Limited Company FAQs

Limited Company Services

Yes, once you have decided that you wish to set up a limited company, Champion will be pleased to undertake all incorporation activities.

Prior to the incorporation, you will be asked to complete a Champion Limited Company joining form.

Champion charge £100.00 + VAT for all incorporation work.

This is your first business decision and it can be achieved with or without an input from Champion.

Please select a name that is personal to you and, if possible, one that describes the services that your new company will carry out.

It is conceivable that your chosen name will already be in use by another business. If this is the case, then you will need to choose an alternative. You can check availability of company names via Companies House Website. Alternatively, Champion will be happy to check any/all proposed names on your behalf.

Champion will need to obtain a mixture of personal and business information from you before we can incorporate your new limited company.

When you have chosen an appropriate company name, please complete and return the Champion Limited Company joining form by email to newbusiness@championcontractors.co.uk.

Champion will call you at a convenient time to confirm receipt of the joining form and will then request payment for the incorporation service.

In due course, Champion will issue you with a comprehensive welcome pack and will arrange for one of our advisors to call you and navigate you through the documents, some of which are needed by HMRC.

Yes, it is a legal requirement that all UK companies must provide a registered office address.

This is the official address for all correspondence issued by Companies House and HMRC. The address is publicly available and has to legally be displayed on company correspondence and websites.

The Champion (Manchester) address can be used as a registered office address by all of our customers and is free of charge for those who use our Standard Plus, Premium & Premium Plus services.

Your new Limited Company will be incorporated by Companies House who usually take no longer than 24 hours to issue the Certificate of Incorporation and supporting material.

If Champion incorporate your company, we will forward a copy of the Certificate of Incorporation to your recruitment agency and ask them to prepare/issue a Contract for Service.

Yes, you must open a business bank account. This not only allows you to keep your own personal money separate from your business but is required to satisfy HMRC & Companies House as it ensures accountability and transparency in your business dealings.

Champion have established relationships with a number of banks. Your Champion adviser will provide you with further details about how we can assist you to set up a business account.

Your new Limited Company must be incorporated before you can arrange for a relevant business bank account to be set up.

Account set up can sometimes be achieved within 48 hours of company incorporation.

You must confirm your bank account details to Champion and your recruitment agency as soon as you receive them.

Once the business bank account has been set up, you are then ready to begin using your new Limited Company.

There is a current turnover threshold of £90,000 where businesses must register for VAT.

Businesses can however elect to register for VAT if anticipated turnover is less than £90,000 as it can facilitate entry into the Flat Rate VAT Scheme.

Your Champion advisor will explain VAT in more detail during your initial consultation stage and will help you to make the most prudent decision.

Your Limited Company can be registered online for VAT however it can take 2-6 weeks for HMRC to issue a VAT Certificate.

HMRC will issue the VAT certificate to your home address - on receipt we ask that you scan and email a copy to Champion and your recruitment agency.

Note: Your recruitment agency will not pay out any VAT until they have a copy of your VAT Certificate.

Yes. This allows your Limited Company to pay you a weekly/monthly salary.

Champion will register your company for PAYE and will assist in all PAYE administration activities. Champion will also report, on your behalf, to HMRC on a monthly basis.

Your Champion advisor will explain PAYE requirements in further details when they call to discuss your welcome pack documents.

Note: HMRC will issue a PAYE authorisation code to your home address – please scan and email a copy of the correspondence to Champion immediately upon receipt.

As a Director of a Limited Company you must register for Self-Assessment because HMRC now require you to submit annual tax returns

An HMRC form SA1 will be included within your welcome pack and your Champion advisor will explain how the form should be completed.

Note: Champion compile self-assessment tax returns for all customers – there is no extra charge for customers who use our Standard Plus, Premium and Premium Plus services.

Champion do recommend that you purchase business insurance for your new company.

The insurance will be classed as a cost to your business and can therefore it can be paid for by the business.

Your recruitment agency will confirm what insurances are required for your contract assignment, however, in most cases they will need your company to have Professional Indemnity, Public Liability & Employer’s liability cover in place.

Your Champion welcome pack contains further information about business insurance.

Yes.

The responsibility of determining your IR35 status falls to the end client organisation you provide services to.

If you are deemed to be outside of IR35, then you can enjoy the full financial benefits associated with running your own limited company.

If you are however deemed to be inside of IR35 rules, then your recruitment agency will be required to deduct Income Tax and National Insurance contributions before they are able to make any payments to your business bank account.

