A number of important decisions must be made when a company is set-up; for example, who will own shares in the company and to what date will it make up its accounts? These decisions may have tax consequences and it is important that all of the available options are considered. The company must be registered with Companies House and HMRC, and it has an ongoing responsibility to file accounts, submit tax returns and pay any tax due. Penalties may be charged where the company fails to meet or is late in meeting its obligations.

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Keeping Records

The Company must keep accurate records that enable them to produce company accounts and complete a corporation tax return.

Therefore, it is important that a system is in place to record the transactions of the business. It is common for accounting software to be used. In light of HMRC’s Making Tax Digital project, it is advisable that all new businesses are encouraged to use the software, even if it is not mandatory for the business to use the software at that stage. A range of products is available and each should be considered against the person’s particular circumstances.

A limited company must have its own bank account, and for all business, income to be paid into, and for all business expenditure to be paid out of, this account. In this way, all business transactions can be easily identified and there is a reduced risk of (1) business transactions being missed; and (2) personal transactions being treated as business transactions.

In addition, the company should be encouraged to set up a tax savings account and to make regular deposits into this account to cover estimated future tax liabilities. The correct amount to put aside will be determined by the particular circumstances; for example, the rate at which tax is likely to be payable, the companies anticipated profit margin, and significant one-off costs, such as the purchase of assets. It is likely that this will need to be revised on a regular basis as the accounting information is reviewed and as the business grows.

Submitting accounts and a company tax return

The company must submit accounts and a corporation tax return to HMRC and companies house year within nine months of the company year-end date. The Directors of the company are also responsible for filing personal tax returns to declare any drawing and salaries.

Paying Corporation Tax

Corporation tax will be payable to HMRC within nine months after the company year-end date. For example, for a company with a 31st March year-end, the corporation tax will need to be calculated and paid by the 31st December.