Basically, yes – you can run a limited company and be a sole trader at the same time. What is crucial though, is that as well as keeping your personal and business finances separate, you’re really careful to keep the two businesses totally separate. That means two separate entities, not one business that’s been split in two.

That’s not just us being precious about the bookkeeping either, there are actually several very good reasons for keeping a clear divide between your business, including the lurking presence of HMRC.

We’ve prepared this guide to give you an idea of the basics, but it might also be worth chatting to your accountant about your business structure.

Making it clear that you’re not ‘artificially separating’ your businesses for VAT purposes

When a business approaches the VAT registration threshold (which means that turnover is getting near the magic £90,000 mark), it’s required to register for VAT.

Sole traders with multiple businesses work out their turnover for VAT on the basis of all their sole trader incomes combined, because there’s no legal separation between a sole trader and their business. Limited companies are an entity in their own right, so they work out their turnover for VAT separately.

Some business owners might feel tempted to split their business up, thus dividing the turnover, and therefore getting rid of the need to register for VAT. Don’t do it.

Avoiding tax avoidance!

If HMRC get even the slightest whiff that you’re trying to avoid VAT by splitting two businesses in order to stay below the VAT threshold, they’ll be all over you like a rash. This is particularly the case where both businesses are in similar industries.

Recording finances and claiming expenses correctly

On a very practical level – you need to make sure that any expenses you claim (bills, travel costs, broadband etc) are attributed to the right business. You could end up with one heck of an accounting headache otherwise!

For example, say you were to claim all your travel expenses through your sole trader business but use it for your limited company work half the time. HMRC could then disallow half the costs you’d claimed, and hit you with a bill for the additional tax – plus penalties.

Be clear what work each business does

In keeping the businesses separate, make sure you’re really clear what work was carried out by which business.

Perhaps all current clients will go through your sole trader business and from now on new ones will go through the limited company. Or maybe you’re a limited company providing kitchen worktops, and a sole trader who does photography.

Unless you clearly document your invoices, including making it clear which business they belong to, HMRC might decide it’s time for an audit.

Should I switch from being a sole trader to a limited company?

The only way to answer this question is to weigh up the pros and cons of being a sole trader versus incorporating the business to become a limited company.

The way you run your business, its turnover, and your personal circumstances, will all be major factors in deciding how to structure your business. You might also find it useful to chat to an accountant about choosing the most appropriate business structure first.

Operating as a limited company

When it comes to setting up as a limited company there are some distinct advantages and disadvantages to think about. One of the most common considerations is around the idea of risk.

Risk

Some businesses are more financially risky than others, so it might make more sense to register as a company because this limits the extent to which you’re personally liable for business’s debts. If the company goes belly up, you won’t start losing personal assets beyond anything you’ve already put into the company.

Tax efficiency

Depending on the level of turnover, and how you pay yourself from the business, it can sometimes be more tax efficient to operate as a company.

As a director and shareholder you can choose to pay yourself in dividends as well as a salary. The great thing about dividends is their lower tax rate, their exemption from National Insurance, and an additional dividend allowance on top of your personal tax allowance.

It all depends on what else you have going on though, so again – it’s well worth talking to your accountant!

Protecting a name

Registering a limited company is quite a formal process, and the company name must be unique. Once registered, no one else can use it so this can help protect your company’s name as a brand. The only way a sole trader can do a similar thing is if they trademark their name.

Operating as a sole trader

Some people see being a sole trader as a more attractive option because it’s simpler and faster to register the business with HMRC.

Admin

There’s also very little paperwork in setting up as a sole trader. Whereas company directors need to think about the Company Tax Return as well as their own Self Assessment, along with submitting annual accounts.

The main thing you need to do as a sole trader is your Self Assessment tax return.

Paying yourself

You won’t need a PAYE scheme to pay yourself a director’s salary, or a separate business bank account, or to go through the official process of issuing and recording dividends. As a sole trader, you can keep all your own post-tax profits yourself.

Privacy

The details of every limited company, its directors, and the people with significant control of it, must all be recorded publicly on the Companies House website. Sole traders don’t have to do this, so operating in this way can give you a little more privacy.

Liability

The downside of working as a sole trader is that you and your business are legally one and the same. That is to say, you’re personally liable for any business loans and debts the business runs up if things go pear shaped.

Your own assets, like your house, car, or any cash savings, are also at stake. That’s why being a limited company is such a draw because you quite literally have limited liability.

Funding

It’s also often more difficult to raise funding and gain investment as a sole trader, which can make growing your business tricky. Lenders – especially banks – tend to see limited liability companies as less risky and often shy away from sole traders.

Choosing the structure that’s best for your business

If there are very strong reasons for separating different business ventures (and you truly keep them separate) this is generally acceptable. Just remember that HMRC will be on the lookout for businesses who deliberately cherry-pick the best bits from each structure in order to avoid tax.

