Limited Company Director's Responsibilities
Navigating the intricate landscape of self-employment is no easy feat, especially for contractors. Amidst the myriad of regulations, one term stands out prominently: Limited Companies. But what are your responsibilities as a limited company director?
Once you’ve registered your limited company, you will take on new responsibilities as a director. Not only are you responsible for running the day-to-day business, but as a company director, you’re legally obligated to perform specific duties as outlined in the Companies Act 2006.
In this comprehensive guide, we delve deep into the heart of limited companies. Whether you’re an aspiring contractor or a seasoned veteran seeking clarity, this guide aims to empower you with the knowledge to make informed decisions.
What is a Limited Company Director?
All UK limited companies must have at least one director. The initial director, or directors, are appointed during the company formation process; however, these company offices can be changed at any time by notifying Companies House.
Although you don’t need to be a shareholder of the business to be a director, in practice, many limited company directors are sole directors and owners of their limited company. This arrangement is particularly prevalent with contractors working outside IR35.
Directors are bound by a strict code of practice, entrusted with running the business, and subject to certain statutory obligations. As the limited company is a separate legal entity, you must act in the business’s best interests, making decisions on behalf of the company and not yourself.
Although this may seem confusing, for most businesses with a single director/shareholder/employee (such as those run by outside IR35 contractors), the company’s interests usually align with the director’s.
As a limited company director, your general responsibilities include:
- Following the company’s rules, as laid out in its Articles of Association;
- Ensuring there are no conflicts of interest between you and the company;
- Promoting the success of the company using your skills and judgement;
- Keeping accurate records and meeting all relevant deadlines;
- Refusing bribes from third parties; and
- Complying with relevant laws concerning health and safety and employment laws when hiring staff.
Filing Responsibilities of a Director
Limited company directors must submit various forms and returns to Companies House and HMRC annually. These forms and returns serve to keep both institutions informed and up to date about the business.
i) ‘Accounting Reference Date’ and ‘Accounting Period’
Companies House sets the deadlines for filing information by providing you with an ‘accounting reference date’ when the company is first incorporated.
The first accounting reference date is the last day of the month in which the first anniversary of incorporation falls. For example, if your company was incorporated on 05 June 2022, the first accounting reference date would be 30 June 2023.
Unless you change your financial year-end, your accounting reference date will remain the same each year. Some Outside IR35 contractors change their financial year-end to coincide with the tax year from 05 April.
HMRC sets the deadlines for filing by using your company’s ‘accounting period’ or ‘financial year’. A business’ financial year coincides with its reference dates. In the example above, the accounting period would be 01 July June 2023 to 30 June 2024.
Typically, a financial year will be exactly 12 months long. However, as you may have noticed from the example above, your company’s first financial year might span an extended period. In this case, it would be 05 June 2022 to 30 June 2023.
ii) Statutory Accounts
All UK limited companies, whether trading or dormant, must prepare and submit annual accounts to Companies House. These accounts report the company’s financial performance during the accounting period. Larger businesses may require additional filings, such as a director’s and auditor’s reports, while smaller firms require less detail.
HMRC publishes detailed guidance regarding classifying the company and the subsequent reporting requirements. Almost all businesses for limited company contractors working outside IR3 are categorised as ‘micro-entities’.
The deadline for filing your first set of accounts is 21 months after the date you registered with HMRC, this being nine months after your first year-end. Subsequent accounts are due nine months after your company’s financial year ends.
HMRC provide detailed guidance on filing your annual accounts, which can be done at the same time as filing your corporation tax return.
iii) Corporation Tax Return
Your company’s corporation tax return (form CT600) is filed once a year, and contains details about the business’ income minus any allowable expenses. The remainder, known as taxable profit, is multiplied by the corporation tax rate to calculate your tax liability.
A company that remains dormant for the whole of an accounting period does not need to submit a corporation tax return; however, it will first need to let HMRC know. A company must complete a corporation tax return if it is dormant for only part of an accounting period.
