A limited company is an “incorporated” business structure which means there is a process of registration by which a separate legally recognised corporate structure (from the person or people starting the company) is formed.

A Limited company is identified by the word “Limited” or abbreviation “Ltd” at the end of the company name.

In other countries Limited or Ltd companies are referred to as “LLC’s” which is an acronym standing for “Limited liability company” which is a more accurate description of what it means to be a limited company.

Limited liability means that in the event that the business is unable to meet it’s financial obligations (ie it’s “gone broke”), that the “liability” for the unpaid debts is limited the people founding the business who are:

The shareholders in a company limited by shares; or

The members in a company limited by guarantee;

In a company limited by shares the liability is capped to the value of the shares the shareholder has agreed to buy when the company is set up. Typically this could be one share of £1. In a company limited by guarantee the liability of the member is the value of the guarantee they have given, usually a nominal amount like £10.

In the UK a company is formed by making an application for registration to the “Registrar of Companies” at Companies House which is the UK’s Government body responsible for the administration of Companies.

Registrations can be made either via an approved user of Companies House electronic filing system, (a company formation agent) or directly with Companies House. More often, an accountant such as ourselves will handle this for you to ensure that this process is set up correctly.

We get asked this a lot as there is a perception that there might be a more advantageous time of year to register a company.

There isn’t a “best time” to start a limited company. A company has its own “tax year,” which starts from the date that it is registered and is different from the “official” tax year, which runs from 6th April to 5th April each year.

A company can shorten or extend its tax year if required, for instance, to align with other companies an individual might run, to align with the April tax year, or the perhaps calendar year ending 31st December. It’s flexible so not something most people need to worry about.

The only exception to this would be when a company is being set up for a specific tax purpose, where timing might be a consideration. However, this is only likely to happen if you are already being advised by an accountant or tax advisor who will tell you when to set up a limited company.

In theory, yes. But in reality, no. The best time to talk to an accountant about running a business through a limited company is BEFORE you set up a company. We will guide you on setting up the company correctly according to your circumstances.

Yes this is perfectly acceptable. Depending on turnover/profitability you may wish to use two limited companies. This way in the event of insolvency of one trading activity the other company can continue unaffected. Alternatively, this also provides the opportunity to sell one business at a later date much more easily than extracting that trade from a single company.

Yes. There is no obligation to run a PAYE scheme or employ anybody through a limited company.

You should keep all financial records such as invoices, receipts and bank statements for 6 years. This applies even if the company has been dissolved.

Yes. Company’s have their own self assessment tax regime and must file a CT600 corporation tax return annually.

Limited companies have their own tax regime and different tax rates to individuals. The main tax on a company’s profits is Corporation Tax. A company must file a CT600 corporation tax return each year which is a self assessment tax return for companies. Just like an individual’s tax return the CT600 will detail all the company’s income. Commonly this will be derived from the company’s trading profits but can include other taxes such Capital gains tax in the same way that this is reported on an individual SA100 tax return. There are a lot of reliefs and allowances that businesses may be eligible for adding another layer of complexity that makes filing your limited company tax return a job for an accountant such as ourselves.

You must pay any Corporation tax due 9 months and 1 day after the end of your company’s “accounting period”. The date of your accounting period will depend on when your company was first registered.

A company may be defined as a dormant company when it has recorded “no significant accounting transactions during the accounting period”. A ‘significant’ accounting transaction is defined as one that the company should enter in its accounting records. The company’s confirmation statement is used to change the SIC code to 99999 – Dormant Company which will change the record for your company on the “Register of Companies”.

Yes. This is one of the advantages of a limited company. It is not uncommon for a company to record a loss particularly in it’s 1st year of trading. This loss is carried forward and offset against future years profits before any corporation tax liability is calculated.