There are pros and cons to being a sole trader and for limited companies, so do your research, and don’t be afraid to ask questions!

 
Looking for an accountant to help you? Compare accountancy packages to get started.

The post Can I Be a Sole Trader and Operate a Limited Company? appeared first on The Cheap Accountants.

In this article we take you through the following topics:

• What a dormant company is (including the different definitions for Companies House and for Corporation Tax)
• Whether or not you’re allowed to make a company dormant before trading commences
• Reasons why you might want to make your company dormant before trading
• Filing accounts for a dormant company

What is a dormant company?

The main definition of a dormant company is one that doesn’t trade, and has no other additional form of income. In that respect, a company isn’t dormant if it is:

• Earning interest
• Managing investments
• Buying and/or selling goods with the intent to make a profit
• Receiving any other form of income

To complicate things slightly though, HMRC and Companies House have different definitions of what it means to be a dormant company.

What Companies House call a dormant company

Companies House defines a company as being dormant if no significant transactions take place during the accounting period. A ‘significant transaction’ is one which the company would normally record in the accounts, but doesn’t include:

• Filing fees paid to Companies House
• Penalties for late submission of accounts
• Payment for shares when the company was incorporated

It’s important to note that a dormant company is not the same as a dissolved company on Companies House. If you wish to close down the company entirely, this is a separate process.

What HMRC call a dormant company

HMRC’s definition of a dormant company is a bit different, describing it as a company which isn’t active or liable for Corporation Tax. It can be:

• A brand-new company which has yet to start trading
• An ‘off-the-shelf’ company being held by a company formation agent, preparing for it to be sold on
• An active company that has traded previously but is no longer currently trading
• A company that will never trade because it has been incorporated with the sole function of holding an asset (e.g., property)

Are you allowed to make a company dormant before it starts trading?

Yes, you are allowed to register a new company and then make it dormant before you’re ready to start trading. You can also make an active company dormant with no fees incurred. The company must meet the criteria outlined above for it to successfully qualify as legally dormant.

Do I need to submit Company Tax Returns for a dormant company?

As long as you tell HMRC that your company is dormant, you won’t need to submit a Company Tax Return or pay Corporation Tax for it. So, if you incorporate (register) your company but you’re not quite ready to start trading and filing accounts yet, making the company dormant is a bit like pressing the pause button.

Should I make my company dormant?

Whether your company has previously traded or it’s a new business that hasn’t started trading yet, there are a number of reasons why you might wish to make it dormant. We explore some of the most common motivations below.

To protect a brand name, company name or trademark

Have you come up with a strong idea for a product or service, or a great brand or business name? Business owners might find the idea of ‘securing’ the company until they’re ready to start trading to be appealing. Registering the company protects ideas, names or trademarks whilst you set up the rest of the business.

To press pause during a company restructure

This usually applies to actively trading companies which might find it extremely beneficial to become dormant during the process of a restructure.

For instance, if operations will pause during the process, dormancy means you won’t need to submit Company Tax Returns for the period it ceases to trade.

Can a dormant company hold assets?

Yes, it can! In fact, some limited companies are setup as dormant for the sole reason of holding an asset. If you’re holding assets or Intellectual Property (IP), making the company dormant before it starts trading is a great way to move things along in the background while protecting what you own. This also applies if the company doesn’t start trading at all.

In the event of extreme unforeseen business circumstances

If a business owner dies suddenly, for example, and there is no succession plan or contingency strategy in place to continue trading, making the company dormant for a period of time might be the best course of action to take.

Do you need to file accounts for a dormant company?

If you aren’t clear on the rules and regulations things can get a little complicated when it comes to accounting for a dormant company, so let us break it down for you.

• No, you do not need to file accounts for a dormant company to HMRC
• You are also not required to submit a Company Tax Return or pay Corporation Tax to HMRC if your company is currently dormant – unless, of course, you receive a request to do so
• However, even if your company is currently dormant, you will still need to submit a confirmation statement and annual accounts to Companies House

This is because all companies must submit these to Companies Houses – even if the company isn’t trading. If you fail to do so, you could find yourself facing a hefty penalty.

As with most things to do with business finances, understanding the ins and outs of dormant companies and their respective obligations can be confusing.

 
That’s why we always recommend seeking the guidance and expertise of an accountant. That way, you can be sure that you’re doing everything by the book, and in the most tax-efficient way possible!

The post Can I Make My Company Dormant Before I Start Trading? appeared first on The Cheap Accountants.

What is PAYE?

PAYE stands for Pay as you Earn, and is the system used by employers to deduct income tax and National Insurance (NI) directly from employees’ and directors’ wages before paying it on to HMRC.

