A limited company is a separate entity to it's owner(s). This means that all assets and liabilities in the company's name are the company's, not the owners. This reduces, or 'limits', personal liability if the business cannot meet it's debt or liability obligations, as the debts are the company's, not the owners. 

A limited company issues shares of ownership. Those that purchase and own these shares are the company owners (shareholders). These shareholders are entitled to a share of company profit. A shareholders share of company profits is determined by their overall share ownership i.e. a shareholder who owns 30% of the company shares is usually entitled to 30% of the companies profits (after corporation tax). 

Limited companies also have at least 1 company director. These directors do not have to be shareholders. A directors responsibility is to help manage and run the business. Shareholders simply own the company. 

The main advantages that your clients may have, if they trade through a ltd company are... 
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• Taxation. For higher rate earners, a limited company can save tax. This is because the corporation tax rate and income tax on dividends is often less than the higher rate income tax rate and national insurance rates that a person will pay if they trade as a sole trader.
• Liability. As already mentioned, reducing personal liability is huge advantage. Especially if the business is likely to have some large debts. 
• Professionalism and increased workload. Some businesses will only trade with other ltd companies, not with sole traders. Having an incorporated company can also provide a much more established and professional image to potential customers. 

As an accountant, one of the main advantages for doing limited company accounts, rather than sole trader accounts, is the increased fees that you can charge - accountants generally charge more for limited company accounts than sole trader accounts. Doing ltd company accounts can also lead to additional work and fees, such as PAYE and self assessment tax returns. 

There are some disadvantages to operating as a limited company. These include...

• An increase in accounting fees. Accountants generally charge more for ltd company accounts than sole trader accounts. 
• An increase in record keeping and accounting obligations. The ltd company won't just have HMRC to keep compliant with, it will also have Companies House, as well as other company obligations. A limited company is more complex than a sole trader business. 
• Increased fines and financial penalties. Some businesses open and operate a limited company without the help of an accountant. They do not keep their obligations and often don't understand how to account for a ltd company (overdrawing the directors loan account, as an example). This can lead to increased taxes, financial fines, and late filing penalties. 

If you have been approached by a potential client that operates through a limited company, or perhaps now work as an accountant for a limited company, there are a number of things that you should do to get started...
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• Compliance & Regulation. You should be a licenced accountant and be regulated by an accounting body or by HMRC directly. You will have a number of due diligence and compliance tasks that you'll need to complete, such as a letter of engagement or service contract, AML checks, risk assessments, etc, etc. For AML checks, I use CreditSafe. 
• Company UTR. You will need a copy of the company's unique tax reference (UTR) number. This is sent by post from HMRC upon the company's incorporation to the company's registered address. If the company owners have lost or didn't receive the UTR, they can request that HMRC resend the UTR number. If you are taking over from another accountant, then the previous accountant should pass on the UTR number upon handover.
• Company Authentication Code. This is usually sent by Companies House to the company's registered address upon the company's incorporation. If the company owners no longer have the code, the code can be requested here. If you are taking over from another accountant, then the previous accountant should pass on the company authentication code upon handover.
• Accounts Package. The company will need adequate accounting software for it's bookkeeping and accounts. Excel is fine for very small ltd companies with very few transactions. For a large business, consider accounting packages such as Sage Business Cloud, QuickBooks Online, or Xero. 

Bookkeeping should regularly be done to keep the limited company accounts in accurate and up to date order. This includes recording the company's sales, customer invoices (sales invoices), expenses, supplier invoices (purchase invoices), and the banking transactions. All bank accounts should be reconciled and, if applicable, all outstanding VAT returns should be filed. 

The accounts should be kept using a double entry bookkeeping system, hence why accounting software is a good choice (software will automatically account for all transactions using double-entry), but this is not essential. 

​The financial year of the company will display on the Companies House Register. 

For many small limited companies, it is most tax efficient to run a small salary through PAYE for directors that are also shareholders. The most tax efficient amount to run through PAYE really depends on a number of items, such as the directors other personal income, the profitability of the company, whether the company is eligible for employment allowance, and what the current national insurance thresholds and rates are. 

​If you need assistance or advice with director PAYE, please visit SM Accounting. 

The idea behind running a small salary for company directors is to save tax, as the salary is tax deductible, meaning less corporation tax to pay. 

As a very brief example, please see our director salary infographic below...

Accounts will need to be compiled for the financial year of the company. They should be compiled using double entry bookkeeping to trial balance and contain both a profit and loss statement and a balance sheet. 

The accounts will need to contain allowances and adjustments for prepayments, accruals, and depreciation. 

If you would like to subscribe to accounting software that formats and generates year end ltd company accounts for you, then I suggest Tax Filer. 

If you would like to learn how to compile limited company account, then please consider this training program. 

Once the accounts have been approved and signed by a company director, they will need filing with Companies House. 

