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As a director of a limited company, you must:
- follow the company’s rules, shown in its articles of association
- keep company records and report changes
- file your accounts and your Company Tax Return
- tell other shareholders if you might personally benefit from a transaction the company makes
- pay Corporation Tax
You can engage other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance.
Taking money out of a limited company
How you take money out of the company depends on what it’s for and how much you take out.
Salary, expenses and benefits
If you want the company to pay you or anyone else a salary, expenses or benefits, you must register the company as an employer.
The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HM Revenue and Customs (HMRC), along with employers’ National Insurance contributions.
If you or one of your employees make personal use of something that belongs to the business, you must report it as a benefit and pay any tax due.
A dividend is a payment a company can make to shareholders if it has made a profit.
You cannot count dividends as business costs when you work out your Corporation Tax.
Your company must not pay out more in dividends than its available profits from current and previous financial years.
You must usually pay dividends to all shareholders.
To pay a dividend, you must:
- hold a directors’ meeting to ‘declare’ the dividend
- keep minutes of the meeting, even if you’re the only director
For each dividend payment the company makes, you must write up a dividend voucher showing the:
- company name
- names of the shareholders being paid a dividend
- amount of the dividend
You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
Tax on dividends
Your company does not need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £2,000.
If you take more money out of a company than you’ve put in – and it’s not salary or dividend – it’s called a ‘directors’ loan’.
If your company makes directors’ loans, you must keep records of them. There are also some detailed tax rules about how directors’ loans are handled.
Company and accounting records
You must keep:
- records about the company itself
- financial and accounting records
You can hire a professional (for example, an accountant) to help with your tax.
HM Revenue and Customs (HMRC) may check your records to make sure you’re paying the right amount of tax.
Records about the company
You must keep details of:
- directors, shareholders and company secretaries
- the results of any shareholder votes and resolutions
- promises for the company to repay loans at a specific date in the future (‘debentures’) and who they must be paid back to
- promises the company makes for payments if something goes wrong and it’s the company’s fault (‘indemnities’)
- transactions when someone buys shares in the company
- loans or mortgages secured against the company’s assets
You must tell Companies House if you keep the records somewhere other than the company’s registered office address.
Register of ‘people with significant control’
You must also keep a register of ‘people with significant control’ (PSC). Your PSC register must include details of anyone who:
- has more than 25% shares or voting rights in your company
- can appoint or remove a majority of directors
- can influence or control your company or trust
You still need to keep a record if there are no people with significant control.
You must keep accounting records that include:
- all money received and spent by the company
- details of assets owned by the company
- debts the company owes or is owed
- stock the company owns at the end of the financial year
- the stocktakings you used to work out the stock figure
- all goods bought and sold
- who you bought and sold them to and from (unless you run a retail business)
You must also keep any other financial records, information and calculations you need to prepare and file your annual accounts and Company Tax Return. This includes records of:
- all money spent by the company, for example receipts, petty cash books, orders and delivery notes
- all money received by the company, for example invoices, contracts, sales books and till rolls
- any other relevant documents, for example bank statements and correspondence
You can be fined £3,000 by HMRC or disqualified as a company director if you do not keep accounting records.
How long to keep records
You must keep records for 6 years from the end of the last company financial year they relate to, or longer if:
- they show a transaction that covers more than one of the company’s accounting periods
- the company has bought something that it expects to last more than 6 years, like equipment or machinery
- you sent your Company Tax Return late
- HMRC has started a compliance check into your Company Tax Return
If your records are lost, stolen or destroyed
If you cannot replace your records after they were lost, stolen or destroyed you must:
- do your best to recreate them
- tell your Corporation Tax office straight away
- include this information in your Company Tax Return
For further information and guidance, please check Running a limited company
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