Some people will refer to PAYE taxes, but it’s actually the mechanism for colelcting tax, rather than a tax in its own right to HMRC. The deductions made through PAYE can include things like income tax, National Insurance (NI), Student Loans repayments, and pension contributions.

Do I need to register for PAYE?

Employers should register for PAYE if any of the following apply:

• An employee earns the Secondary Threshold for National Insurance or more. The current threshold for the 2026/27 tax year is £5,000 per year (or £96 per week).
• You provide employees with benefits or taxable expenses (known as benefits in kind)
• An employee has another job or receives a pension
• You need to pay NI

The same rules will apply to absolutely any employer, even if you’re a sole trader with staff or a larger company.

The difference between payroll and PAYE

Payroll is the process of paying employees and workers for the work they have done. It involves recording data about employees so you can calculate their pay correctly, as well as working out what needs to be paid to HMRC and other bodies for things like income tax, NI contributions, and pensions. We go over some common payroll mistakes to avoid in a separate article.

PAYE is the mechanism an employer uses to report this information to HMRC, and to pass on any deductions.

Registering as an employer for PAYE

If you’re getting ready to take on your first employee, you’ll need to register as an employer before before your first payday.

You can register for PAYE online, and can either do it yourself or ask an accountant to manage PAYE registration for you. You’ll need to confirm the number of employees (including yourself), the frequency of PAYE payments to be made, and the date of the first PAYE payment.

Set up payroll

A payroll system uses the employee’s details to calculate how much PAYE will be deducted from their payslip each month. This is where hiring an accountant comes in useful. Payroll calculations can be time consuming, and confusing!

Payslips

You’ll need to provide every employee with a payslip each time you pay them, confirming what their wages are, and how much you’ve deducted.

Pay PAYE

After you have paid employees it will be necessary to pay PAYE to HMRC. This is the amount you deduct from your employees’ wages. Failure to do so will incur hefty fines from HMRC, and all sorts of uncomfortable chats with angry employees. This is an easy transaction that can be completed online.

Make sure you report everything to HMRC on or before each payday, and send any payments to them by the 22nd of the following tax month in which they happened (a tax month is 6th to the 5th each month).

 
Check out our accounting support hub for more help and resources, or to ask a tax question.

The post A PAYE Guide for Small Businesses appeared first on The Cheap Accountants.

Great.

But what does this actually mean for you in a practical sense? Are you an employer or employee? Or both? And, the biggest question of all: how are you supposed to pay yourself?

We’ll break it all down – including how to be as tax-efficient as possible.

Do I run a limited company?

A limited company is a type of business which is legally distinct from the individuals who own and run it. You own and run a limited company if you needed to register the business with Companies House when you set it up (rather than registering with HMRC). You’ll be a company shareholder, which means you literally own a share (or all) of the company, and probably also a company director.

This idea of the legal relationship between you and your business is key, impacting such things as how you pay tax, how you claim expenses, and, yes, how you pay yourself.

Being a separate legal entity to your business means you cannot be held personally liable for any debts or issues which arise, and so you’re protected (along with all your assets).

Can I take money out of my limited company?

Yes, but it’s complicated. A consequence of the business being its own entity is that any profits technically belong to it, rather than you as the owner.

This is different from how it works with a sole trader, who is able to keep all of their after-tax profits because they and their business are considered one and the same (in other words, there’s no legal distinction).

What are my options?

So, you’re not allowed to simply take money out of your company like a sole trader can. What you are allowed to do, however, is formally pay yourself, and there are a couple of different ways you can go about doing this.

Pay yourself a salary and dividends

This method is probably the most stable, guaranteeing you a regular stream of income throughout the year. It’s up to you how much you take as a salary, and how much you leave in the pot for dividends, but there are a few things to consider.

If you’re a director, you’re technically an employee of your own limited company, and both employers and employees are required to pay National Insurance Contributions (NICs) on salary payments.

To save as much tax as possible, you might want to pay yourself a salary which is below the threshold for paying National Insurance. You could then take the rest of your income as dividend payments. There’s no National Insurance contributions to pay on these, and they’re taxed at a different rate to your salaried income.

Your salary can even be below minimum wage, as directors are considered ‘office holders’ as opposed to regular employees.

It’s important to remember: You can only take dividend payments if you’re also a shareholder in the business and the business has made a profit.

Take out a director’s loan

Alternatively, you might choose to take out a director’s loan. This is when you “borrow” money from your business with the intention of repaying it. As such, a director’s loan is not the same as money taken out of your business to, for example, pay yourself a salary or reimburse yourself for a business expense.

It’s not really appropriate to class them as a source of personal income because they should really only ever be a temporary measure, but it can be useful if you ever need it.

There’s currently no restriction on how much you’re able to borrow, but there are tax implications!

