UK Limited Companies I What an Accountant Needs to Know...

Limited companies can provide your clients with a trading vehicle that can them save tax and reduce their personal liability and risk. But accounting for a ltd company and filing ltd company accounts is often a much more extensive task than accounting and filing for a sole trader business or partnership. 

This accountants guide to limited companies will provide a list of the main duties you will need to oversee or perform for a ltd company. In a way, it is a checklist for ltd company accounts...

Limited Companies - The basics

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. 

Limited Companies - What are the advantages?

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. 

Getting Started

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. 

Keeping Accounts

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. 

Payroll & PAYE

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...

Preparing Year End Accounts

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. 

Filing Ltd COmpany Accounts with Companies House

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. 

Preparing the Company Tax Return

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. 

Filing the Company Tax Return with HMRC

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. 

Reminders of deadlines & ongoing support

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!