Accounts can be filed using the company's online Companies House account or through filing software, such as Tax Filer. 

You will need the signed accounts and the company authentication code in order to file the accounts with Companies House. 

​The deadline for the accounts filing is 9 months after the company's year end. 

Along with a set of annual accounts, you will need to prepare a corporation tax return (CT600). 

The return should include the figures from the accounts and then adjustments for losses carried forward, capital allowances, loans to participators, and other adjustments. 

Once reviewed and approved, the corporation tax return can be filed with HMRC using commercial software. 

If you would like to receive direct training for corporation tax returns, please consider my accounting mentor program. 

Once reviewed and approved by the company director(s), the CT600 tax return can be filed with HMRC. 

To file the return, you will need commercial software, such as You will also need to know the company's UTR number. 

​The deadline for the corporation tax return is 9 months from the financial year end of the company. 

If is good practice to reminder clients of any deadlines and be available for accounting support and tax advice throughout the year. 

I hope this post as helped!

A limited company is owned by at least one shareholder, which is usually the business owner(s) and founder(s). Shareholders own company shares.

The company can have as many shareholders as it needs, each shareholder owning a percent of the company. Most small ltd companies have 1-2 shareholders. 

A shareholder is entitled to receive a share of the company profits (if there are any), based on their percentage of share ownership. For example, a shareholder owning 50% of the company shares will be entitled to 50% of the company profits. The withdrawing of company profits to a shareholder, usually by transferring cash from the company to the shareholder, is called a 'dividend'.

A limited company also has at least 1 company director.

​A company director doesn't have to be a shareholder and a shareholder doesn't have to be a director. 

Directors usually run the business. Shareholders own the business. For most small ltd companies, the shareholders are also the company directors. 

The main differences between the 2 business structures are...
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• Taxation. Limited companies are taxed very differently to sole trader businesses. For higher rate earners, it can be more tax efficient to trade as a limited company rather than a sole trader. For lower income individuals and businesses, trading as a sole trader can be more tax efficient. 
• Separate Entities. A limited company is a separate entity to it's owners (shareholders) for tax, liability, and legal matters. Whereas the owner of a sole trader business is the business - the owner is personally liable for all tax, liability, and legal matters. 
• Limited Liability. Due to it's separate entity status, ltd company owners are generally not personally liable for company debts, including loans, taxes, credit cards, and creditors that are in the company's name. Or at least their personal liability is limited, hence the term 'limited company'. Sole traders are fully personally liable for business debts. 
• Professionalism. Trading as a limited company can provide a more established and professional impression than a sole trader business. 

From an accounting perspective, a limited company is required to do a number of things. To help with this, below is a limited company tax and accounting checklist... 

A limited company should do regular bookkeeping and keep accurate accounting records. This should be in double-entry format but this is not essential. Accounting software such as Sage Business Cloud, Xero, or QuickBooks Online can help. 

A limited company should also have at least one business bank account in the limited company's name. Personal bank accounts should not be used for ltd companies. 

If you need to learn how to book-keep and keep accounting records, then please consider our free bookkeeping course. 

Companies House requires that every ltd company files an annual confirmation statement. This statement basically confirms the details that Companies House has on it's records and public register about the ltd company. 

To file the statement, you will need to know the company's authentication code and have an online Companies House account. The company will also need to pay a £13 filing fee. 

HMRC and Companies House require that a set of annual accounts be filed every financial year for the company's year-end. A company usually has 9 months to file this, after it's year end. 

There is nothing stopping company owners preparing and filing the accounts themselves, but it is always best to use an expert, such as a licenced accountant. To cut costs, some company owners try to compile year end accounts themselves, but this usually results in accounting discrepancies, paying higher taxes, and receiving financial penalties from HMRC and/or Companies House due to filing accounts incorrectly or making mistakes. 

Annual accounts will need to be in double entry format, include both a balance sheet and profit and loss statement, and have adjustments for corporation tax, capital allowances, depreciation, and other accounting items. 

To file accounts, you will need the company UTR from HMRC and the company authentication code from Companies House. 

If you need an accountant for your UK limited company, you can contact me at www.smaccountinguk.com

A CT600 corporation tax return will need compiling and filing with HMRC. 

Once again, this is due for a year end and has a deadline. 

Once again, it is best to use an accountant for doing this. 

If shareholders have withdrawn any dividends, then they will need to declare these on a self assessment tax return for income tax purposes.

Each shareholder will need to register for self assessment individually. You can register for self assessment here. 

As mentioned previously, taxation for a ltd company is very different to a sole trader business. 

A limited company is liable for corporation tax on it's company profits. This is calculated and filed on the companies CT100 corporation tax return. Any dividends paid to shareholders are then declared on personal self assessment tax returns. 

With a sole trader business, the profits from self employment are simply declared on a self assessment tax return only. 

To see the current UK corporation tax and income tax rates, please click here.