Tax and director’s loans

Tax can affect director’s loan accounts in several ways. If you ever owe the company more than £10,000, the amount automatically becomes a Benefit in Kind, and you’ll pay income tax on the value of the benefit. As your “employer,” your limited company will also make National Insurance contributions on the benefit too.

When it comes to taking out a loan of £10,000 or below, any tax on this is wholly dependent on when (and if) you repay it.

For example, companies must pay Corporation Tax on an outstanding director’s loan if it isn’t repaid within 9 months of the end of the financial year in which it was taken out.

If you wish to avoid paying tax altogether, you shouldn’t take out anything above £10,000, and you should make sure to repay any loans you do take out before the deadline.

What’s the most tax-efficient way to pay myself?

Okay, so… what should you do?

Overall, if you’re looking to be as tax-efficient as you can, your best bet is probably to pay yourself a small salary and top it up with dividends.

But, this really does depend on your circumstances, such as any other income you might have and what your cash flow is like throughout the year – both personal and business!

A good accountant will help you understand your options, and ensure you’re making the right choice based on your unique situation.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post How Do I Pay Myself From My Limited Company? appeared first on The Cheap Accountants.

In this breakdown, we’ll cover all the important points to understand, so that you come away feeling more confident that you know what to expect. Let’s dive in.

What is Corporation Tax?

Quite simply, Corporation Tax is a kind of tax paid by some UK businesses and organisations on the profits they make. In this context profit is defined as the amount of income remaining after the business has paid all of its expenses. So, whatever’s left over.

Who needs to pay Corporation Tax?

As a general rule, it’s paid by all limited companies incorporated in the UK. This doesn’t tell the full story, though, as there are other organisations that might need to pay it (even if they’re not set up as limited companies). These other organisations include, but are not limited to:

• Members’ clubs, societies, and associations
• Trade associations
• Housing associations
• Groups of individuals who run businesses (e.g. as co-operatives)
• Foreign companies with UK branches or offices (also known as ‘overseas’ companies)

Sole traders and partnerships don’t pay Corporation Tax, but instead pay Income Tax on their profits, which they tell HMRC about via Self Assessment or MTD Income Tax returns (as opposed to company ones).

How does Corporation Tax work?

You’ll need to submit a Company Tax Return in order to pay Corporation Tax if you operate as a limited company, with HMRC using the information you provide to work out how much tax you owe.

Basically, it’s paid on the taxable profits your company makes, which can include the money your company or association makes from:

• Doing business (‘trading profits’)
• Investments
• Selling assets for more than they cost (‘chargeable gains’)

How do I pay my Corporation Tax?

The first thing to know is that most companies automatically register for Corporation Tax at the outset when they incorporate the business at Companies House, but you can defer this.

It is fine to register your company at a later date, as long as you do so within 3 months of you starting to trade. Trading doesn’t just mean making sales, though. It can actually refer to any sort of business activity (placing an advert, for example).

Once registered, HMRC will send your company’s Unique Taxpayer Reference, or UTR. It’s separate to any personal UTR you might have for your own taxes, so don’t mix them up!

To file your Company Tax Return and actually pay your Corporation Tax (when the time comes), you’ll need to fill out and submit a CT600 form, which features a list of strict criteria that must be met for compliance. These include:

• Income and turnover
• Profit and loss for the financial year
• Tax reconciliation
• Tax deductions
• Any tax relief you’re claiming

In terms of making the payment itself, you can do this online or over the phone. While you can also pay in person at a local branch of your bank, you’ll need a paying-in slip from HMRC.

Is there a way to reduce my Corporation Tax bill?

There are actually several ways to reduce your Corporation Tax bill, the main one being through Marginal Relief.

You can claim Marginal Relief if your company’s annual taxable profits are between £50,000 and £250,000, and the easiest way to work out how much is available to you is by making use of HMRC’s online calculator. This basically adjusts the rate of Corporation Tax you’ll pay on your profits if they’re between those two thresholds.

You can’t, however, claim Marginal Relief for a non-UK resident company, a close investment holding company, or a company whose profits are more than £250,000.

In addition to this, here are some other things to consider if you want to reduce your bill:

• Salaries are an allowable expense
• Pension payments your company makes on behalf of directors are also deductible
• Keeping good financial records is useful for making sure you record every expense
• If you buy assets for your business (e.g. machinery), you might be able to reduce your tax bill by claiming Capital Allowances, either in the year they’re purchased, or over their lifetime in the business

Limited companies can also sometimes claim tax relief against the cost of research and development, although the rules around this can be very confusing so get specialist advice!

Do I still pay Corporation Tax if my business makes no profit?

You’ll be relieved to learn that, no, you don’t, as Corporation Tax is only paid on a company’s taxable profits.

