TAX BASICS

Who is a Director and what are the tax responsibilities?

Are you a director of a company? Are you planning to start your entrepreneurial journey? Well, it doesn’t matter. All of us have heard the term director at least once. I am sure most of you know who is a director and their responsibility. Let’s recap some of the things we already know and have a look at the tax responsibilities.

A director is someone who is the spine of a company and makes all the daily decisions in managing the company operations. The success and failure of the company depend upon the actions and decisions taken by a director.

 Running a business is no easy job and, that is why only a few are willing to work and risk everything. On becoming a director, you are entrusted with the legal responsibility of presiding over a company.

If you register your company as a limited company, then you and your business are two separate entities. It has its own legal rights and accountability, and any losses or profits incurred belong to the company alone.

Can anyone be a director?

If you are above 16 years old with no bankruptcy record and cannot be prohibited by court order, then sure, you can be a director of a company. In specific circumstances, the court also permits a formerly bankrupt or disqualified individual to become a director.

What are the duties of a director?

As a director, you must act honestly, in the best interests of the company, and with reasonable care at all times.

  1. As the director, you must follow the rules laid out in the Articles of Association. 
  2. As the director, your actions determine the future of the company. You have to uphold the value and build the reputation of your company.
  3. You must make decisions that benefit the company not, you personally, even if you are the major shareholder. A decision that rewards any individual personally might not be the best for a company.
  4. You have to exercise reasonable care, skill, and diligence, as expected of someone in your position.
  5. You have to be honest in presenting your accounts and must keep a well managed and transparent books of accounts to HMRC.
  6. It is always good to listen to others, advice, and opinions. But decisions must be made independently to avoid accusations.
  7. All records should legally be kept for six years from the Year-End Date, or the company may be liable to face a £3000 fine.
  8. You must also ensure that your company is not wrongfully trading or taking illegal dividends.

What are the tax responsibilities of a director?

As the director, you must ensure that you register for all relevant taxes with HMRC and Companies House. You must remember that even though your business is a separate legal entity, you are legally responsible.

The following is a list of returns and registrations that directors are responsible for:

  • Registering for Corporation Tax and setting up a PAYE scheme with HMRC.
  • PAYE is automated every time you pay an employee through real-time information software – which is a requirement.
  • The companies who are likely to exceed the vat threshold over 12 months and those who want to voluntarily register for VAT or the VAT rate scheme will need to contact HMRC.
  • You will also need to account for your VAT. The most common is quarterly for small limited companies. 
  •  The confirmation statement must be submitted within 12 months and 28 days of the company formation and then each year subsequently. The confirmation statement is a report containing accurate and up-to-date information about a limited company on a defined date.
  • Filing your annual financial statements to Companies House nine months within your accounting Year-End.
  • Filing your annual financial statements and Corporation Tax return (CT600) within 12 months of your accounting Year-End.
  • The corporation tax must be paid after nine months and a day after the end of the accounting year. You will have to personally register for Self Assessment for your personal tax before 31 January each year. Always ensure not to miss the date because any delay would result in a significant penalty.

Penalties and Late Payments

HMRC and Companies House take the responsibilities of a director seriously as they should. If you fail to uphold your duties, you can be held personally liable and fined up to £5,000 per offense and/or disqualified as a company director. 

For the late filing of your tax returns, you will incur penalties that can escalate substantially. These are penalties incurred due to carelessness and can be totally avoided. 

Sidharth Bharthan Menon
CEO, taxtotal​