Tuesday, October 23, 2012

The Essential Elements for Setting Up Your Limited Company

People start companies for many different reasons but you can save time, trouble and money by understanding the basic issues before you start. There are five key roles in a company which I will explain below. In small companies, one person may perform more than one of these roles but it is important to understand that they are separate functions even if performed by the same person.

1. Owners

A company is owned by shareholders who share in the profit of the business by taking dividends in proportion to their shareholding. A new company with only one owner usually has only one share which has a nominal value of £1. That means that the shareholder is only liable for a maximum of £1 should the company fail. These days companies do not need to specify the maximum share capital when they are formed. New shares can be issued to new shareholders as necessary and different classes of shares can be created.

2. Managers

The directors run the company in the interests of the shareholders. They may also be shareholders themselves, but they need to understand clearly their role is to manage the business and they have a duty to work on behalf of the shareholders. A company therefore must have at least one director. Most company directors will be required to complete a Self Assessment Tax Return. You will need to declare whether a director has any other directorships when applying to form the company.

3. Employees

Staff may be employed to work in the company. To start with that is often one of the directors but eventually you may employ others. Once a company employs staff it will need to set up a payroll scheme. There is scope for tax planning when a shareholder is also an employee when there is a potential tax saving by taking dividends rather than salary. You should ask for professional advice to ensure directors receive a salary to at least the National Insurance threshold to maintain their National Insurance Contribution record and.

4. Administration

You can now (since the 2006 Companies Act was enacted) choose whether to have a Company Secretary. For a small company they do not need any particular qualifications. If you set up the company without a Company Secretary, then one of the directors will be responsible for the administration of the company and they will need to be organised as they are responsible for ensuring that the statutory company paperwork - accounts, corporation tax return and annual return are completed and filed on time. If you set up the company with a company secretary, then an accountant can perform this function for you for a small fee.

5. Accounts

You will need to keep accounting records carefully from the start of the business for two reasons; both to enable you to monitor the progress of the business as well as allow you to prepare the annual accounts. Many businesses wait until the year and to organise their records but my experience is that this is usually mistake. It would be much better to seek advice on how to keep your records at the start of the business so that you start as you need to go on.

Make sure you obtain professional advice when you start the company so that you clearly understand the issues before you start. Preparation is crucial and good advice is always worth listening to. Plenty of people start and run companies successfully so why shouldn't you?

Ian Marlow runs HFM, a tax and accounting business based in London with clients both resident in, and living outside, the UK. They complete hundreds of tax returns every year so have plenty of experience in dealing with HMRC. For more detailed tax information and access to their excellent free monthly tax newsletter, go to the HFM website =>http://www.hfmtax.co.uk .

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