It’s essential you still submit your Company Tax Return, though – even if you don’t have any tax to pay. This is because HMRC won’t know what you owe (or don’t) unless you tell them.

Now, if the reason your company is making no profit is that it’s dormant, then you don’t even need to submit a tax return, but again, make sure you tell Companies House and HMRC that your company is dormant. They use different definitions though, so double check before updating the status!

Companies House considers a company dormant if it’s had no ‘significant’ transactions in the past financial year. These don’t include filing fees, penalties for late filing of accounts, or money paid for shares when the company was incorporated.

On the other hand, HMRC usually considers a company dormant for Corporation Tax purposes if it’s stopped trading and doesn’t have any other income, or if it’s a new company which never started trading at all. Unincorporated associations or clubs owing less than £100 Corporation Tax, and flat management companies also qualify.

A basic rule of thumb is that your company is considered dormant as long as it isn’t actively trading or liable for Corporation Tax.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Understanding Corporation Tax appeared first on The Cheap Accountants.

One of the most important steps in these early stages is deciding what legal structure to operate your business under.

It can seem a bit confusing at first, so in this article we’ll explain the ins and outs of setting up a limited company.

Should I set up a limited company or be a sole trader?

The structure you use to register your business will determine all sorts of important factors moving forward, such as how you report your earnings and pay taxes.

When it comes to figuring out the right structure for you, you’ll want to compare the pros and cons of setting up a limited company versus as a sole trader. These largely depend on your personal circumstances and what you need from the business.

In general terms, the main advantages of registering as a limited company instead of as a sole trader tend to include the legal separation between you and the business, and tax efficiency.

If you already operate as a sole trader and you’re thinking about switching, it might be worth chatting to an accountant first.

Clear financial division

A limited company is a completely separate legal entity to you as the owner, so the company’s finances (including any debts) are separate to your own. It means your personal assets and money are protected if the business doesn’t work out.

Sole traders, on the other hand, aren’t separate from the business, so your personal and business finances are treated as the same thing. In other words, if a sole trader business has debts, they’re your debts.

If you register as a limited company and the business finds itself facing any financial trouble further down the line, you can keep your personal finances and assets out of it. As a sole trader, your own money and assets might need to be used to resolve things like debt recovery.

Potentially more tax efficient

This partly depends on how much you expect to earn from the business, and how you want to pay yourself from it.

Because limited companies are separate to the owners, you can’t just keep the money that it earns. Instead, the company must submit a Company Tax Return and pay Corporation Tax on its taxable profits, then you’ll pay personal tax on the money that you take from the business for yourself.

Sole traders pay income tax on all their profits whether or not they take the money out of the business for themselves.

It’s also worth noting that the starting rate of Corporation Tax is lower than the starting rate of Income Tax (unless you’re in Scotland), and companies can claim tax relief on the salary amounts they pay.

Who can set up a limited company?

Generally, it’s a pretty straightforward process to set up a limited company in the UK and it is something that can be done by most individuals, or even entities, as long as there is at least one human director. That said, there are some rules and regulations you need to be aware of.

In order to set up a limited company in the UK, you must:

• Be aged 16 or over
• Have a registered business address
• Have at least one director and one shareholder – if it’s a private limited company they can be the same person
• Be able to pay filing fees

Who can be a shareholder?

Shareholders (sometimes also known as ‘members’) are the people or entities who own part (a share) of the company. Owning shares often means that you’re entitled to receive a share of the company’s profits and make decisions on the direction it takes.

There are few restrictions around who can and can’t be a shareholder, but they must be legally allowed to enter into shareholding. Shareholders (or members) generally tend to be founders, investors and/or employees. Somebody takes on shareholder status once a company gives shares to them or they purchase them themselves.

Who can be a director?

Rather like shareholders, there are few restrictions around who can be a director of a limited company in the UK.

As long as you’re aged 16 or over, not bankrupt, and not disqualified from directorship, you can be appointed a director. You don’t even have to reside in the country or be a UK national.

That said, it’s usually easier if a director is at least 18 years of age, making it more difficult for anyone else to challenge your contracts or decisions!

Can I be a director and a shareholder?

Yes, absolutely! It’s very common for companies to have just one person in the business who both owns all the shares as well as being the sole director.

Incorporating a limited company

To set up a limited company, these are the general steps you’ll need to go through:

• Decide on the legal name you will use to register your company. You can choose to trade under a different name if you want to
• Choose and assign your directors
• Allocate shareholders and any other people with significant control (PSC).
• Prepare your ‘memorandum of association’ and ‘articles of association’ – documents that detail how the company should be run
• Get all your financial information in order, including the details of company assets, inventory, loans, overheads, etc.
• Create a business bank account
• Register the business with Companies House.

Do I need to have an accountant?

