A limited company is an organisation that you can set up to run your business. It is responsible in its own right for everything it does and its finances are separate to your personal finances that means that the company is liable for any debts.
Compare to sole traders, they are personally responsible for their business debts.
Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.
Every limited company has ‘members’, the people or organisations who own shares in the company.
Directors are responsible for running the company. Directors often own shares, but they don’t have to.
You must register the company with Companies House and let HM Revenue and Customs (HMRC) know when the company starts business activities.
Every financial year, the company must:
• Put together statutory accounts
• Send Companies House an annual return
• Send HMRC a Company Tax Return
• The company must register for VAT if you expect its takings to be more than £81,000 a year
If you start working for yourself, you’re classed as a self-employed sole trader. This is true even if you have not yet told HM Revenue and Customs (HMRC).
As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you have paid tax on them.
You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.
You’re personally responsible for any losses your business makes.
• send a Self Assessment tax return every year
• pay Income Tax on the profits your business makes
• pay National Insurance
A value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service.
• Must charge VAT on their goods or services
• May reclaim any VAT the have paid on business-related goods or services
If you are a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you have charged and the amount of VAT you have paid. VAT return is usually due every 3 months.
The Pay As You Earn (PAYE) system is the way by which an employer makes certain deductions from employees. These include deductions for the employees liability to income tax and national insurance contributions (NICs), as well as other deductions such as student loan repayments.
PAYE is a system for collecting income tax and NIC from employees on a regular basis rather than relying on every individual having to complete a tax return in order to inform HMRC of their liability.