for income tax and National Insurance deductions.
  • If registered for VAT, must file VAT returns and VAT payments accurately and on time.
  • Only declare dividends when profit is available, hold a director’s meeting to declare the dividend and complete a dividend voucher prior to issue.

While this seems like a lot of additional admin, many contractors find that these responsibilities form part of the natural operations of the business and are outweighed by the many benefits that a limited company trading structure can provide.

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Further reading:

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Guide

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