Thinking about setting up a limited company? There’s some fabulous reasons why you should – less tax, limited liability, kudos…. But, before you appoint yourself as managing director, here’s a few things you need to know.
It’ll cost you more
If you use an accountant then you’ll pay more for help with a limited company than a sole trader business. Why? Because there’s lots more to do and it’s more complicated. And if you don’t currently use an accountant then it’s more likely you’ll need to with a limited company.
You can’t just walk away
You can’t just stop having a limited company. You have to take steps to have it struck off if you don’t want it any more. This is easy (and cheap) if it doesn’t owe anyone any money but can cause lots of problems if it does. You can pay for a liquidator to strike it off but fees for this can be in the thousands. And, if there’s no assets, it’ll be you who has to find the money.
Director responsibilities are subject to criminal law
Many of the responsibilities of being a company director are backed by legislation that makes it a criminal offence if you don’t do things properly. That word again – in case you missed it – criminal. Failing to send in accounts and other paperwork on time is a criminal offence – and so is failing to keep proper business records.
It’s not your money
Any money the company has is not your money. You can’t just dip into the company account when you’re short of dough – even if it’s your company. Any money that the company gives you has to be properly backed up with the right paperwork – payroll, dividends, expenses and so on. If it isn’t done properly then it’s a loan from the company to you. This might be illegal, is certainly repayable, and could have some nasty tax consequences.
You can’t backdate stuff
If you do decide a company is right for you then don’t be tempted to fiddle your figures so that transactions that occurred before the company even existed are included in the company’s figures. That’s called fraud.
Some expenses are harder to claim
You know those round sum estimates you put through your sole trader accounts and everything is fine? Forget it with a limited company.
Your liability may not be limited
A big attraction of a limited company is the ‘limited liability’ status. This means it’s only the company that’s liable for things – not you. But there are plenty of occasions when creditors can still get to you. And most banks will expect a personal guarantee if they lend your business money.
You’ll need a separate company bank account
Don’t try to run your company finances through your personal bank account. Just don’t – please. Open a proper account for the company even if it costs extra.
You’ll need to keep good records
Is your idea of keeping records stuffing your receipts in an envelope? A limited company needs to keep much more detailed records. So, if you hate paperwork you’d better get used to it with a limited company.
If you’re interested in sett ing up a limited company then don’t worry. We can help you every step of the way. Just get in touch to arrange a free no obligation chat. Call us on 0151 426 4512.
Jonathan Ford & Co are Chartered Accountants and Tax Advisers. We’re located online, in Liverpool and in St Helens.
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