- Company Name
Select a name. This must not be identical or too similar to a name already registered. The company may also have a separate trading name.
- Directors and Secretary
All companies must have a minimum of one official. A director can also be Company Secretary.
- Registered Office
A registered address must be provided to Companies House. This does not have to be the business trading address.
Companies have an authorised share capital (usually 1000 Ordinary Shares of £1 each at formation). There may also be different classes of shares. Decide on the number and class of shares to be issued and who the shares are to be issued to. By issuing different numbers and different classes of share it is possible to decide the level of income to individuals. It is not necessary to issue shares to all directors or the Company Secretary. The company must have a minimum of one issued share.
- Converting from a Sole Trader/Partnership to a Limited company
The following points should be considered:-
- The levels of salary and dividends
- The timing of dividends and the impact of tax credits
- Timing of incorporation and final pre–incorporation tax bills
- Extent to which profits will be retained in the company
- Tax relief/charges for use of car for business
- Tax charged on disallowable expenditure
- Goodwill created on incorporation
- If VAT registered should the number be transferred to the new company
- Incidental advantages of incorporation (some and no limited to).
- Mobile phones
- Mileage allowance
- Training costs
- Corporate incentives
- Research and Development tax credit
- Tax relief for amortisation of intangibles
At Harney & Co Ltd we can provide additional information and advise on the above guidelines. Additionally we offer an incorporation setup service.
Company directors are responsible for the management of their companies. But they act on behalf of the owners, and must consider their interests in everything they do. They also have responsibilities to the company's employees, its trading partners and the state.
Every private limited company must have at least one Company director. There is no longer a requirement to have a company secretary. The appointment (or departure) of a director or directors must be reported to Companies House within 14 days.
Exercising directors' powers
You must pursue the objectives listed in the Memorandum of Association and act within the powers granted in the Articles of Association. For example, powers to acquire similar businesses, to take shares in other companies, to borrow money or to sell the undertaking or part of its property, how new directors are to be appointed, and how many directors are required to provide a quorum.
In exercising directors' powers, you are required to exhibit such a degree of skill as may reasonably be expected from a person with your knowledge and experience. You must also exercise a degree of care in your actions as a director.
The test of an acceptable level of care is what a reasonable person would do in looking after their own affairs. You are generally not liable for the actions of your fellow directors, if you knew nothing about them and took no part in them, though it is dangerous to turn a blind eye.
The company is a separate legal entity from its directors, shareholders and employees. The best interests of the company are not always the same as the best interest of the shareholders.
For example, it might be in the interests of the shareholders for the directors to declare a large dividend. But if the company faced a cash shortage, this would conflict with the interests of the company. You must also consider the interests of other stakeholders, such as creditors and employees.
You will be guilty of wrongful (or, perhaps, even fraudulent) trading if you allow the business to carry on, and incur debts, when you know or should know there is no reasonable prospect that the company will be able to repay them.
The fact that the company is making losses does not in itself mean that the company is trading wrongfully. But if there is no reasonable prospect that it will move into profit, and doubts about whether its assets will cover its liabilities or whether it can pay its debts when they fall due, the company is probably trading wrongfully.
As a director, you could be personally liable for the company's debts if you knew (or should have known) there was no reasonable prospect it could have repaid them.
Duties under company law
As a director, you are personally responsible for ensuring that the company complies with company law.
These duties may be delegated to the company secretary, if there is one, but you must ensure that they are carried out.
You must make sure that the statutory returns are filed with the Registrar of Companies on time.
These include the annual report, and accounts, the confirmation statement, the Register of Persons with Significant control and notice of changes to director and secretaries. Failure to deliver can result in fines, for which the director may be personally liable, or disqualification as a director or even a criminal conviction.
Companies which meet 2 of the 3 criteria, with a turnover of less than £10.2 million, a balance sheet total of ≤ 5.1 million and less than 50 employees do not need a full audit, though they still need a report from a qualified accountant. Filleted accounts should be filed with Companies House and full financial statements must be prepared and sent to the shareholders.
