Once you have decided that your company is to be a limited company you will become a Director of that company. But what are your responsibilities? As a Director you are legally responsible for the following:
- Follow the rules set out in the company's Articles of Association. These rules are created when you set up the company. They may be standard and be provided when you set up your company online or you may have created your own or adapted the standard ones.
- Keep records about the company including the names of the directors, shareholders and company secretary, together with a register of any persons with significant control (more than a 25% share or voting rights in the company)
- Keep financial records. As well as trading income and expenses this will include loans, debts, assets and stock. Documents to support the accounting transactions must be maintained. This will include invoices, receipts, bank statements, till rolls and relevant calculations.
- Submit annual accounts and the company tax return, as well as the annual Confirmation Statement required by Companies House.
- Retain all the company's accounting records for the 6 years prior to the current year or longer under certain circumstances.
- Report changes such as change of directors or shareholders, change of registered office address or contact details control. Changes must be reported to Companies House within 14 days.
- Prepare and retain minutes of meetings, including those where a dividend is declared and vouchers setting out detail of dividends paid
Directors and shareholders may take a share of the profit. Some or all of the profit can be paid as a dividend with tax payable by the recipient at the relevant rate on the total dividends for the year. Dividends are usually paid to all directors and all shareholders but may be in different proportions depending on the level of their shareholding.
Dividends can only be taken if the company has made a profit and after the company tax due is deducted from the profit. A director cannot take dividends if the company is making a loss and doesn't have any retained profits from previous years.
Directors should ideally take a salary from the company, even if it is small, to ensure they have sufficient National Insurance Contributions (NICs) to enable them to be in receipt of a State Pension. Directors will often taken a salary which ensures they are credited with NICs and have a dividend to make up their earnings to the level they want or the company can afford.
Directors of new limited companies may not be making much of a profit initially as their income is often being invested back into the company. Therefore they may not take a salary at all for a time or take a larger salary until the company makes enough profit to enable them to take dividends.
The company must register as an employer if a salary is being taken or if the director is receiving any expenses or benefits.
A director's salary is a cost to the business, along with any employer NICs. Dividends are not a cost of the business because they are taken out of profits. Salary will reduce profit, dividends will not.
If you take more money out of the company than you have put in i.e. there is not sufficient profit after tax to cover the amount you have drawn out of the company, this is called a directors loan. There are tax implications if your directors loan exceeds a certain amount.
- You must display a sign at your premises (but not at your home) showing your company name
- You must include your company name on all company documents, publicity and letters
- On the company's website, letters and order forms you must show the company's registered number, its registered address, where it is registered and that it is a Limited (Ltd) company
It may seem onerous to be a Director of a limited company but, as long as you understand and carry out your responsibilities, it is just part of a running a business. Being a limited company gives you more protection than being a sole trader as the company is legally separate from those who are running it.
Help is available for the majority of the responsibilities you have - although you, as the Director, are still legally responsible so it is important you know that the professional/s you choose to help you are doing the job you expect of them and meeting the necessary deadlines.
- Accountants can help you with the statutory aspects of filing your accounts on time and completing the Confirmation Statement. Solicitors will also offer Company Secretarial support.
- A bookkeeper can keep your day to day accounting records - ensuring that everything that is needed to support your accounting transactions is available
- A payroll professional will set you up as an employer and maintain your payroll records
There could be significant fines if you fail in your responsibilities. HMRC could fine you £3,000 for failing to keep accounting records or disqualify you as a company director. You could be fined up to £5,000 and your company struck off for not submitting your annual Confirmation Statement. It can be easily reviewed, amended and submitted online via Companies House for just £13 each year.
If you need support with maintaining your accounts records or managing payroll for your employees, get in touch to see how we can help you. Its much better to get support than risk losing your business.