VAT and corporation tax

VAT and corporation tax is two different taxes administered by HM Revenue and Customs.

Your limited company is legally required to pay corporation tax if your company has made a profit and submit your corporation tax return with HM Revenue and Customs (HMRC).

If your limited company is registered for VAT with HMRC then your company is legally required to charge VAT to your customers and submit VAT returns to HMRC.

VAT

Let say, your company is selling children clothing, the applicable VAT rate is zero percent, your price for a pair of child’s trouser is £20 and the VAT rate for children’s clothing is zero percent. Your customer will pay you £20.

If your are selling website coding services, you would charge a standard VAT rate of 20% to your customers. Say, your project fee is £1000 and your invoice to your customer would be £1000 + 20% VAT and the final invoice price is £1200. The £200 collected is VAT. This amount is called output tax.

The £200 belongs to HMRC. Your company is technically collecting the VAT on behalf of HMRC. You report this output tax collection in your VAT return.

Corporation tax

Corporation tax is payable if your company has made a profit only. Let use the website coding services business to illustrate how corporation tax is computed. Let say, your company only have one sale that is £1000 + 20% VAT equal to £1200.

When preparing your company account, you book only £1000 as your sale not the whole £1200 because the £200 of VAT belongs to HRMC and it is not your earning. Then you deduct any expenses you incurred to deliver the website coding services, say stationery cost of £150 (excluding VAT). Your profit is £850 (£1000 less £150). The current corporation tax rate is 20%, your corporation tax liability would be £170. Your company would report this tax liability in your corporation tax return called CT600 and submit it to HMRC.

HMRC published the current corporation tax rates .

No double counting of taxes

As you can see from the illustration above, your company would not pay double taxes on your business income. You collect VAT on behalf of HMRC and it excluded from your corporation tax computation.

Company incorporation documents

Company incorporation documents required to register a limited company with Companies House in the United Kingdom are as follows.

Memorandum of Association

One of the company incorporation documents is the memorandum of association. It is a form of contract with the world in general. It states:

  • Your company’s name and registered office address.
  • Your company’s objective and it’s powers.
  • Shareholders liability is limited.
  • The share capital and classes of shares and nominal value of each share.
  • The names and address of your original subscribers (shareholders). And number of shares issued to your subscribers.

Articles of Association

Another incorporation document is the Articles of association. It sets out the regulations governing your company’s internal affairs such as how shares will be allocated. Who is your directors and secretary. How your meetings will be governed. Subsequently, any changes can only be made with 75% of voting rights obtained.

Statement of first Directors and Secretary and Intended situation of Registered Office

The third document is the statement of first directors and secretary and intended situation of registered office. It states the prescribed details of your first directors and company secretary and your registered office.

On the same note, the appointment of company secretary is optional unless you are a public limited company. Then you must have a company secretary. Your company secretary must have the relevant skills and qualifications to hold the position. For example, he/she must be a member of the Institute of Chartered Accountants in England and Wales (ICAEW).

Declaration of Compliance

Your director or sectary named in the statement of first directors and secretary to make the declaration of compliance with the requirements on application for registration of a company.

Documents no longer needed

Subsequent to the implementation of the Companies Act 2006, only the memorandum and articles of associations are required for new company incorporation. In short, the statement of first directors and secretary and intended situation registered office plus statement of compliance are no longer needed.

Company registration with Companies House

Before anything else, use the company name availability checker to check your company desired name whether it is available or already taken. Also, make sure your desired company name is not too similar to company names already on the register. This is to avoid Companies House return your incorporation documents for amendments. Thus, this would expedite your company incorporation.

You must also complete and include the Companies House form IN01 with incorporation documents for Companies House.

Certificate of incorporation

Companies House would process your company incorporation documents. Consequently, they will issue certificate of incorporation once your company is successfully incorporated.

You would need your incorporation documents to open a business bank account. Your bank needs them.

Registered office for Limited Liability Partnership

Registered office for your limited liability partnership (LLP) must be a physical location. Companies House does not accept P O BOX address as a valid registered office address.

Both HM Revenue and customs and Companies House send reminders and letters to your registered office. This includes legal notices.

Your registered office address need not be a place where you run your business. Some businesses use their accountants’ office as their registered office so that their statutory mails can be dealt with promptly.

If you no longer able to access to mails sent to your registered office address, it is time to change it. You must submit the form LL AD01 to Companies House.

Companies House will strike off your LLP if they received mails sent to your registered office was returned to sender. In other words, their letters were unable to reach out to your LLP partners. Thus, it is imperative that you have a valid registered office address at all times. If you move office, remember to change your registered office with Companies House within 14 days.

Another thing is, remember to renew your registered office address service if you are using a service provider. The provider usually returns your LLP mails to sender if your service has expired with them.

Limited liability partnership registered office location

Generally, If your Limited Liability Partnership is registered with Companies House in England then your registered office must be situated in England.

For instance, your LLP has been the original registered office as only being situated in Wales then your registered office cannot be situated outside of Wales.

Likewise, If your LLP is registered with Companies House in Scotland, your registered office must be situated in Scotland.

Similarly, you must always use a registered address situated in Northern Ireland if your LLP is originally registered in Northern Ireland .

Contact us if you require help with updating your registered office with Companies House.

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