Company Registration

Definitions

 

Limited Company

A Limited Company is a separate legal entity and, as the name implies, the shareholders have a limited liability. This means that in most circumstances the shareholders cannot be held responsible for the debts of the company.

This could be an advantage for a new business venture but in practice the major creditors of a new venture, banks, etc. may ask for personal guarantees from the shareholders which would negate any personal protection.

It should be emphasised that the shareholder is separate from the director and although in a small company the shareholders and the directors may be one and the same persons, they are legally entirely different and have different responsibilities and liabilities.

A Limited Company will require an audit undertaken only if turnover exceeds £5.6 million per annum.

For a company, corporation tax is payable nine months after the years end at rates varying on the size of the company.

You will pay tax at your highest personal rate on the moneys that you take out of the business as salaries, benefits in kind bonuses or dividends.

Salaries will be subject to Pay As You Earn tax and National Insurance (including employers’ contributions) which are payable to the Inland Revenue in the month following the payment of the salary together with the PAYE and NI for employees.

Dividends will need to be declared on your personal tax return and subject to tax, but no National Insurance is payable on the sum.

Special rules apply to personal service companies under IR35.

There are also tax and National Insurance liabilities that will arise in respect of company cars and other benefits.

Limited Liability Partnership

A Limited Liability Partnership is a partnership with limited liability.

This type of partnership is taxed as a partnership, but has to file accounts and annual returns like a Limited Company.

A Limited Liability Partnership will need an audit on its annual accounts if its turnover exceeds £5.6 million per annum and under certain other circumstances.

Tax and National Insurance Contributions are paid by the partners under Schedule D and class 2 & 4 NIC for NI as other partnerships.