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Start Up - Frequently Asked Questions

What is a limited company?

A limited company is a legal entity owned by its shareholders and managed by its directors. It must also have a company secretary who keeps the various records required by Company Law. There need be only one shareholder who can also be a director; thus you can both own and manage your company. However, the secretary must be another person; this may be your spouse or a friend, but we can be appointed if you prefer.

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What are the advantages of a limited company?

There can be some tax savings, but a company is usually set up for commercial reasons. Customers sometimes prefer to deal with a limited company, and in some industries contractors find that they can only obtain work if they trade through a limited company.

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How do I start a limited company?

If you need a company quickly, we can obtain a ready-made one the same day as receiving instructions. However, it is usually better to set up your own, which takes about 10 working days. We will obtain the company, write up the register of shareholders and directors, and deal with the appropriate share certificates. You may also use our office as the "Registered Office" of your company.

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What records do I need to keep?

Once you have your company, you will need to open a bank account. Probably the bank with whom you have your personal account is a good place to start. All income received and business expenses paid should go through the company bank account, and you will need to keep a record of where the money came from and how it was spent. The type of records you need depends on the size of the business. A simple book or spreadsheet may be enough, but a basic computer accounts package will also look after VAT returns. Many of our clients simply give us their bank statements and invoices on a regular basis and we keep the necessary records on their behalf. At the end of the year, you will need to have accounts prepared showing the financial results for the period, and a copy of the accounts must be sent to the Registrar of Companies and the Inland Revenue.

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What about VAT?

Most businesses need to register with the local VAT office, unless their turnover is less than £61,000 in a year. However, it is often best to register at the outset. You will need to add VAT to your customer invoices, but you will be able to reclaim VAT that has been charged to your business. Every three months you will need to pay the difference to Customs and Excise. We can help you to register and to deal with the quarterly VAT returns.

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What is the tax position?

Companies pay corporation tax on their profits. However, if your company is mainly providing your services to a client, almost all of its income will be paid to you as salary, and the company itself will probably pay little or no tax. The salary that you draw will be subject to income tax and national insurance deductions under PAYE just as it would be if you were working for any other employer. You will need to register with the Inland Revenue, calculate the PAYE and pay it to the Collector of Taxes each month. We also provide a payroll service as many clients prefer us to deal with the calculations on their behalf.

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What is IR35?

"IR35" refers to an Inland Revenue press release that announced new legislation for individuals who are effectively in employment but who supply their services through a limited company. The new rules started in April 2000, and although there has been some controversy, these notes assume that your company is within the scope of the new law.

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What do I do next?

You should talk to your accountant as soon as you know that you have a contract where your client needs to deal with your limited company. If you do not already have your own company you will need to set one up quickly and arrange banking facilities so that you can be paid!

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