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Limited company FAQs

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We get a lot of queries about limited companies. Here are some of the answers to the most frequently asked questions.

1. Closing a limited company

  • What is required to close a limited company?
  • How much does it cost to close a limited company?
  • How long does it take to close a limited company?
  • What is formal liquidation?

2. Corporation Tax

  • What is Corporation Tax?
  • What is a Corporation Tax return?

3. All about expenses

  • What expenses can I claim through the limited company?
  • What is the difference between claimable and reimbursable expenses?
  • Do I need to keep receipts?

4. PAYE

  • What is a P45?
  • What is a P60?
  • What is a P11d?

5. Retained earnings

  • What are retained earnings?
  • How do I withdraw my retained earnings?

6. Due dates for tax returns and accounts

  • Corporation tax return
  • Financial accounts/statements
  • P11d
  • VAT returns
  • Personal Tax return (Self Assessment)

7. VAT

  • How do I charge VAT?
  • What is flat-rate VAT?
 

1. Closing a limited company

1.1 What is required to close a limited company?

This is the general process necessary for closing a limited company:

  • You file accounts for the final period of trade to HM Revenue & Customs (HMRC) and Companies House.
  • You pay any final tax liabilities.
  • You pay out any retained earnings to stakeholders and close the PAYE, Corporation Tax and VAT schemes (often filing a final VAT return in the process).
  • The company bank account(s) need to be closed.
  • You file a DS01 to Companies House to strike the company off the register.

1.2 How much does it cost to close a limited company?

This depends on a few things, including what needs to be done in terms of the period that your final set of accounts covers and whether your company is VAT-registered, among others. Fees start at £150 + VAT.

1.3 How long does it take to close a limited company?

This depends on what needs to be done, but it can take as little as one week if your accountant has everything he/she needs. This excludes the strike-off at Companies House which can take about 3-6 months.

1.4 What is formal liquidation?

If your company has more than £25,000 retained, you may need to go through a formal liquidation process when you want to close it.

This formal procedure does cost money, but since every person’s circumstances are different, you need to speak to your accountant to find out more about your specific case.

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2. Corporation Tax

2.1 What is Corporation Tax?

This is tax that gets charged on a company’s profits.

2.2 What is a Corporation Tax return?

This is a return that explains the calculation of your Corporation Tax and is filed alongside your company's accounts to HMRC.

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3. All about expenses

3.1 What expenses can I claim through the limited company?

You can claim any expense that is wholly and exclusively related to the activities of the business. This might include travel to and from your client, home office expenses, or mobile phones.

3.2 What is the difference between claimable and reimbursable expenses?

  • Claimable expenses are expenses usually incurred by your company during normal operations.
  • Reimbursable expenses are normally incurred in unusual circumstances, for example: If your client needs you to travel abroad and agrees to reimburse you for that extra expense.

3.3 Do I need to keep receipts?

You need to keep all company records, including receipts, for seven years - in case HMRC ever asks to see them.

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4. PAYE

4.1 What is a P45?

A P45 is a form that your employer issues you with. It shows what you've been paid in salary for that year so far as well as the amount in taxes that has been deducted.

Usually a P45 consists of three parts:

  • One part goes to HMRC
  • Your new employer gets one
  • You keep one

4.2 What is a P60?

A P60 is a form issued by your employer at the end of the tax year - usually around May. It shows your employer details, what you have been paid in salary for the preceding tax year (6 April – 5 April) and the amount in taxes that has been deducted.

4.3 What is a P11d?

A P11d is a declaration of benefits and expenses that you have received from your employer. For instance, if you received private medical cover as part of your pay package, this would be on a P11d. You sometimes pay National Insurance on some benefits.

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5. Retained earnings

5.1 What are retained earnings?

Sometimes you won’t need to draw out all the earnings available to you from your company. Whatever is left behind (after expenses, taxes and dividends) is called retained earnings. Retained earnings may be drawn out later by the director/s or perhaps invested by the company.

5.2 How do I withdraw my retained earnings?

You can usually do this in the form of salary, dividends or capital gains (on closure of the company). You need to speak to an accountant to find out how to do this in the most tax-efficient way, as it will depend on your circumstances and future plans.

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6. Due dates for tax returns and accounts

6.1 Corporation Tax return

This needs to be filed with HMRC within twelve months of your company year-end however, the payment of any taxes is due by nine months after the company year-end.

6.2 Financial accounts/statements

These need to be filed within nine months of your company year-end with both HMRC and Companies House.

6.3 P11d

Refers to benefits paid to any employees by the employer, such as a company car, must be reported to HMRC. This is due by 6 July to cover the previous tax year period (6 April – 5 April).

6.4 VAT returns

You need to submit these for quarters (three months). They are due before the end of the month following the end of a quarter.

6.5 Personal Tax return (Self Assessment)

This is due by 31 Jan to cover the previous tax year period (6 April – 5 April).

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7. VAT

7.1 How do I charge VAT?

If you are VAT-registered (i.e. you have a VAT Certificate), you simply add 20% to your invoice. You need to display this amount as a separate amount on an invoice and your client needs to see your VAT number on the invoice.

7.2 What is flat-rate VAT?

HMRC introduced this scheme a number of years ago to simplify and speed up the filing of VAT returns. You get to keep a small portion of the VAT you have invoiced for, although you cannot deduct VAT that you have paid out on your return, except for capital expenditure (over £2,000 at a time).

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If we haven’t answered your specific question on this page, please ask our consultants who are more than willing to help.

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