If you have chosen to take the limited company route for your contracting, you will have notably become a rather important and no doubt sophisticated Director of said company which comes with the sounds of hearty, resounding chortles from behind a leather wingback, thick moustache and a smoking jacket. The important parts of being a new director aside, there are also a number of obligations and duties which come with the new haircut.
As the director, you are legally required to act in a manner of good faith to promote the success of the company and follow its rules which should be outlined in the articles of association. You will no doubt have an invested interest in this as it is your own company which you are likely going to want to succeed.
You are required to ensure that the company accounts are a fair reflection of the company’s financial situation, as well as register for Self-Assessment and submit a personal self-assessment tax return on an annual basis. Although you may employ an accountant to take care of most of your accounts, they will always remain your legal responsibility. You are also required to maintain financial records for the company including details of all revenue/capital income and expenditure, debtors and creditors at the year end, together with any calculations and information for completing your company tax return . Failure to keep financial records can result in a fine or disqualification as a director. HMRC can also impose a fine of up to £3,000 where proper records have not been kept.
Along with the financial records, as director, you are responsible for keeping a number of records about the company itself including details of all directors, shareholders and company secretaries if applicable, share purchase transactions, any loans or mortgages made against company assets, debentures and the results of any shareholder votes. These records should all be kept at your registered office address, otherwise you must inform Companies House as to their whereabouts. You should keep all records, both company and financial, for a minimum of 6 years from the end of the financial year they relate to unless HMRC have opened an enquiry into your company tax return or you sent it in late, in which case you will need to maintain the records for longer. You will also be required to submit a company annual return to Companies House within 28 days of the company’s incorporation anniversary date every year. Failure to do so can result in the dissolution of your company, prosecution and disqualification as a director. This will include the registered office address, type of business e.g. consultancy, where the list of shareholders and debentures information is kept, name and addresses of company directors and secretaries where applicable, details of shares and shareholders and the type of limited company it is.
Most contractors operate either from their current client’s premises or from home so do not need to display a company sign, however, if you own an office, you are required to display a sign with the company name at all times. As well as being good business practice, as director you are required to ensure that all promotional material including stationery such as business letters or invoices include the company name (including ‘Limited’ or ‘Ltd’), registered number, registered address, and whether it is registered in England and Wales, Scotland or Northern Ireland.
As director of a company, it is your responsibility to report certain changes to the company:
If you plan on having any employees, you will need to ensure you comply with current employment law and take out Employer’s Liability Insurance which is mandatory if there are any employees in the company other than the principal director, even if it is your spouse just doing the books part time. You will also need to ensure your company complies with Health and Safety regulations and that it holds adequate insurance. For most contractors, Employer’s Liability Insurance is the only policy they will come across which is a legal requirement (where applicable).
As well as looking after the company, you will also need to take care of how you take money from the company as director. There are four different ways in which you can draw cash from the company; salary, expenses and benefits, dividends and directors’ loans.
In order to take a salary or expenses and benefits from the company, you will need to register the company as an employer with HMRC. You will then deduct relative income tax and NICs from your salary and pay employers NICs through your company.
In order to take dividends from the company, which usually makes up the largest proportion of a contractor’s income, the company must first have made enough profit, you must then hold a director’s meeting to declare the dividend and complete a dividend voucher (your accountant will be able to help you with this) along with Minutes of the meeting.
A director’s loan is money which you take out of the company, other than salary, expenses and benefits or dividends which is more than what you put in. Ask your accountant to assist you with the relevant tax rules if you are looking to take out a director’s loan from your company. Generally a director can draw down on a loan account that is in credit without any tax consequences. Where the loan account is overdrawn then a taxable benefit-in-kind arises.
There may seem like a lot of statutory obligations and financial duties involved in running a limited company, and there are, but most of the above are necessitated not simply by law but in order to run a business in the first place, and so much of you director responsibilities will be taken care of in the natural operations of the business.