Financial & tax responsibilities of a limited company director
Posted on 10th June 2021
When starting a limited company, you will be required to meet a number of ongoing obligations. While these can be categorised in many different ways, the most effective way to split them up is to consider the obligations set by two bodies involved – HMRC and Companies House – as this is the only way to ensure that individual requirements won’t be accidentally overlooked.
Here are the expectations and obligations as stated by both HMRC and Companies House.
As well as being the place where companies are incorporated and dissolved, Companies House will hold details about the directors of the company. As such, you will be obligated to inform them of any changes that occur. Aside from this, though, the main issues to consider are the annual returns and the accounts.
Limited companies are required to fill out a Confirmation Statement (previously known as an Annual Return), and this is an assignment that ultimately falls under the responsibility of the director or directors. Annual returns are completed using an AR01 form while Companies House charges £13 for online submissions and £40 for paper submissions.
Annual returns made through the AR01 are a legal requirement for all limited companies, and are due to be provided (as the name suggests) every year. The form provides Companies House with the necessary, relevant, and up to date information about the company including its registered office address, correspondence address, director details, company secretary details, shareholder details and share capital. Annual returns should be posted on the anniversary of the company’s incorporation or the previous year’s annual return.
AR01 forms should be completed and submitted with 28 days of the dates above. Late submissions can result in financial penalties, while failure to complete the annual return can see the company removed from the registrar’s Register of Companies.
Limited companies are additionally required to provide Companies House with a record of the company’s annual accounts. Again, this is something that falls under the director’s remit of responsibilities. The accounts will then be available to public analysis.
Accurate accounts must ‘report on the performance and activities of the company during its financial year’, include information about the money received and spent by the business while also covering assets and liabilities. As a general rule, companies have nine months from the accounting reference date (ARD) to submit the accounts. The ARD is usually at the end of the financial year.
When forming a new company, the first ARD is the last day of the final month in the company’s first year of operation. Directors need to prepare accounts every financial year, including profits and losses as well as a signed balance sheet and any relevant account notes.
It’s important to recognise whether the company is defined as a small or large business as this can impact the situation too.
A small company will:
• Employ no more than 50 members of staff;
• Have an annual turnover of no more than £6.5 million;
• Have a balance sheet total no greater than £3.26 million.
When the business qualifies as a small company, it is possible to submit abbreviated accounts in order to restrict the amount of information available. Large companies are not afforded this option while they may also have to provide an audit report. Meanwhile, groups of companies may need to provide consolidated accounts too.
Failure to provide company accounts on time can lead to fines starting from £150 and extending to £3,000 for private companies and £15,000 for public companies. Furthermore, Companies House can have the business struck off the Register of Companies and even prosecute you as a director for failing to file company accounts.
Corporation tax and company tax returns
Following the submission of accounts to Companies House, businesses are required to pay Corporation Tax on any taxable profits made by the company. This includes trading profits, chargeable gains, and investments. The director is responsible for completing this payment.
Corporation Tax is not billed to the company, which is why you need to complete a Company Self-Assessment Tax Return. If you have been a sole trader, the basic premise is relatively similar, although the process does vary.
Filing and paying Corporation Tax should be followed by filling out a CT600 Company Tax Return form. This is required even if the company made no profit over the course of the financial year. HMRC requires full accounts, even from companies that are able to use abbreviated accounts at Companies House.
Failure to satisfy these obligations can lead to penalties starting at £100 for up to one day late, increasing by another £100 for up to three months, and increasing up to £500 for repeat offences
If you want to better understand your financial obligations as a company director, or want support in ensuring you comply, get in touch.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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