Short answer: it shouldn’t be.
Traditionally, being a sole trader has been the easiest option for running a small one-man band. Your tax responsibilities are easy to account for, if not particularly cost effective. Many customers have told us about the benefits of switching from a sole trader set-up to a limited company formation.
It seems wrong for any freelancer, contractor or small business owner to be put off making significant tax savings because of the perceived hassle involved. This article takes you from setting up a limited company, to maintaining your limited company account and doing your tax returns.
Setting up your limited company
Firstly you have to choose which type of limited company you wish to form. The two choices are:
Private limited company
Public limited company
Freelancers, contractors or small businesses will normally opt for private limited company as you need a share capital of £50,000 to set-up a PLC (plus two directors, two shareholders and a company secretary).
Knowing that you want to set-up an LTD, it’s time to start the incorporation process. It sounds complicated, but actually is pretty easy – one of our customers set up his limited company in just two-and-a-half hours. All limited company set-ups must be done through Companies House, but at Crunch we handle the whole incorporation process on behalf of our customers and ensure all the relevant documents are correctly prepared. You just have to just pass on the appropriate details.
The documents required by Companies House, include:
– Memorandum of Association – limited company name, location, business type.
– Articles of Association – outlines director’s powers, shareholder rights etc. (This is normally provided by the Company Act that sets up the Limited Company.)
Crunch prepares and sends these documents for you.
Maintaining your limited company accounts
Many is the story of a freelancer or contractor who had a nightmare with running a limited company, either because of an accountant who left them to fend for themselves, or due to a hackneyed attempt at DIY accounting. A job of a good accountancy service is to ensure that you spend as little time on your accounting as possible. The service which Crunch provides combines online accounting technology with expert accountancy advice, so that you have everything you need in one place.
The bread and butter of running a limited company is drawing up and sending invoices, plus keeping a record of expenses. Both of these can easily be done if you use online software which provides templates, automatically calculates VAT (should you be VAT registered) and enables simple filing of expenses. These are the same processes a sole trader would have to keep on top of.
Meeting and filing tax returns
I’ve previously written an article entitled: “Limited company accounts: dates, deadlines and procedures” which gives a good outline of your tax paying duties. What’s important to keep in mind is how crucial it is to have a good accountant and automative online accounting software (Crunch provides both) with which to take away the strain.
For example, with Annual Accounts you barely have to do a thing – the accountants at our end will perform all the necessary actions, leaving you to okay it. It’s annual accounts at the click of a button. VAT returns are also very easy because whenever you draw up an invoice, the VAT’s automatically added and so when it comes to actual VAT return, the Crunch system will do the calculations for you.
Dealing with your tax paying and filing duties can become a muddle when business owners keep all their information in separate places. However, when it’s all organised in one secure online system, the information is readily available and it becomes significantly easier to file returns and account for taxes. And if there are any problems, our team of expert accountants are on hand to help.
The key to getting it right
As a freelancer, contractor or small business owner, it’s important to have the systems in place to take advantage of the tax-savings afforded by a limited company without having to spend ages on irritating admin duties. You shouldn’t have to pay astronomical accountancy fees either.
You’ll know you’ve got the right accountancy solution when your service provider is doing most of the work for you, and leaving you with greater take home pay. Being a limited company director should be blissfully easy, and Crunch ensures that it is.