Other legal duties
You must comply with employment law in dealings with employees. You can be sued for unfair dismissal, racial or sexual discrimination, or unfair work practices.
You must take reasonable care to ensure the health and safety of your employees.
You must ensure that the correct amounts of tax, VAT and National Insurance (NI) are paid on time and watch out for legal pitfalls including data protection, libel and defamation, and the provision of misleading information.
This Guide is aimed at smaller limited companies. At present, companies with an annual turnover below £6.5 million (has increased to £10.2m for accounting periods starting on or after 1 January 2016) and Balance Sheet total of no more than £3.26 million (£5.1m for accounting periods starting on or after 1 January 2016) must file a set of accounts each year, both with HMRC and with Companies House. However, the company is exempt from a statutory audit unless required to have one by a regulatory body, for example if the company is a charity.
There is a legal requirement to keep detailed accounting records for the company. The exact requirements will depend on the size and complexity of the business.
For the very smallest business, the absolute minimum accounting records would be an Analysed cash book, splitting all payments and receipts into separate columns for each type of expense or income.
In many cases planning the preparation of your annual accounts can be covered in a telephone call, alternatively you are welcome to come in for a meeting. Everyone involved needs to be clear about who is responsible for doing what, and when. For example:
- How much of the accounting work will you do yourself?
If you use a manual accounting system, all the basic arithmetical work should be done by the book-keeper. Every column of figures should add up correctly and tally with all the invoices, cheque books, bills and paying-in books. Most importantly, all entries should tally with the business bank statements.
A good computerised system can do all these things automatically. Depending on your company's accounting expertise you may be able to produce an income and expenditure statement together with a trial balance. A trial balance lists all of the credit entries and the debit entries in the accounts, with total credits balanced by (or equalling) total debits.
- Ask whether there are any tax planning steps you should take before the year end. For example, you may be advised to make certain asset purchases earlier, so that they count in the current accounting period, perhaps making use of your Annual Investment Allowance (AIA) for tax purposes.
- Ask what other information and 'schedules' we will need. These are likely to fall into four key areas:
- Sales and Purchases
- Fixed assets
- Wages and Salaries
- Book a date in the diary with us for a finalisation meeting.
Prepare a summary of all sales invoiced during the year, together with details of other income received.List sales made before the year end, but not yet paid for, as outstanding debtors. Include the amount, the invoice number and the invoice date. Note any invoices that you suspect may not be paid, with a brief explanation. The accountant may make a 'provision for bad debts'. This effectively cancels the sale in your accounts.
- Prepare a summary of all purchases and expenses made during the year, analysed out into types of expense, such as materials, repairs or motor expenses.
List purchases made before the year end, but not yet paid for, as outstanding creditors. Include the amount, the supplier's name and the date payment is due.
Note any invoices you dispute and do not expect to pay, with a brief explanation.
As general good practice, it is always best to list and analyse your debtors and creditors by date (an 'aged' list). It is then immediately apparent where problems may arise, such as bad debts.
- Cross-referencing means that details of any transaction can be easily found, with a trail that can be traced right through the records.
Purchases and sales
Your accounting records should be clear and logical. This saves time for everyone involved and minimises the likelihood of, for example expenses being missed.
The company is required to maintain a schedule or list of all assets, including any property, plant and machinery, equipment, furniture, motor vehicles, etc. that is owned by the company and used in the production or supply of goods or services. List out relevant details for each asset, including of date purchased, cost, and estimated useful life. For any disposals in the year make a note of any proceeds received or details of the transaction where disposed of in part exchange for a replacement item.
The value of stock is a key element in retail and manufacturing businesses. It includes work-in-progress. Service businesses (e.g. management consultants) have little physical stock, but may have considerable 'work-in-progress', such as half-finished projects.
Unless stocks are a minor item in your accounts, you will need to carry out a stock take. This is a physical count-up of the goods on your premises. It is made easier and faster with careful planning.
