TAX BASICS

What are the director’s tax responsibilities?

A director is the spine of a company and makes all the daily decisions in managing the company operations. After all, the success of the company depends upon the actions and decisions taken by a director. Therefore it’s fair to say that a director is a responsible position. Let’s take a look at the eligibility and director’s tax responsibilities

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

Can anyone be a director?

Anyone above the age of 16 with no bankruptcy record or who can’t be prohibited by the court can become a director of a company. However, the court also permits a formerly bankrupt or disqualified individual to become a director in some specific circumstances.

What are the duties of a director?

As a director, you must act with integrity and honesty. Moreover, you must act in the best interest of the company and with reasonable care.

  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. Therefore, 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. After all, a decision that rewards any individual personally might not be the best for a company.
  4. You have to exercise your actions with reasonable care, skill, and diligence, as expected of someone in your position.
  5. You have to be honest in presenting your accounts. Moreover, it is amongst the director’s tax responsibilities to keep a well-managed and transparent book of accounts to HMRC.
  6. As the director, decisions regarding the company must be independent to avoid any future accusations.
  7. All records should be kept legally for six years from the Year-End Date. In the case of failure, the company may be liable to pay a £3000 fine.
  8. You must also ensure that your company is not wrongfully trading or taking illegal dividends.

What is the director’s tax responsibilities?

As the director, you must ensure that you register for all relevant taxes with HMRC and Companies House. Even though the business is considered as a separate legal entity. The director is legally responsible for filing the tax returns.

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 mandatory. PAYE is automated and every time an employee is paid through the software.
  • The companies who are likely to exceed the vat threshold over 12 months. Those who want to voluntarily register for VAT or the VAT rate scheme. Will need to contact HMRC for registration.
  • As a director, you are responsible for the filing of the VAT return of your company.
  • It is the responsibility of the director to file the confirmation statement. A confirmation statement should be filed within the first 12 months and 28 days from the incorporation of the company. 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 accounting year-end. 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. Thus, any failure from your end may lead to a fine of £5000 or disqualification as the company director.

For the late filing of your tax returns, you will incur penalties that can escalate substantially. These penalties arise due to a lack of knowledge or carelessness and can be avoided significantly.

Sidharth Bharthan Menon
CEO, taxtotal​