Limited companies have to appoint at least one Director to be able to register with Companies House. One Director has to be an individual over 16 years old but the business can have another company as a Director as well. Directors’ names and addresses are public by default.
In small companies the Director is usually the main shareholder, where these roles are independent from each other shareholders have to monitor the Director’s actions as there might be conflict between interests.
Directors are responsible by law to fulfil the following tasks:
- Comply with the rules shown in the articles of association
- Keep company records and report changes to the correct body
- Bring the company to success
- Set aside decisions that do not favour the company
- Inform shareholders if any of your actions results in personal gain
- Present accounts and other information that show true and fair view of the business’ finances
- Have to register for Self Assessment and send Directors’ Tax Return every year regardless whether you earned any money or not.
If Directors feel they need help with these tasks help can be hired but Directors will still be responsible to supervise that tasks are completed and format/content is correct.
Failing to comply with these responsibilities might result in disqualification which could mean you cannot be a Director or be involved in forming, marketing or running a business up to 15years, or can be jailed if you break the terms of disqualification.
Where the main shareholder and the Director are the same person significant tax advantage can be achieved by optimizing possibilities to take your hard earned money out of the company.
- Salary, expenses, benefits
There are different scenarios regarding Salary as whether you have to register as an employer or not and whether you have to pay NI and Income tax or not (and get the rights for pension for example). Action depends on your preferences and it is determined by the Lower Earning Limit, the NI Primary Threshold and PAYE threshold for the year. Taking advantage on Employment Allowance adds more variant into the calculation therefore you can of course take any amount of salary but you should carefully calculate with the consequences alternatively you can ask for advice.
There are options to claim expenses, benefits without having to pay tax and NI.
Any money taken out under this category lowers your profit and subsequently your Corporate Tax but it also lowers the available Dividends for distribution.
If your company has sufficient level of attributable dividend from previous or current accounting periods you can take out money this way.
In order to be able to do so you have to follow some rules and comply with the requirements of necessary paperwork such as Directors’ meeting and documentation or dividend voucher.
- Directors’ Loans
If you or your close family receives any money from your company that is not a salary/expense repayment/dividend or money that you have lent to the company it has to be classified as Directors’ Loan.
There are two position regarding this matter
- You owe the company
This option requires a cautious approach and Directors are advised not to mix personal and business spending as there might be tax and NI consequences for both the Director as an individual and the company itself. This depends on the amount and the details of the loan (interest, settlement etc.)
- The company owes you
If you lend money to the company you can charge interest on it which is a business expense for the company and personal income which you get after tax deduction.
Directors must register for Self Assessment with HMRC regardless whether they have any income or not unless you were a director of a non-profit organisation and you didn’t get any pay or benefits, like a company car etc.
As a Director you might be required to provide personal guarantee on company borrowings in which case you will be personally liable to repay them. HMRC can also take action against Directors regarding unpaid payroll taxes and VAT.