It isn’t a legal requirement to have an accountant register your new limited company for you, and you can simply go through the process yourself if that’s what you’d prefer.

There are advantages to having an accountant though, including helping you to manage your deadlines and run your business as efficiently as possible.

Now all that’s left for you to do is get your new venture set up and registered so you can start focusing on growing your business. Best of luck!

Looking for more expert business support? Head to our info hub for more news and helpful resources.

The post Can Anyone Set Up A Limited Company? appeared first on The Cheap Accountants.

Whether it’s mandatory or not will depend on what type of limited company you have – private, or public. We’ll take a look at who needs a company secretary as well as the difference between being private or public.
 

Do all limited companies need a secretary?

The answer to this question varies. According to section 270 of the Companies Act 2006 you don’t need a company secretary for a private limited company, unless the articles of association require you to appoint one.

It’s different if you operate a public company, which does need to appoint a company secretary. Section 271 of the Companies Act 2006 literally, word-for-word, reads “a public company must have a secretary.”
 

What’s the difference between a private limited company, and a public limited company?

Private limited companies are the most common type of company to be incorporated in the UK (meaning most limited companies don’t require a company secretary). They’re ‘private’ because they’re owned by private shareholders who have invested in the business, rather than being listed on the stock exchange.

In a public limited company there are still directors and shareholders, but the company is listed on the stock exchange and anyone can buy shares.

There are other major differences between the two types of company. For example, a public company must have a minimum of £50,000 in share capital, whereas no minimum is required for private companies. If you’re just starting out on a small scale, it’s highly likely you’ll setting up be a private limited company!

Read more on the differences between a Private and Public Limited Company.
 

What is a company secretary?

Company secretaries are seen as ‘officers’ or the ‘head of governance’ of the company and are crucial members of the management team. They’ll typically spend their time ensuring the company is operating within all financial, legal, and statutory regulations. In most cases, they’re the ones shareholders will come to – as well as being responsible for administration duties.

If you’re a private limited company that doesn’t require a secretary and chooses not to have one, the responsibilities that would usually fall on a secretary belong to the director – or a person ‘authorised generally, or specifically in that behalf by the directors’. Because of this, you’ll find many private companies opt for a company secretary anyway to take some of the workload off the directors.
 

What are the main duties of a company secretary?

Company secretaries have lots of duties and are a vital part of any business. Here are some of their key responsibilities:

• Administration duties as well as filing confirmation statements and Company Tax Returns
• Looking after the company’s statutory records
• Setting up and being responsible for all directors’ and shareholders’ meetings
• Letting Companies House know if any company details have changed (for example the company address or following the resignation of a director)
• Managing the registered office address (this involves informing Companies House of the registered office address as well as checking it is correctly disclosed on the website, emails, etc)
• Make sure the business is compliant with all legal, financial, and statutory regulations
• Keeping all legal documents safe
• Being the communication point for shareholders
• Signing any legal documents

It’s worth noting that even though a secretary has lots of responsibility, the director of the company is always legally responsible for anything that happens.
 

What is the main difference between a company secretary and a director?

While the role can feel very similar, a director will be responsible for the overall management of the company, while the company secretary will focus more on administrative duties.
 

Should I hire a secretary for my limited company?

If you’re a private limited company, a company secretary could help with any tasks your director doesn’t have the time to do. While it’s not a legal requirement, it is an option that many companies take.

You will need to ensure you appoint someone appropriate for the role according to HMRC’s guidelines though. For example, they can’t be an ‘undischarged bankrupt’, or be the company’s auditor.

You’ll need someone with excellent communicative and administrative skills that can really hold the company together while the directors and shareholders run the other tasks. A secretary is the secret backbone doing all the ‘behind the scenes’ bits for your business!
 

How do I appoint a secretary?

You can appoint a secretary online via the GOV website, or by filling out paper forms (APO3) – it will take longer to complete if you send them through the post, and your business cannot use this method if your company is in the protected online filing (PROOF) scheme.

If you need to remove a company secretary, you’ll need to let Companies House know within 14 days from the date of removal (this is the same time period for appointing a secretary too). If any of your secretary’s details have changed, you’ll need to file form CH03 to Companies House.

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What is the difference between a shareholder and a director?

In short: shareholders own the business while directors are responsible for running it.

Shareholders (also sometimes referred to as ‘members’) are the owners of the business. They literally hold shares in the company. As owners they usually have some sort of say in the long-term direction of the business, but don’t tend to be involved in the day-to-day running of it.

This tends to be down to the directors who, broadly speaking, adopt a more managerial role in the company’s daily operations. Directors, sometimes referred to as ‘officers’, are there to steer the business and make important, board-level decisions on the company’s behalf. They’re normally appointed by the company shareholders (or they are the shareholders).
 

What does a shareholder do?

