corporate

Limited Company: Operation and Liquidation

What is a Limited Company?

A limited company is a company which limits the liability of its shareholders. This leads to maintaining the accounts of the shareholders separated from those of the company.

The director of a limited company has several duties to fulfill both before incorporation and while the company is running. Prior to incorporation, it is necessary to have a registered address, a list of shareholders with significant control, the articles of association, and the standard industry classification code (SIC).

While the company is still active, it is required to keep a clear record of its finances, as well as pay value added tax (VAT) and corporate tax. To incorporate the enterprise, it is necessary to apply online or by mail at the Companies House, the UK governmental body responsible for incorporating and dissolving companies. If applying online, the application can be processed within 24 hours, while if by mail, the process can take between eight and ten days.

 

Corporate Tax

All limited companies must pay a corporate tax. That rate is 19% in 2017. After being incorporated in Companies House, the company will receive a 10-digit Unique Tax Payer Reference which is to be used when registering for Corporate Tax. This must be done within three months that a company has been doing business in the UK.

 

Accounting period for Corporate Tax

The accounting period begins at the moment the company starts doing business in the UK and based on this, it is HMRC that provides the deadline to pay Corporate Tax. It can not be longer than 12 months and is normally the same as the financial year.

If the Corporate Tax is paid prior to the due date, HMRC will pay interest to the company. However, if the payment is late, then HMRC will charge interest to the company.

The process for paying the Corporate Tax is the following:

  1. File the first annual accounts with the Companies House. The first year, you automatically get different reporting dates for annual accounts and Company Tax Return.
  2. For the following annual accounts, you must file annual accounts within nine months of the end of the company’s financial year.
  3. File the Tax Return. Please note that this is different from the annual accounts filed with the Companies House. An accounting agency can assist with this type of reporting. The deadline to submit the Tax Return is twelve months after the accounting period has ended.
  4. Pay the Corporate Tax Bill.

 

HMRC and VAT

HMRC stands for Her Majesty’s Revenues and Customs and it is the governmental body in charge of collecting tax and customs. The money paid to HMRC is later distributed among the UK’s public services.

It is responsible for all types of tax including but not limited to corporate tax, income tax, capital gains tax, and value-added tax. The VAT is the tax added to goods or services sold, commissions, and some loans. Only companies with a VAT number can charge VAT and they must do so on the goods and services that they provide.

The VAT is later reported to HMRC, known as the VAT return, and it reports the VAT that has been charged and the VAT that has been paid. This is done every quarter or every month. A business may reclaim the VAT that is has paid in the case a business has paid more VAT than it has charged.

Below an annual turnover of £85,000, it is not mandatory to register for VAT. However, the company may choose to voluntarily register in order to benefit from the recovery of VAT on its purchases.

 

Confirmation Statement to Companies House

Each year, Companies House requests a confirmation statement to be sent. This is different to the accounting records sent to HMRC because it just confirms that the information registered in Companies House is correct. Once the company is registered, Companies House will contact you on an annually basis to send in the confirmation statement.

Prior to sending the confirmation statement, check the information about your company online to make sure you have included any changes in your company. If there have been any changes in the company, they must be reported before you submit the confirmation statement.

These changes can be: a change in directors, secretaries, shareholders, and the amount of capital. Once the information online has been checked, then you can file the confirmation statement.

Finally, there are two ways to send in the confirmation statement: by mail and online. Applying online costs £13 and by mail costs £40.

The confirmation statement must be sent in within 28 days of receiving the request from Companies House. If it is not received, Companies House might assume it is no longer in business and will proceed to eliminate it.

 

Liquidating a company

Liquidating a company is also referred to as “winding up” and it will cease to exist once it is removed from the Companies House register.

There are three types of liquidation:

  • Creditors’ voluntary liquidation: Occurs when the company cannot pay off its debts and the creditors are involved in its liquidation.
  • Compulsory liquidation: Occurs when the company cannot pay off its debt and requests the court to liquidate it.
  • Members’ voluntary liquidation: The company can pay off its debts yet the members still want to liquidate it.

A shareholders meeting must be held in order to agree to go through the liquidation process and 75% (in terms of the value of shares) must agree.

Once the decision to liquidate the company is made, three steps will ensue:

  1. Choose a liquidator.
  2. Communicate the decision to Companies House within 15 days
  3. Communicate the decision in the Gazette within 14 days

If the company is solvent, it is also possible to apply and have the company struck off the Register of Companies.

The conditions are the following:

  • The company has not traded in the last 3 months
  • It has not changed names in the last 3 months
  • It is not threatened with liquidation
  • It has no agreements with creditors, e.g. a Company Voluntary Arrangement

The company must send final statutory accounts and a tax return to HMRC.

Finally, it is also possible to let the company become dormant for tax purpose if the company is no longer trading.

In that case, the company will still be registered at Companies House and must still send annual accounts and confirmation statements to the Companies House.