Your corporation tax return is due 12 months after your accounting period ends, although the deadline for paying corporation tax is nine months and one day after your accounting period. This is an unusual disparity, given you need to calculate your liability via a corporation tax return before you can submit it.
Most limited company contractors (or their accountants) usually submit the corporation tax return and pay the associated liability simultaneously.
iv) VAT Returns
VAT-registered businesses must submit VAT returns every quarter. These break down the amount of VAT due on sales and the amount of VAT reclaimable on purchases, with the difference being the amount of VAT owed to/from HMRC.
Since 2019 and the implementation of Making Tax Digital, VAT returns must be filed online.
The deadline for submitting a VAT return is one month and seven days after the end of the quarter in question. This is also the deadline for paying HMRC, so you may need to allow some time for the payment to process.
v) Confirmation Statement
The confirmation statement is separate from the annual accounts and must be filed at least once a year, even if the company is dormant or nothing has changed. Whereas your annual report contains financial information, the confirmation statement details your company, its directors and other administrative arrangements.
You must confirm that your basic company information is correct and current on the confirmation statement. This information includes the registered office address, registers, officers, business description (SIC), share capital and shareholders.
If any information needs to be updated, you must file these changes using the relevant form before submitting the Confirmation Statement. Only changes to shareholders (including their shareholdings and any share transfers) and principal business activities are updated via the confirmation statement itself. Other changes should have been reported to Companies House as and when they occur (see below).
You can file your confirmation statement online and must file at least one confirmation statement every 12 months. Your 12-month review period starts on either:
- The date your company incorporated; or
- The date you filed your last confirmation statement.
You must file your statement within 14 days of the end of your review period.
vi) Event Based Filings
There are certain events that, should they occur, require the directors of a limited company to report them to HMRC. These events include:
- A change in company name;
- A change of registered address;
- The appointment or termination of a director or company secretary;
- The issue of new shares or reorganization of the existing share capital;
- Changes to the company’s accounting reference date;
- Changes to the company’s Articles of Association.
HMRC maintain a detailed list of event-driven filings. The deadlines for submitting the relevant forms differ but typically fall between 14 days and a month after the event.
vii) PAYE
If your company pays its employees a salary, even if it is a single owner/director business, it must register for PAYE. This comes with several reporting requirements. Under the Real Time Information requirements, employers must report payroll information to HMRC electronically on or before each payday.
The information is known as a Full Payment Submission (FPS) and includes details of the payments made to employees and any deductions (such as tax and National Insurance). HMRC publishes detailed guidance regarding how to send a FPS to HMRC via your payroll software.
If you do not make any salary payments in a given month but have employees registered for PAYE, you may be required to send an Employer Payment Summary (EPS) instead of a FPS. There are various other forms related to payments to staff that are required in specific circumstances, the most common of which are the P60 and P11D:
- The P60 shows a summary of the salary an employee has been paid and the tax that’s been deducted, and must be provided by 31st May following the end of the relevant tax year.
- The P11D summarises the value of any benefits and expenses provided to employees and directors and must be provided by 6th July following the end of the relevant tax year.
viii) Self-Assessment Tax Returns
Although unrelated to the business’s running, limited company directors must submit an annual self-assessment tax return. The return is due by 31st January, following the end of the previous tax year in April.
ix) Email Reminders
HMRC helpfully provide an email reminder service to help limited company directors remember their statutory reporting filing deadlines.
Maintaining Appropriate Records
A limited company director has a legal obligation to maintain appropriate company and accounting records. These records must be kept for six years from the end of the last company financial year they relate to.
There are no rules on how you must keep records. You can keep them on paper, digitally or as part of a software program. HMRC can charge you a penalty if your records are not accurate, complete, and readable.
Role of an Accountant
Although the responsibilities of a limited company director can seem daunting, most of the administrative tasks are usually done by a specialist accountant. An accountant will stay on top of relevant deadlines, calculate and submit returns and statements, and keep Companies House informed regarding any changes.
That said, despite the accountant doing most of the work, the ultimate responsibility for ensuring all statutory requirements are met rests with you as a director. If a deadline is missed or a mistake is made, the burden ultimately rests with you.