Wages & Salaries
All businesses employing staff are required to keep accurate personnel records both to comply with legislation and for the purpose of maintaining accounting records. Accurate records ensure that your staff receive the correct wages, pensions and other entitlements and that you pay the correct tax and national insurance contributions.
At the planning stage, let us know if you would like a finalisation meeting once the accounts are completed.
The purpose of this meeting is for us to feedback constructive ideas and advice on how you can improve your business practices and your accounting records. It’s also a good opportunity for us to discuss your future plans and advise on any tax efficiencies that may be available.
Harney & Co.
We can provide comprehensive advice on all aspects of accounts preparation, including:-
- Book-keeping systems
- Accounting Software
- Credit Control
- Tax planning
- Book-keeping services
- Cash flow management and forecasting
- Cloud accounting
- How much of the accounting work will you do yourself?
If you employ staff, payroll is a crucial part of your operations. The government requires you to collect Tax and National Insurance (NI) under the PAYE system and imposes penalties if you fail to fulfil these requirements.
There are many complications, including processing statutory sick pay, statutory maternity pay, and occupational pension contributions, however, few employees will tolerate being paid late or incorrectly.
You must operate a payroll system if you have any employees. At its simplest, payroll calculates payments and produces payslips. PAYE rules include the following:
- You must register with your PAYE tax office
- They will issue you with a PAYE reference number and a 'New Employer's Starter Pack
- You must keep basic payroll information for each employee:
- Each employee must supply you with a National Insurance number (shown on the employee's NI card or P45), together with a date of birth and full address
- You need to know the rate of pay for each pay period, the frequency of pay and the date the employee started working for you
- The employee's P45 will indicate the employee's tax code and details of pay-to-date and tax-to-date from previous employment
- Employees without a P45 must fill out a starter declaration form
- Most employees come under National Insurance category A, however, there are circumstances when other categories must be used, such as for employees under 21, apprentices under 25 and employees over the state pension age
- You must keep a list of all wage payments on a form P11 or equivalent. A payroll software program will automatically prepare this for you. A P11 is a working sheet to calculate:
- The tax due from each employee, based on gross pay including basic pay, bonuses, commission, overtime, maternity pay, sick pay, and any other taxable pay the employee is entitled to
- The amount of National Insurance to be paid by the employee and the employer
There may be additional deductions from your employees' pay including:
- Contributions to occupational pension
- Holiday pay schemes
- Union subscriptions
- Loan repayments
- Student loan repayments
- Attachment of earnings orders
- Corrections to previous payslips
You are generally prohibited from making deductions from an employee's wages unless you have obtained prior written consent from the employee.
- You must issue a P45 to leavers
- This states gross pay and taxes paid to-date
Operating a payroll
Small businesses may choose to operate payroll manually.
- This means manual calculation of PAYE tax, National Insurance contributions, statutory sick pay and statutory maternity pay, etc. Manual calculations are likely to be slow and can be confusing giving rise to errors.
Most businesses choose to use Payroll software either:
- using computer software to establish an 'in-house' system, or
- using a 'fully-managed' service offered by an accountancy firm or a payroll bureau
For many businesses the decision depends on the amount of detailed control they wish to have and on whether they have the resources to implement an 'in-house' system.
Computer software provides greater control and the opportunity to capture valuable management information.
- The initial cost of implementing an in-house computerised payroll can be slightly higher than outsourcing, but the final cost depends on the number of employees and the level of integration you require.
A payroll bureau can offer a continuous service to even the smallest of firms.
- The business provides the pay data and the bureau produces payslips, keeps the records and produces the required monthly and annual returns.
- Most bureau charge at a standard rate per payslip, however, there is usually an initial fee to set up the payroll and additional fees maybe charged for any changes made.
Harney & Co.
We can provide either a bureau payroll service or advise on installing an in-house payroll system.
We can help you set up a payroll system appropriate to the size and needs of your business.
We can advise on any aspect of payroll including, for example managing statutory sick pay, calculating overtime pay, or directors National Insurance.
We can prepare all your monthly and annual payroll reports to HMRC, ensuring they are submitted on time.