Running your limited company
This section briefly describes some of the main responsibilities involved in running your limited company.
Your Company is legally obliged to keep ‘proper books and records’.
- These records must be kept for at least three years (or six years if your Company is VAT registered).
- These records must be summarised in a compulsory format at your year-end, known as your statutory accounts. Your freelancer accountant or a limited company accountant can help you with your accounts.
- These statutory accounts must show a ‘true and fair view’ of the Company.
- A copy of these statutory accounts must be sent to Companies House in Cardiff within 10 months of your year-end.
Companies House is a government agency that keeps details of every single limited company in the country. For example, you will have to send Companies House the following:
- An Annual Return, this is a standard form that will be sent to you each year to complete and send back.
- You must also notify them (using standard forms) of certain changes to your company - e.g. changes in Directors registered office and shares etc.
- You must also send them copies of any mortgages or charges the Company has given over its assets.
- Unfortunately, there are dozens of other forms you may have to fill in, so once again, professional advice is essential.
This is the special type of income tax that companies must pay on their profits. Your Company must send the taxman a Tax Return together with a copy of the accounts after each accounting period.
PAYE is the "pay as you earn" type of income tax that must be deducted from wages and salaries before they are paid. The admin involves:
- Completing a PAYE registration form.
- Keeping payroll records.
- Paying PAYE and national insurance every month.
VAT is charged on many goods and services. You must register for VAT if your turnover exceeds a certain amount, although you can voluntarily register if your turnover is below this. We would recommend that the company be registered if you are dealing mostly with other VAT registered companies.
Companies (and their Directors) must obey hundreds of pages of rules and regulations. For example, tax law and company law. Some of these rules are obscure and pointless, however, unfortunately being unaware of or disagreeing with a law is no defence. The best advice is to talk to an accountant to make sure you stay on the right side of the law.
One of the drawbacks of being your own boss is that nobody else is making any plans for your retirement. So if you want a comfortable retirement you will have to make your own plans and for most people, this means setting up their own pension scheme. Fortunately, the government makes this a little bit easier by allowing you to claim tax relief on your pension contributions.
As pension scheme contributions are a tax allowable deduction for IR35 purposes it is very important for freelancers caught by IR35 to carefully review this subject.
What happens if you are ill or injured? What if you die? How will your bills be paid, and who will look after your family? When you are employed in a regular job the answer to some of these questions may be ‘my employer will make sure we are alright’. Unfortunately when you are your own boss, you are your own employer so if you don't make plans for illness, injury or death, nobody else will do it for you!
Most people decide that the best way of protecting them and their family is to take out insurance. Two of the most popular types of insurance are:
- Life insurance - which pays out a lump sum if you die.
- Permanent health insurance - which pays you a weekly ‘wage’ if you are unable to work due to illness or accident.