6 December 2025 –
Maybe you’ve recently taken the step of setting up a Limited Company. You’ve paid the Companies House incorporation fee, you’ve added the company name onto your letterhead and purchased a website domain name, plus your email signature now includes the title “Director”.
“Is there anything else to it?” you may well ask.
I’ve encountered individuals who, after deciding to incorporate their business into a Limited Company, continue under the presumption that running it will be by and large the same as operating as a sole trader, albeit under a different legal name.
In actual fact, whilst the underlying operations may not change a great deal, a lot has changed, and this can take some getting used to.
Here are six pointers to get you started…
1. Know Who’s Who
A crucial matter to get your head round is that, even if you are the sole director and sole shareholder of a company, you and that Limited Company are not the same person.
This may sound pretty basic, yet in my own experience, it’s not uncommon to find directors who assume, for example, that any money sitting in the company’s bank account belongs to them, which is not the case.
Once operating via a Limited Company you will need to ensure you treat the company as separate to you. Here are a few practical considerations:
- A business bank account under the company’s name should be set up – this will ensure company monies are kept separate from your personal finances.
- Insurance policies may need to be taken out separately for the company. You should discuss this further with your insurers to ensure you are compliant and maintain the coverage that your business needs.
- Additional annual compliance is required, such as filing annual accounts for the company with Companies House, and submitting a company tax return (known as the ‘CT600’) to HMRC. As with a sole trader business, good record keeping will need to be maintained.
2. Choose the Company Year End
After incorporation, the company’s first “year end” is normally set automatically as the last day of the month a year later.
For example, if a company was incorporated on 10 April 2026, the first period end would be set as 30 April 2027.
However, you are able to change this, and it’s worth having a think about what would be most suitable.
For example, you may prefer 31 March as the company’s year end to coincide with your personal tax year end. Or a different date may suit a seasonal business to fit in with its annual cycle. Or perhaps you would like 31 December as the company year end simply because a calendar year feels more ‘natural’.
It’s completely up to you and there is no right or wrong answer.
If you do want to consider changing your accounting year end, I would recommend consulting an accountant first, as there are knock-on effects to consider, such as implications to timings of paying corporation tax, and restrictions on how often you can change the company’s year-end. Both Companies House and HMRC would need to be notified of any change.
3. Monitor your Director’s Loan Account
The Director’s Loan Account – sometimes referred to as a Director’s ‘Current’ Account – is used to keep track of any transactions between you and the company.
A common example is funds provided by you to the company, particularly in the early months or even years, where the company may not have sufficient funds to purchase equipment, or pay for other set up costs. Whilst there are other ways to inject cash into the business, for example through equity, a director’s loan account is a simple and often convenient way of funding a small company.
Other examples of transactions that would be recorded through the director’s loan account include business costs that are paid personally by you, for example before the company bank account has been set up, or the cost of using a room in your home as the company’s office. If you use a personal vehicle for business journeys, remember to keep a mileage log so that this can be accounted for through the director’s loan account.
After accounting for any transactions between you and the company, if the company owes you money, this can be paid back to you “tax free”, provided the company has the funds to do so. In some situations it can be beneficial to leave this balance untouched to be repaid to you in a later tax year.
Conversely, if you owe the company, there may be adverse tax consequences, such as additional corporation tax if the balance is not repaid within 9 months of the year end, and a possible “Benefit-in-Kind” for you as a director, depending on the value and specific terms of the “loan”.
4. Consider ways for Profit Extraction
Any profits or cash earned by the company belong to the company.
This is an important point to understand, and if you have been a sole trader or private landlord previously, this can be a considerable shift in your thinking.
There are different ways that company profits can be “extracted”, and it can be beneficial to speak to an accountant about what would suit your specific circumstances. Here are some commons ways to draw funds:
- Salary – The company can employ you and pay you a regular salary. This has to be done properly via monthly payroll submissions to HMRC under RTI, and the company would need to first register as an employer.
- Dividends – If you are a shareholder of the company, you may be able to be paid dividends, but only if there are “distributable reserves” available within the company, and that’s after considering costs that may not have been paid yet but need to be ‘accrued’ within the period, such as accountancy fees or corporation tax. Certain formalities and documentation also needs to be followed when dividends are paid, and other shareholders holding the same class of share must also be paid.
- Pension contributions – The company may be able to make contributions into a pension fund for you as a director, and this can be a tax-efficient strategy for extracting funds. If you are not sure if pensions are right for you, please speak to a financial advisor. Chartered Accountants cannot generally provide pension or investments advice unless they are regulated by the FCA.
- Company sale – This will likely be far down the line if you have only just incorporated, but it is worth bearing in mind as a way of extracting funds in future. If you are considering a sale within the next few years, please consult an accountant or financial advisor to discuss exit strategies for your business.
5. Understand Tax on the Company
In many ways, being taxed as a sole trader or private landlord is simpler than when running a business via a Limited Company. In the former case, any profits are simply taxed on the individual.
On the other hand, once a company has been incorporated, that legal entity has its own tax status. It will be taxed in its own right, separately from you as a director!
The company will pay corporation tax on its profits, whilst you as an individual will be taxed once profits are extracted, such as via a salary or by drawing dividends.
These come with varying tax treatments, on both the company, and on you as a director, and it’s important to speak to your accountant before drawing on company funds to ensure you are doing things properly and efficiently.
6. Stay Vigilant as a Director
Tactics by fraudsters and scammers are becoming more and more sophisticated, and running a Limited Company can come with additional exposure.
Certain details about you and the company are now publicly available on Companies House. Whilst this should not cause any immediate concern, it’s worth remembering that this information could be used by scammers to take advantage. I have seen copies of letters sent to company directors, which impersonate HMRC, and they look very convincing.
Please remain vigilant, and if in doubt, consider sharing any correspondence with your accountant.
Need help understanding what you need to do?
There is a lot to get your head round when setting up a Limited Company. Remember that a director of a company must act in the way they consider, in ‘good faith’, would be most likely to promote the success of the company.
Running a Limited Company can carry with it a number of advantages and efficiencies if run in the right way. However there are plenty of pitfalls, with added complexities and administrative burden. This article seeks to point you in the right direction and is no means an exhaustive list.
If you would like to know more, Zip Accounting can guide you through the process to ensure you start off on a good footing.
👉 Contact me today to book in a consultancy session.
