Your responsibilities and duties as a Limited Company Director.
Making the decision to leave employment and deliver your expertise through your own Limited Company will usually cause you to adopt the role of a Director.
Less tax, better take home pay, and a more autonomous way of working are all very enticing prospects that often lead employees to embark on an independent journey through Companies House, and out the other side onto the ‘greener grass’ of self-employment.
But is the grass really greener? Or is the dewy green really just the exhausted sweat and tears of the self-employed occupants?
Many employees have mundane responsibilities and deadlines to consider. But these will seem like remembering to switch the lights off at night in contrast to the copious responsibilities of Limited Company Directors.
Numerous legal and financial obligations lie in the hands of these Directors, such as filings, records, payments, etc. Consequences of failing to perform these duties are serious, with potential risks including financial penalties, reputational damage, and even professional disqualification.
One of the main commitments a Company Director must adopt is the responsibility for annually completing several accounting tasks.
Submitting yearly company accounts to Companies House and filing corporation tax returns to HM Revenue and Customs are just two of the primary duties to be complied with. As with any other statutory deadline, failure to do so will imminently result in a substantial fine.
It’s therefore essential for an individual to understand when to submit certain documentation and what to include. This is partially the reason so many accountants are recommended and sought.
Enlisting the help of a qualified accountant will diminish such responsibilities, whilst also ensuring the company concerned is operating legitimately, and in a tax-efficient manner.
Another crucial practice for Limited Company Directors is preserving financial records. Although a relatively onerous precaution, keeping financial records and up-to-date accounts is the renowned trait of a successful Director.
Illustrating the importance of this practice is HMRC’s ability to scrutinise a company’s financial records, dating back to six years. Directors must be able to present a true and fair view of their company’s financial situation.
Failure to keep correct documentation could see the company as the recipient of the custom’s wrath, or, on the other hand, could see the Director paying too much tax.
Whether as a benefit or a precaution, it’s evidently important to invest time and effort in maintaining the right documentation to serve as a support to a business.
As aforementioned, acquiring more autonomy over the way of working is a major perk of a senior self-employed role.
However, this autonomy could come at a (hefty) price. If a Director does not understand the correct procedures for paying themselves, failure to comply with general requirements could cast an ambiguous eye over the payments issued.
For example, Limited Company Directors may pay themselves both a salary and dividends. However, legislation specifies that all Limited Companies must have sufficient profits in order to do this.
Failure to do this could result in the payments being considered ‘ultra vires’, meaning a potential liability for large repayments, and even prosecution.
HM Revenue and Customs have also been known to class illegitimate dividends as employment income. If this happens, the Company Director may be subject to all income tax and National Income Contributions for the time period they have been operating as self-employed.
Another burdensome responsibility of Limited Company Directors is to distinguish a fine line of acceptability, or otherwise, where benefits are concerned.
Directors are perfectly within their right to accept benefits, for example complementary tickets to an event with a prospect of networking, so long as this does not create any conflict of interest or compromise the integrity of the business.
More so since the introduction of the Bribery Act, it’s now very important for Directors to draft clear policies that establish their stance on acceptable benefits.
Finally, senior self-employed individuals must comply with the Companies Act 2006. This legislation is a pivotal measure which aims to set out how a Director should run their company.
In addition to all of the aforementioned responsibilities, a Director must also: exercise their powers for proper purpose; promote the success of the company by acting in its best interest; exercise independent judgement; exercise reasonable care, skill and diligence; avoid conflicts of interest with third parties; and avoid risk and minimise any losses.
Clearly, the responsibilities and obligations of a Limited Company Director surpass those of employees. The prospect can, at times, be a daunting one, especially when considering the consequences of acting incorrectly.
Therefore, we at Qdos recommend the services of one of our approved accountants to eliminate the stress and worry that this role can often entail.
Our recommended specialists are also well versed in the legitimate practices of the self-employed profession, and can effortlessly ensure that a Limited Company’s Director is operating competently and lawfully.
Ask away! One of our team will get back to you!