What are the responsibilities of a director of a limited company?

If you’re transitioning from being a sole trader or a partnership, things can feel a little different when it comes to being a limited company. Maybe you’ve chosen to start off your business as a limited company but just need to be aware of your responsibilities. So here’s what you need to know…

 Director’s responsibilities 

 As a director of a limited company you will take on responsibilities such as:

 Articles of association – this is an agreement you make to form the limited company and take on the responsibilities. If you register your business online this will be part of the process.

 Keeping company records and reporting any changes – you must keep records of the company such as;

1. Shareholders, directors and company secretaries.
2. The results of any shareholder votes. 
3. Agreements for the company to repay back any loans
4. Indemnities – payments made by the company if something goes wrong.
5. Transactions if someone buys shares in the company.
6. Loans or mortgages secured against the company’s assets.
7. Register of people with significant control.
8. Accounting records.

 Taking money out of the business

 Taking money out of your limited company is much different from that of a sole trader as the company’s finances do not belong to you like they do when you’re a sole trader.

 There are various ways you can take money out of the business;

• Salary, expenses and benefits
• Dividends
• Directors’ loans

 Company changes

 You have an obligation to tell HMRC if your contact details change and if you appoint an accountant or tax advisor. You also need to report if the persons with significant control change for any reason. 

 Any changes which are made within the business must be agreed by the shareholders and minutes of the meetings should be recorded.

 Confirmation statement

 Every year you have to confirm that your business details are correct, this is called a confirmation statement. There’s a fee of £13 to submit your confirmation statement online or £40 by post. 

 Signage, stationery and promotional material

 With the exception of running your business from home, you must display signage of your company name at your business premises. It must be visible and easy to read.

 Company stationery such as letterheads should include your company name, registered address, company number and whether it’s registered in England and Wales, Scotland or Northern Ireland. You must display that you are a limited company with the use of the word Limited or Ltd. 

 It is your responsibility as a limited company director to ensure that you are complying to all of these rules set out by HMRC. If you don’t you will be fined or worst-case scenario you could be struck off as a director.

 If you want to ensure your compliant, seek advice from a professional.

Claiming business expenses for work clothes

There are specific rules around claiming for work clothes as a tax-deductible expense. Any clothes which you could use for ‘everyday’ or ‘personal’ use are not an allowable expense.

Uniform

If you wear a uniform for work purposes for example you’re in the beauty industry and wear a uniform for hygiene reasons then this would be classed as a tax-deductible expense. Work wear which has your logo displayed can also be claimed against your tax as this is classed as advertising your business.

Protective Clothing

In some industries it may be essential to wear protective clothing such as a hard hat, safety goggles or safety boots for instance. The cost of these items would be allowable.

Costumes

If you work in theatre production for example then the costume’s which are worn by the actors would be tax deductible. This is also applicable for other industries such as entertainment.

Taxable Benefit

Any clothing provided to your staff, and cleaning or repair bills which are incurred are reportable on a P11D every year and may be subject to tax and NI.  This includes protective clothing as well as a uniform.

If you’re not sure about what is classed as a tax-deductible expense, always seek advice from your bookkeeper. If you make a claim which isn’t eligible for tax deduction you could be fined. You also don’t want to be missing out on vital expenses which you’re not aware of either. It’s always best to ask the question first for reassurance.

Clothing if you are a Sole Trader

The same rules apply as set out above.  Clothing which is not classed as protective, is not a uniform and is without a company logo is not a business expense.

Should I have a business bank account?

This is a question I get asked a lot and the answer is always yes! Here’s why!

 By law as a sole trader you don’t have to have a business bank account as your finances belong to you. If you’re a limited company, then by law you must have a business bank account as the money belongs to the business and not yourself. Therefore, you must keep personal and business finances separate.

 The good thing about keeping your business and personal finances separate means there is no confusion when it comes to your spending. Everything in your business account is strictly for business and everything in your personal account is for personal use. This makes it much easier to reconcile your accounts. Whether you’re doing your bookkeeping yourself or you have a bookkeeper looking after your finances it will mean much less work for you keeping it all separate.

 You may also find that your bank’s terms and conditions specify that your personal account must not be used for business use. So, make sure you check as they have the right to close your account at any time and without notice if they think you are in breach of their terms and conditions.

 By having a business account for your business, it means you will build a credit rating for the business. This will come in handy if you need financial support further down the line or require grants or investments.

 To open a business account your bank may charge you fees, but they should be very minimal. Make sure you shop around for the best rates. It’s worth paying the small fee to keep your personal and business finances separate and it also shows your clients that you are professional and reputable by having a dedicated business account.

 Making the right choices when it comes to your business finances can make a huge difference to your business success.