If a company only has one shareholder, that shareholder will own the entire company. In a company with multiple shareholders, they each own a percentage (a share) of the company according to how many and what type of shares they own.

As well as ownership of the company, shares also indicate what rights they’re entitled to. For instance, they might be eligible to receive dividends from the company profits, or to vote on important business decisions.

As we mentioned earlier, shareholders aren’t generally involved in the day-to-day running of a company. Instead, they tend to vote or ‘make resolutions’ on things like:

• Changes to the company name and/or structure
• Investment opportunities
• The appointment and/or removal of directors
• The transfer of shares
• Changes regarding the nature of the business
• Amending the articles of association
• The approval (or disapproval) of directors’ loans
• Significant decisions about how the company is run
• Deciding the level of authority which company directors have

What does a director do?

The duties of a company director typically include (but aren’t always exclusive to):

• Management of daily operations
• Keeping thorough minutes of board meetings
• Issuing dividends to shareholders and keeping a record of these payments
• Recruitment
• Payroll (where an accountant or third party isn’t responsible)
• Registering the company for Corporation Tax and paying necessary taxes to HMRC
• Preparing and submitting Company Tax Returns
• Producing annual accounts
• Submitting confirmation statements
• Health and Safety requirements
• Making sure licenses, accreditations and certifications are up to date
• Liaising with auditors and accountants

Can you be a shareholder and a director at the same time?

Yes, you can be a shareholder and a director simultaneously, which can be useful if you’re starting a limited company by yourself! Some larger companies might occasionally decide to make a point in their articles of association forbidding it, but it’s not common. It’s also often useful to be both so that you pay yourself a tax efficient salary from the company.

Is it better to be a shareholder or a director of a company?

This partly depends on what sort of role you want or need to play in the company. Lots of people prefer to be both because it means they can:

• Set up a limited company without anyone else
• Pay themselves is a tax efficient way through a combination of a salary (as a director), and dividends (as a shareholder)
• Control the business as a director whilst also having the ability to vote on long-term decisions

Find more business tips and expert advice on our website, or check out our comprehensive guide to finding the right accountant for you.

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What is a dividend?

Dividends are payments which a company can make from its profits to its eligible shareholders. Sole traders, partnerships and LLPs don’t issue shares, so dividends are something which only affect limited companies.

Companies can only pay dividends from the profits left after paying their bill for Corporation Tax, and any other expenses and liabilities.

Any profit that the company is left with after dividends have been paid is known as ‘retained profit’ and will be reinvested back into the development of the company.
 

How often are dividends paid out?

There aren’t any restrictions on how often dividends are issued, but it’s generally better to take them on a consistent basis, such as every quarter or six months. Taking dividends on an ad hoc basis might indicate a financial issue to HMRC, and it helps to keep things more organised anyway.

Paying dividends isn’t obligatory by law but many business owners will do so, where possible, as a way to reward shareholders involved in the company. Many business owners will also pay themselves dividends from available company profit for a number of reasons, such as:

• A way to get a return on their investment into the business
• A tax-efficient way to supplement a salary without having to pay higher tax and National Insurance

How much can I take as a dividend?

There’s no set amount to how much you can pay yourself (or your shareholders) in dividends. The amount of profit available for dividends will, of course, fluctuate depending on the company’s performance, so how much you pay out will largely be dictated by this.
 

The importance of leaving some profit in the company

In order to safeguard your business and protect its cash flow, it’s essential that you only distribute what your company can afford from its profits after paying tax. Paying out more is likely to land your business in financial trouble, and probably also lead to penalties from HMRC.

Remember, paying out dividends isn’t a legal obligation. In fact, for some business owners, not doing so is a very conscious choice to retain profit in the company instead.

Even if a company does pay its shareholders dividends, it’s still always advisable to leave some profit in the bank. Why? For a number of reasons, including:

• Reinvesting in the business for development and growth
• Upgrading business assets
• To maintain a financial cushion for future security
• To demonstrate financial stability to potential lenders and investors

Do I have to pay tax on dividends?

Yes, you do need to pay tax on any dividends that you receive above the dividend allowance. This is a tax free allowance which means you can receive up to £500 of dividends (in the 2025/26 and 2026/27 tax years) before you need to start paying tax on them.

The dividend allowance can be used simultaneously alongside your personal tax allowance (which in 2025/26 and 2026/27 is £12,570), so you can use up one, then the other. The rate of dividend tax that you pay depends on your total income for the year.

One of the reasons why dividends are often considered such a tax-efficient way of taking money from a business is that the rates at which they’re taxed are lower than those applied to income tax. Plus, dividends are not subject to National Insurance.

That’s why many business owners will choose to take money from a company through a combination of salary payments and dividends. Typically, the business owner will pay themselves a salary up to the National Instance threshold and then take the rest in dividends.

