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
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
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
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
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.