If you’re used to being a sole trader then you’ll already be used to the fact that there’s forms to be filled in. Typically there’s a tax return to do each year and fines for it being late. You’ll also know that if you cheat (by not declaring income, for example) then you can have to pay penalties. You probably know that if you’re really naughty you could end up in jail. With a limited company the rules change. Many of the responsibilities of directors are written in law so that if you don’t follow them you are committing a criminal offence. For example, failing to submit an annual return – the document which confirms details of who the shareholders and directors are – must be submitted on time each year. Failure to do so means the directors are committing a criminal offence. It is rare for prosecutions to happen but they do. There’s also seems to be a growing trend for the Government to look at fines as a quick and easy way to boost Government coffers.
Real World Example
We had meeting with Mr N who ran N Limited. His wife was the director of the company and she had received various reminders from Companies House to submit the annual return. Their accountant kept telling them he would ‘sort it’. He never did. They’d now received a letter saying that a prosecution was now underway. We called Companies House to let them know that we would sort out the return immediately. Unfortunately as the matter was criminal rather than civil the prosecution couldn’t be stopped. The filing of the return now would only be relevant in deciding on the sentencing. So, Mrs N ended up with a hefty fine and a criminal record. Ouch.
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