Your end client is required to confirm reasons to support their IR35 decision and will communicate this information to you via a Status Determination Summary (SDS) report. You will have an opportunity to appeal any determinations that you disagree with.

Champion, in association with our legal partners Thorntons LLP, have developed a bespoke tool that enables client organisations, recruitment agencies and PSC contractors to be fully compliant with IR35 rules.

Please click HERE for more information.

You must speak directly to your recruitment agency and ask them to confirm the process they require you to follow when confirming your hours worked and any reimbursable expenses (e.g. expenses incurred on behalf of the client) incurred.

Your recruitment agency will also confirm if they require your company to submit invoices. If they have an HMRC Self-Billing dispensation they will not need an invoice to be issued and will, instead, provide you with a Remittance Advice Note once they have sent payment to your business bank account.

Note: There is no charge for the invoice support that Champion provides to customers who use our Premium Plus Service.

Your recruitment agency will pay gross funds into your business bank account in accordance with the payment timescales they have agreed with you. As the Company Director it is entirely for you to then decide how much you should then pay yourself.

Champion can provide guidance to your payment structure if you are prepared to confirm the number of hours/days you work and value of any expenses you incur each week/month. On receipt of this information, Champion will prepare and issue you with a Financial Statement which could, in turn, act as your guide on funds that are available to draw from your business.

A Directors Fee is another name for the regular salary paid to the director(s) of a limited company.

Note - you can choose to set the directors fee at any level, however you should consider the relevant Income Tax and Employee’s/Employer’s National Insurance implications before doing so.

Champion discuss this matter in great detail with all prospective clients when they go through our consultation process.

Your Champion advisor will discuss your salary level with you during the welcome call. If you do not have any other substantial income, then it may be prudent to pay yourself a DIRECTORS FEE equating to £175.00 per week. At this level you will not be required to pay Income Tax and National Insurance Contributions (NICs).

As part of our standard service to your business, Champion will run a payroll scheme to record your Directors Fee and will submit monthly and annual Real Time Information (RTI) returns to HMRC on behalf of your company.

We will contact you on a quarterly basis to verify that you are happy for Champion to report on an agreed Director’s Fee level.

If you wish to stop or amend your Director’s Fee at any time, please call a Champion advisor on 0161 703 2549.

Similarly, please contact a Champion advisor urgently if you expect any of your present arrangements to change over the next three months (for example; retirement or your contract ending), so we can discuss your options and next steps with you.

Note: If you have any your other salary type income in addition to the Directors Fee, or if your assignment is inside of IR35 legislation, then there will be additional Income Tax and NICs deemed payable via PAYE.  These payments will be made on a quarterly basis to HMRC - Champion will calculate total Income Tax and NICs due and will communicate how much you have to pay, how to pay and when to pay.

Your VAT Certificate will confirm the quarterly timetable that your company must adhere to in respect of VAT returns

Champion will prepare all quarterly VAT returns in accordance with the financial statements we have previously provided to you – we will also ensure that VAT returns are submitted before the relevant deadline dates.

When each VAT return has been prepared and the tax liability has been calculated, Champion will provide you with an email to confirm how and when to make payment to HMRC.

Every quarter, Champion will provide you with an email confirming how and when to pay your VAT liability to HMRC.

Payment must be made directly from your business bank account.

Yes. If you would like to set up a Direct Debit then Champion can arrange this for you.

When a Direct Debit in place, HMRC will automatically take the amounts confirmed on your VAT returns from your business account. Payment are taken from your business account approximately 10 working days after VAT deadline submission dates.

The Flat Rate VAT scheme was set up by HMRC to reduce the administrative burden imposed on small businesses operating VAT. Under the scheme a set percentage is applied to the turnover of a business as a one-off calculation instead of having to identify and record VAT on each sale/purchase made.

Who can join?

The scheme is optional and open to businesses whose annual taxable turnover does not exceed £150,000.

How the Scheme Operates

VAT due is calculated by applying a pre-determined flat rate percentage to business VAT inclusive of turnover during a VAT period.

Percentage rates are determined according to the trade sector that a business operates - they range from 4% to 16.5%. There is also a useful 1% discount for new businesses registering for the Flat Rate scheme.

NOTE - The introduction (April 2017) of a new classification for Limited Cost Traders will mean that many freelance contractors will no longer register their businesses within the Flat Rate scheme.

Champion advisors will be pleased to provide more information and details on request.

