UK : what are my responsibilities as the director of a private limited company ?
After telling you how to set up a private limited company and describing the Corpotation Tax in details, we’re now going to examine the obligations, responsibilities and duties you’ll face as the director of a private limited company in the UK.
What does it mean to be the director of a private limited company ?
A private limited company can have one or several directors. Since October 2016, all directors must be physical people : you can’t name another company to the board of directors. As is often the case, directors can also be shareholders or employees at the company, but this isn’t mandatory.
You can even be a non-executive director, which means you have nothing to do with the day-to-day running of the company… but be careful : you’ll still have the same responsibilities as any other director of your company !
What are the director’s statuory duties ?
If you are designated as a director, you must follow the specific rules written in the articles of association. You should read them as a first step if you are invited to be a director, this way you’ll know what you are preparing to agree to.
First of all, the articles of association include the objectives (or ‘objects’) of the company. A director has to act according to them or else legal action can be taken against him/her/them, and changing the objectives is not a simple thing to do: all shareholders to agree to the new ones.
In the articles of association, following the objects are the governing rules of the company. They define, inter alia, the directors’ powers and responsibilities, more precisely the decision-making procedures.
Apart from what is written in the articles of association, a director has seven statutory duties written in the Companies’ Act of 2006 and listed below :
- Act within powers (regulation 16)
- Act in a way most likely to promote the success of the company for the benefit of its members as a whole (regulation 20-24)
- To exercise independant judgement, not to subordinate to the will of others
- Exercise reasonable care, skill and diligence(regulation 25)
- Avoid conflicts of interest (regulation 30-36)
- Not to accept benefits from third parties (regulation 31)
- Declare any interest in a proposed transaction or arrangement (regulation 32-36)
In addition to these seven main duties, the director of a private limited company must also consider or act in the interests of creditors and maintain confidentiality of the company’s affairs.
What are the directors’ responsibility concerning accounting and reporting ?
According to The Companies Act 2006, all private and public limited companies are required to prepare annual accounts together with a directors’ report.
From there, two regimes for regulations can be distinguished : the ‘small companies’ regime and the ‘quoted companies’ regime, as termed in the Companies Act 2006. We’ll only introduce you to the small companies regime since we aim to help startups or small businesses !
Small companies directors’ responsibilities
A private limited company is considered small if it matches two of these three criteria :
- A turnover below £5.6 millions
- A total balance sheet that doesn’t exceed £2.8 million
- No more then 50 employees
A parent company can be considered a small company only if the whole group can be considered a small group under two of the three following criteria :
- Aggregate turnover below £5.6 million
- Aggregate balance sheet that doesn’t exceed £2.8 million
- Aggregate number of employees of no more than 50
Also note that public companies are not eligible for the small companies regime.
Register your company for tax
The director of a private limited company must register his company with HMRC for Corporation Tax. He has three months after the company’s creation to do so.
If the company is likely to have a turnover of more than £85.000 on a twelve months period, the private limited company must also be registered for VAT (Value Added Tax).
Finaly, if the companies has employees or if the director himself earns a salary, the director needs to register is company for Pay As You Earn (PAYE).
File your annual confirmation statement
Once every 12 months, the company must complete an annual confirmation statement and send it to Companies House (or submit it online). This document resumes all the key information on your company and ensures the data in question are up to date, since it is publicly accessible in the central public register of Companies House.
Prepare your annual accounts.
Keep accounting records and prepare your annual accounts
The accounting records are here to enable HMRC and Companies House to show and explain the company’s transactions, disclose with accuracy the financial position of the company and enable the directors to ensure the accounts comply with the requirements of the law (section 386 of Companies Act 2006).
To match these criteria, the records must contain :
- daily entries of all sums received and spent by the company and the matters to which they relate
- a record of the companies’ assets and liabilities including statements of stocks if the company is trading goods
The records must be kept for at least three years from the date they were created. They can be kept in electronic form.
The annual accounts must be prepared in relation to the companie’s financial year. The financial year is determined from the company’s ‘accounting reference period’. The accounting reference period of a company usualy starts on the 1st of the company’s creation month and ends one year after on the last day of the previous month from the company creation.
Prepare your Company Tax Returns
At the end of every Corporation Tax accounting period, and no more than twelve months after, the director must file a Corporation Tax Return with HMRC. This can only be done online.
Note that if your private limited company doesn’t need an auditor, you can file both documents together. See if your private limited company can get an audit exemption.
Also, you’ll need to include your company’s annual accounts when filing your Company Tax Return, so be careful !
Pay your Corporation Tax
After your Company Tax return was submitted to HMRC, you will be notified on how much Corporation Tax you have to pay. The current rate is 19% for 2018-2019. You have nine months after the end of each accounting period to pay what you owe. Again, you’ll find extra informations about Corporation tax in our previous post.
Report changes made to the company
As a director, you have to notify Companies House of any change in the following registered data :
- Directors’ details.
- Appointment or removal of a director.
- Secretary details.
- Appointment or removal of a company secretary.
- Registered office or Single Alternative Inspection Location (SAIL address).
- Company name.
- Accounting reference date (ARD).
- Share capital.
- Shareholders’ details (reported in the annual return).
- Register of People with Significant Control.
- Nature of trading activities (SIC codes).
Keep your company’s records and registers
Besides your accounts records, you’ll need to maintain and store the following documents at the registered company’s address. These are called statutory registers and must be available at all times in case of public inspections :
- Statutory registers of members
- Register of directors and directors’ residential addresses
- Register of secretaries
- Register of People with Significant Control (PSC register)
- Minutes of meetings
- Record of all sales, purchases, credits and liabilities
- Bank statements
- Company formation documents
- Share certificates
As you can imagine, keeping all these documents safe and up-to-date at all times is going to be a major investment of time and energy, so you’d best be prepared. And there is nothing like a meticulously prepared business and financial plan to help you do so.
We have a free excel financial and business plan template that you can download right now to get started ! We hope our posts are helpful to you, and don’t hesitate to ask questions or suggest topics you’d like to know more about in the comment section !