Limited Company FAQs | PayStream

The main benefit of using a limited company is to keep your business separate from you personally. Liability therefore generally stays in your business, as opposed to you personally.

The broad and general advice is to consider whether this is suitable for you, the contractor, freelancer or any other entrepreneur. There are many things to consider and you shouldn’t take the decision to set up this legal structure lightly. One point that may be relevant for you to consider is IR35. If you fall inside the scope of IR35 on your current contract, you may find more easy ways to work, such as through an Umbrella company or agency PAYE.  

There are also other considerations such as length of contract - if you only intend to contract for a short period, do you want the ongoing responsibilities of running a limited company?

Our knowledgeable accounts team will discuss your circumstances in detail and where required, provide IR35 advice on your contract and working practices a starting point..

As you become the director of a limited company you do have certain responsibilities such as deciding how you're going to be paid, whether to register your company for VAT and preparing and filing your statutory documents. If all this seems a little daunting, don't panic - at PayStream you'll have a dedicated accounts team who'll give you tailored advice to keep you on track. We can also prepare draft accounts for you to review and sign and submit these to Companies House.

This will depend upon who is engaged as an accountant and what you ask them to do. A good accountant will advise and help you meet your company, tax and legal obligations. He/she can assist the company in preparing its financial statements or accounts and help with the filing of VAT, PAYE and Corporation Tax Returns.

Call us 0161 929 6000 (option 1) for an initial chat about how we can help. If and when you make a decision to set up a, limited company, we can help your new business get off its feet.

The most common form of business structure, the limited company is characterised by limited liability for shareholders (i.e. a shareholder’s liability is usually limited to the amount of their investment in the company). It is a separate entity for income tax and legal purposes from its shareholder(s) and director(s). Click here for more information.

1. To manage the company’s affairs in accordance with the Articles of Association and the law.

2. To maintain accurate company accounting records.

3. To deliver statutory documents to the Registrar of Companies in accordance with set deadlines. In particular this includes annual accounts and returns, changes in directors or company secretaries or their details and changes in registered office or accounting year end. Failure to do so is a criminal offence and can result in a fine of up to £5000 for each failure. In addition, there are automatic late filing penalties ranging from £100 to £5000 for each late return.

4. To ensure that all workers comply with Health & Safety legislation and act reasonably whilst working on client premises.

5. To ensure that amounts of tax (PAYE/NIC, VAT, CT) are paid over to HMRC in accordance with the statutory deadlines.

Up until April 2008 every company needed to have two registered officers, the director and the company secretary. From that date, you have the option whether or not to appoint a company secretary.

You can choose where to have the registered address for the company but if you require, PayStream can provide this optional service. Click here for more information on how to set up a limited company.

With your own company bank account you will need to separate your company’s money from your own and ensure that you set aside sufficient money to pay the company’s tax liability.

Business expenses such as stationary costs, travel expenses and subsistence are reimbursed to you by your company from the company bank account. To be tax deductible for the company, they must be incurred wholly, exclusively and necessarily in the performance of the duties of employment. If you’re already using our accountancy services please refer to our expenses policy which is on the download section of the Insight Software. If not and you’d like some more information, call us on 0161 929 6000 (option 1). 

To claim mileage you can log details of your daily business travel via insight, our accounting software. The best way is to record the postcodes of where you travelled from and to. Petrol receipts should be retained by yourself, if you wish to reclaim VAT. If you are staying away from home on business for the night, you may claim a Personal Incidental Expenses (PIEs) allowance of £5 per night for which receipts are not required. All other expenses should be supported by an original receipt. To allow us to work out your company and Personal Tax Liabilities, you can submit your expenses via our accounting software and keep the original receipts.

To enable us to effectively calculate your accounts, please clearly state any expenses that need to be included on the invoice. Your agency or client may require the original receipts along with a claim form. You should include the expenses in your online claim.

Insight, our accounting software will update daily to advise you of your current profit and and taxes figure. PayStream can also produce and send you regular managements accounts which detail the profit and loss account for the company as well as the balance sheet showing your tax liabilities. Ultimately it is up to you how much you take from the business as salary and when and how much profits you pay yourself as the shareholder from the company. However if you’re not already using our accountancy services and you’d like some more information, call us on 0161 929 6000 (option 1). 

PayStream will advise you when payments are due for taxes; we will detail how much is due, when and how to make the payment. We will always email you the details so you can make the payment. However if you’re not already using our accountancy services and you’d like some more information, call us on 0161 929 6000 (option 1). 

If the company makes profits liable to Corporation Tax for the first year (accounting period) in which it trades, those profits will be subject to Corporation Tax, the rate for which starts at 19% for small companies where profits are below £50,000 and rises to 25% for companies with profits over £250,000. The tax will be payable 9 months and a day after the accounting period end.

For example, company profits for first year ended 31 March 2023 - £20,000 x 19% = tax £3,800 payable on or before 1 January 2024.

If you have received dividends from your business you will be required to submit a Self Assessment tax return. You will require any P60's, P11D's and a dividend summary to enable you to submit the form by the statutory deadline, if you require PayStream can provide the service for you. If interested please contact your dedicated accounts team. If you’re not already using our accountancy services and you’d like some more information, call us on 0161 929 6000 (option 1) or you can complete a form here.

Depending on the level of income you receive you may have some tax to pay on dividends. All individuals are entitled to receive £1,000 of dividends tax free, dividends within the basic rate tax band are taxed at 8.75% and within the higher rate tax band are taxed at 33.75%. Within insight, our accounting software, you will have access to a personal tax calculator which gives you an estimate of your personal tax liability. However if you’re not already using our accountancy services and you’d like some more information, call us on 0161 929 6000 (option 1). 

VAT registration is compulsory if your company turnover exceeds £85,000 in a rolling 12 month period however you can register prior to exceeding this threshold on a voluntary basis if you want to. 

Once registered for VAT you would be required to charge an additional 20% in VAT to your agency/client in addition to your daily rate. This amount is then payable to HMRC on a quarterly basis after deducting any VAT spent on expenses. This is known as accounting for VAT on the standard rate scheme. Click here for more information about purchasing a vehicle through your limited company.

The Flat Rate scheme is an alternative method to account for VAT where a company does not reclaim VAT on expenses but instead pays VAT to HMRC at a lower flat rate percentage, accounting for VAT in this way usually means a lesser admin burden for the company. 

The rate at which companies pay VAT under the flat rate scheme is less than 20% and depends on the type of business the company carries out. 

If your business falls into the “Limited Cost Business” category, the flat rate percentage to pay VAT at is 16.5%, a 1% discount is received on this in the first year.