Reporting dividend tax

Unlike a salary, dividends aren’t taxed at source, which means you’ll need to include them on your Self Assessment tax return.

How do I issue dividends?

When issuing dividends, you’re legally required to hold a directors’ meeting to declare the dividends and make a record of minutes taken. Although this might seem strange, that rule still applies even if you’re the only director of the company.

Each dividend issued requires its own dividend voucher declaring the date of issue, company name, shareholder name and the precise amount.

Our advice? Speak to an accountant

Hopefully, after reading this article, you’re now feeling more confident about all things dividends. The next step we’d recommend is to schedule some time with your accountant to discuss the specifics of your company and its finances.
 
 
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The post How Much Can I Take as a Dividend? appeared first on The Cheap Accountants.

This article deals with how individuals are taxed on the dividends they receive. But, if you are involved in a trust either as a trustee or beneficiary, and the trust receives dividends, these may also be taxable.

It’s worth noting that the situation with trusts is far more complex, so we recommend you use an accountant and ask for help with the tax treatment of any income, including dividends.

What are dividends?

Dividends are how limited companies distribute a share of their after-tax profits to shareholders. If you are a shareholder in a limited company then it’s possible that you will receive dividends, but this isn’t always guaranteed.

Profits from companies are not always distributed to shareholders, especially if it’s been a slow year and there aren’t any profits to distribute. Companies might also decide to retain profits in order to fund future investment, or simply to manage cash-flow.

A company can also choose to pay dividends based on the profit retained from previous years. So keep an eye on those financial reports!

How are dividends paid?

In order to pay dividends, the company must hold a directors’ meeting and declare a dividend. And yes, you’ll need to do this even if you’re the only director and shareholder in the company!

The company must produce a dividend voucher (a bit like a payslip) showing the amount they’ll receive, and issue this to each shareholder. The company must retain a copy of the voucher.

As a side note, if you’re both a director and a shareholder, you might decide to pay yourself a combination of a regular salary, and then take dividends on top of it. This can be more tax efficient than drawing all your remuneration as a salary or bonus, particularly as there is no National Insurance Contribution (NIC) on dividends.

Can I get tax relief or allowances for dividends?

Companies are taxed on their profits through Corporation Tax. Dividends are paid out of these after-tax profits, so they’ve suffered some tax already which is why the dividend tax rate is lower than it is for regular income tax.

Before we get to that though, it’s worth knowing that there are some tax allowances and exemptions which can apply to tax on dividends:

• The Annual Dividend Allowance: In 2025/26 and 2026/27 the first £500 of dividend income is free of tax, and doesn’t need to be declared
• Personal Allowance: This is the amount of income you can earn before starting to pay tax on it. The allowance is £12,570. You can use the personal allowance and the dividend allowance together. Just be aware that your personal allowance reduces by £1 for every £2 you earn above £100,000.
• ISAs: Dividends that you receive from shares in an ISA are exempt from tax, and you won’t normally receive a dividend voucher for them.

So how is dividend tax worked out?

The rate of dividend tax that you pay depends on which income bracket you fall into, so you’ll need to know your total income for the year.

To work out how much dividend tax you owe, the first step is to subtract the dividend allowance from your dividend payment. Then add any dividends over the dividend allowance to your other income. If the combined amount is under the personal allowance for the year, you will not need to pay any tax on the dividends.

If the combined amount is over the personal allowance, you will need to pay tax on the dividends. The rate you pay will depend on the income tax band your combined income falls into.

Dividend Tax Rates and Thresholds

This is further complicated by the reduction in the personal allowance for income over £100,000. It’s also important to note that while there are different tax bands if you are resident and pay tax in Scotland, you won’t use Scottish rates to work out dividend tax.

If your dividend income, when added to your other income, straddles two tax bands, then you’ll pay tax on the dividends at different rates. The good news is that moving into the next tax bracket doesn’t mean you’ll pay the higher rate on the whole amount – just on the portion of income in that bracket.

HMRC use a “stacking” calculation which applies different sources of income in order. Dividends are added last, which can be useful as the rate of tax on dividends is less than for “earned” income from salary, self-employment, or savings.

How do I pay tax on dividends?

It’s your responsibility to report any taxable income you receive from dividends. If you receive a dividend amount between up to £10,000 in a tax year, you can report the dividends directly to HMRC and ask for a change in your tax code so that they will take the tax via the PAYE system. Alternatively, you can submit a Self Assessment return. If you receive more than £10,000 in dividends, you must complete a Self Assessment return.
 

If it all sounds a bit too stressful, getting help from an accountant might be cheaper than you think.  Take a look at our tips for choosing and comparing accountants.

The post How Much Tax Will I Pay on Dividends? appeared first on The Cheap Accountants.