Your Responsibilities As a Limited Company Director
It’s finally happened. You’ve opened your own limited company and became a director. How exciting! What does it mean in practice? What does it mean to be a director of a limited company and what responsibilities you have as a limited company director?
First things first.
You and Your Limited Company
A limited company is an incorporated type of a business structure that has a separate legal entity to its shareholders and directors. As opposed to a self-employment or a partnership where you and your business are the same, incorporation means that a business gets a legal identity of its own. In practice it means the company earns its own income, has to prepare and pay its own taxes, keeps its own records and settles its own debts. A limited company means a limited liability, so you are generally not liable for debts of a company with your private money.
As a limited company isn’t a physical person, it can’t actually do all these things like filing and paying taxes, paying bills and so on by itself. It needs to be managed by someone and this someone is a director of a limited company. Being a limited company director comes with legal responsibilities and once you become a director, you can’t decide that someone else will take a full care of your responsibilities. Yes, you can have people helping you with things, like day-to-day bookkeeping, reporting and other accounting tasks, but at the end of the day and in the eyes of the law you are the one who is responsible and it will be your signature on the company’s accounts.
Responsibilities of a Limited Company Director
Keeping proper accounting records
Every business is required to keep business records confirming each transaction happening within the business regardless of whether it’s a self-employment, a partnership or a limited company. In a limited company it’s the director’s’ responsibility to make sure all business records are kept and that the company complies with all the rules about record keeping. For example, if your limited company is VAT registered, you have to make sure that you not only keep business records, but also that these records can back up your VAT returns. Since the introduction of Making Tax Digital, you as a director have to also make sure the company keeps business records in a correct way.
Preparing company’s financial statements
Every year, a limited company has to prepare financial statements and these can include:
➡️ Statement of profit and loss and other comprehensive income
➡️ Statement of financial position
➡️ Statement of changes in equity
➡️ Statement of cashflows
➡️ Notes to the financial statements
You can hire an accountant to help you prepare these financial statements and if you’re doing them for the first time you probably should, as the rules and regulations can be quite complex, but you as a director of a limited company still have to approve them. If you are new to the world of business and it’s your first limited company, ask your accountant to go through these things with you and explain them. You need to have at least a general understanding of how things work and what they mean. These will not only help you fulfil your responsibilities as a director of a limited company but they will also be helpful to understand how your company is performing.
Some limited companies, if they don’t qualify as a small company as per Companies Act 2006, have to also be audited, so make sure you’re aware of this and your company has its financial statements audited if required.
Presenting financial statements to shareholders
Shareholders of a limited company own a company and directors manage this company on their behalf. Once you prepare the company’s financial statements, your responsibility as a limited company director is to present them to the shareholders in general meetings. This is where having an accountant is very helpful. Shareholders will be asking you questions about the company, its performance and its financial statements, so you need to be prepared and you need to understand the company’s financial statements. Your accountant can answer your questions and explain accounting concepts, so you are prepared and confident during the meetings. Remember, your accountant can’t go and present the statements to the shareholders on your behalf. It is a limited company director’s responsibility.
Filing accounts at Companies House
A limited company is required to file the accounts once a year at Companies House and it has to be done within 9 months of the accounting period end. These accounts are later publicly available and anyone can check them. Don’t worry; your accounts don’t reveal your methods and exact ways of doing business, so the competition won’t steal anything from you. Depending on the size of your company, the limited company’s accounts can be prepared in accordance with different financial reporting standards, so they can vary in terms of what exactly they show and how. As a limited company director make sure you know what the dates for filing are and that these deadlines are met.
As part of filing at Companies House, you will also be required to submit a confirmation statement once a year that will confirm the information Companies House holds about the company is correct and up-to-date.
Filing and paying taxes to HMRC
Once your company starts trading it will be required to prepare and file a company tax return once a year and pay a corporation tax on its profits. If your company is registered for VAT, it will also have to submit VAT returns and pay VAT to HMRC. It’s a directors’ responsibility to make sure these things are done properly and in time, so the company doesn’t receive any fines. It’s also you who is responsible for monitoring whether your company must register for VAT or not if it’s currently not registered. As we mentioned earlier, Making Tax Digital requires businesses (at the moment those that are VAT registered above the VAT registration threshold) to keep their business records in a certain way. Helpful with this can be Xero accounting software that will simplify some processes for you and let you even submit the company’s tax returns.
Looking for professional accounting or bookkeeping services for your limited company? Contact our friendly accountants and bookkeepers from Oxford.
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