Your company is required to submit a Confirmation Statement each year to Companies House. This details any changes in shareholders, directors, or registered office address. No financial information is included.

Note: Champion will submit this information on behalf of customers who use our Standard Plus, Premium and Premium Plus services.

Your company will be given a year end or Accounting Reference Date (ARD) – your first year end will be circa 1 year after the business incorporation date.  After the given ARD, your company has 9 months to prepare and submit annual accounts to HMRC & Companies House.

Champion will compile your accounts based on your invoices/remittances, financial statements and business bank account statements. When prepared, the accounts will be sent to you to electronically for your review and acceptance.

Champion will submit your accepted accounts to HMRC and Companies House.

When preparing your annual accounts, Champion will also calculate the Corporation Tax liability that your business has.

Champion will provide you with a reference number and will confirm how and when you must pay HMRC.

The payment deadline for Corporation Tax is exactly the same (9 months after ARD) as your annual accounts.

Yes. As a Director of a Limited Company you are be required to submit a Self-Assessment Tax Return (SATR) to HMRC every year.

When using our Standard Plus, Premium & Premium Plus accountancy services, Champion will prepare and submit the SATR on your behalf.

The SATR will assess your income for the financial year (6th April to the following 5th April) – it will include income from your limited company along with any other personal income (e.g. bank interest, pension, property rental) you may have.

Champion will request core information from you in May every year and will provide you with your SATR within 4 working days of receiving the material.

If your SATR confirms that you have a tax liability, the deadline for payment to HMRC is 31st January. Champion will provide you with a reference number and will confirm how you must pay HMRC.

Many freelance contractors have, over the years, built up real value in their limited companies. Some will sell their businesses but many will simply close their companies down and distribute what monies are left in the company to its shareholders.

When a business closes, the final monies can be distributed as either an income distribution (a normal dividend) or a capital distribution. The distinction is very important - an income distribution will attract a further 33.75% burden for higher rate tax payers and 8.75% for basic rate tax payers. 

If the distribution can be treated as capital, and if the individual has made no capital disposals in the same tax year, they can use their annual Capital Gains tax allowance (currently £3,000) to obtain the first £3,000 of distribution tax free. The balance of the distribution is taxed at 10% or 20% (higher rate taxpayer) or, if the gain qualifies for Entrepreneurs’ Relief the balance is taxed at just 10%. 

Significant tax savings can be made by having the distribution treated as capital, however a capital distribution can only occur if the company is liquidated. 

There is an exemption if reserves are less than £25,000 - no formal liquidation is then required. Care must be taken here however because HMRC can review any dividends that are paid in the last year of operation, and to the extent that they have reduced the final distribution to below the £25,000 limit, the balance may not then qualify as a capital distribution. 

One way to guarantee capital status is to do a formal Members’ Voluntary Liquidation (MVL) of the company and thereby extract the whole amount as capital. MVL’s have become increasingly popular but they are costly given the amount of work involved in the process. An MVL costs between £2,000 -£2,500 in professional fees.

Important Note 1 - MVL rules state that where a distribution is made from a company, and within a period of two years after the distribution, the person receiving the distribution carries on a similar trade or activity, either through a company, as a sole trader or in partnership, then the distribution will be treated as income rather than capital. This also applies where the person receiving the distribution is involved with the carrying on of such a trade or activity with a connected person.

Important Note 2 – Changes announced in the Spring Budget 2020 now limit the lifetime allowance of Entrepreneurs’ Relief to £1 million of capital gains.

Summary

It is important for freelance contractors to take professional advice before they choose to close down their limited companies. The Champion business is perfectly positioned to help guide contractors through all of the options available to them and will fully outline potential tax liabilities and financial benefits.

A members’ voluntary liquidation (MVL) is the formal process to bring a solvent company to a close.

MVLs are only available for solvent businesses. Directors are required to make a sworn declaration that confirms the business:

• is solvent
• can pay all its taxes
• can pay all its creditors
• can meet all of its contractual obligations

Once the directors are certain that the company will be able to meet all obligations, they can procced with an MVL. A shareholders/members’ meeting will be convened to appoint a licensed insolvency practitioner as liquidator. The liquidator will then:

• realise the company’s assets
• settle any legal disputes
• pay any outstanding creditors
• distribute remaining surplus funds to the company’s shareholders/members

Once the liquidator has completed these formalities and has received clearance from HMRC, the company will be dissolved and formally removed from the companies register.

Why use and MVL?

An MVL is a good option for a solvent company which has naturally reached the end of its life.

