Short answer: it shouldn’t be.
Traditionally, being a sole trader has been thought of as the easiest option for running a small one-man band. Your tax responsibilities are easy to account for, if not necessarily as efficient as they could be. But maybe you should consider becoming a limited company director? Many of our clients have enjoyed the benefits of switching from a sole trader set-up to a limited company business structure.
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 accounts 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:
Limited company (Ltd)
Public limited company (PLC)
Freelancers, contractors or small businesses will normally opt for a 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).
So, assuming that you want to set up a limited company, it’s time to start the incorporation process. It sounds complicated but actually is pretty easy, one of our clients set up his limited company in just two-and-a-half hours. All limited company setups must be done through Companies House, but at Crunch, we handle the whole incorporation process on behalf of our clients and ensure all the relevant documents are correctly prepared. You just have to give us a few bits of information.
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 that sets up the limited company.)
Crunch prepares and sends these documents for you.
Maintaining your limited company accounts
There are many horror stories of freelancers or contractors who’ve 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. One of the important jobs of a good accountancy service is to ensure that you spend as little time on your accounting as possible. At Crunch, our service combines online accounting software 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 accounting software which provides templates, automatically calculates VAT (should you be VAT registered) and enables simple filing of expenses. These are the same processes you will have been used to as a sole trader, but now you need to make sure that you keep on top of these to understand how your business is performing and how much you can take in dividends.
Meeting and filing tax returns
We’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 sophisticated 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 is 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.
Get an accountant!
Well, we would say this, wouldn’t we! Getting an accountant is a great way to keep on top of your finances. They’ll remind you of important tax dates and payments due, show you ways of keeping your accounts in excellent shape, and advise you on allowable expenses and how to report them so you’re as tax efficient as possible.
They can help you with things like estimating how much tax and NI you’ll need to pay every six months or quarterly for VAT. They’ll also help to ensure you’re not forgetting any payment on account, which catches many people out every year.
Find out more about our accounting for limited companies service.