This will be typically carried out when:

• a company was set up for a specific purpose or contract that has now been completed
• the business has become outdated and is now redundant
• the directors/owners wish to retire and there is no one else to take over the running of the business

What is the process for an MVL and how is one arranged?

Only a licensed insolvency practitioner can be appointed as a liquidator for an MVL.

The starting point for proceeding with an MVL is that the company must:

• have completed its business and ceased to trade
• anticipate having surplus funds left over once all creditors have been paid
• have de-registered or be in the process of de-registering for VAT, PAYE/NIC and Corporation Tax
• have filed or be in the process of completing and filing accounts and returns up to the date when the business ceased trading
• be able to pay any unpaid creditors within 12 months of the start of a liquidation

The MVL process is then as follows:

• The directors make a statutory declaration that the company is solvent. To do this, a closing financial statement must be prepared and must be sworn before a solicitor or notary. Where the company has more than one director, the statement must be sworn by all or a majority of the directors. 
• Once the statement has been sworn by the directors, and within five weeks of the declaration, a meeting of the company’s shareholders must be held. At this meeting the shareholders/members will be asked to pass a resolution to agree to the company being placed into liquidation and to appoint a liquidator.
• Once the formalities of the meeting are concluded, the appointment will be published in “The Gazette”.
• At this stage, the liquidator takes control of the company and the directors’ executive powers cease. The liquidator will realise the company’s assets, settle any creditor claims and distribute any surplus funds to the shareholders/members.
• A company’s assets can be distributed “in specie” to shareholders/members, thereby alleviating the need for them to be sold.
• Any creditor claims that are paid after the liquidation commences will be entitled to receive statutory interest in addition to the amount owed by the company. This is currently 8% and is applied from the date the liquidation commences.

 How does an MVL benefit shareholders?

The primary benefit of an MVL is to bring a company’s affairs to an orderly closure by appointing a liquidator to deal with the formalities, and for the company to be removed from the companies register or dissolved.

An MVL should also result in the distribution of surplus funds to the shareholders/members. This distribution may have certain tax benefits attached to them.

Dividend distributions in an MVL are usually classified as a Capital distribution rather than an Income distribution and would therefore be subject to Capital Gains taxation. This has lower taxation rates than income tax, especially with the added availability of a reduced rate provided by Entrepreneur’s Relief.

It should be noted, however, that Entrepreneur’s Relief is subject to certain qualifying criteria. It is not available to every company and its continued existence and criteria are an ongoing subject of discussion for the Government.

Ultimately, the availability of any taxation relief will be dependent upon the shareholder’s circumstances and the prevailing taxation criteria at the time of any distribution. But while there may be taxation benefits for shareholders/members, the main purpose of the liquidation should not solely be for this purpose. Indeed, HMRC have Targeted Anti Avoidance Rules (TAAR) that allows it to challenge liquidation shareholder distributions, where it considers that the main purpose of the liquidation was to avoid tax.

An example of this is where a company is liquidated, and the shareholders decide to recommence a similar business or trade within a two-year period following the liquidation. In these circumstances, HMRC may consider that the main purpose of the liquidation process was to avoid tax and it could seek to re-classify any distributions as subject to income rather than capital gains taxation.

What is the cost of an MVL?

The services of a liquidator will be circa £2,500 + VAT.

In addition to the professional fees charged by a liquidator, there will be additional charges for unavoidable disbursements, which include advertising, storage and bond costs. Disbursement costs will be circa £500.00.

Next Steps?

If you would like to understand more about the MVL process, please contact a Champion advisor on 0161 703 2549.

Yes, it is possible to have a company vehicle however, it is not always financially beneficial to do so.

If the vehicle is a car, then dependant on the emissions of the car, a Benefit in Kind (BIK) will arise. A BIK is essentially an amount added to your taxable income which is calculated on the list price (not the purchase price) and emissions of the car.

Depending on your personal circumstances, the BIK may cause you to enter or have further income enter the higher/additional rate tax brackets.

In most cases if you are looking to purchase or lease a car, it would be more prudent to do so personally. You would then simply claim HMRC approved mileage rates for all business related travel.

Click here for our useful link on Company Car Tax.

If you wish to purchase or lease a commercial vehicle (i.e. a van) and can prove it is wholly and exclusively for business use, with no significant personal use, then no BIK will apply. Your business can claim tax relief against the vehicle costs in the year of acquisition, under the Annual Investment Allowance (AIA).