In UK there are more than 2.2 million limited companies in 2025. This structure is preferred by most of the business owners in order to protect their personal assets. When you mix both your personal and business debts it will create a legal barrier when you set up a limited company.
A limited company is considered a separate legal entity which is registered at Companies House. In simple terms, this means that the company owns all assets and is responsible for its own debts. Keeping accurate accounts isn’t just good practice it’s a legal requirement if you run a limited company.
Essential banking and financial management
1. Open a business bank account immediately
Owning a separate bank account is the topmost requirement of a limited company. This is because your company is legally separate from you as an individual. You have to open this account as soon as Companies House confirms your registration.
Why is it important:
- Helps with changing tax rules.
- Legal requirement for financial separation.
- Makes accounting much simpler.
2. Keep personal and business finances separate
Always avoid mixing of your personal expenses with business spending. Using your business account for personal purchases creates problems with tax. You must keep everything separate to avoid problems with HMRC.
Best practices:
- Keep detailed records of all transactions.
- Use only business cards for company purchases.
- Pay yourself through salary or dividends.
| Transaction Type | Use Business Account | Use Personal Account |
|---|---|---|
| Office supplies | ✓ | ✗ |
| Business travel | ✓ | ✗ |
| Grocery shopping | ✗ | ✓ |
| Personal bills | ✗ | ✓ |
3. Avoid using personal money for business expenses
Claiming back business expenses from personal funds is possible. But it will create unnecessary paperwork and problems. A better solution for this is to get a business debit or credit card.
Benefits of business cards:
- Cleaner financial records.
- Expense tracking becomes easy.
- Better cash flow management.
4. Never use company credit cards for personal purchases
The use of business cards is for business expenses only. When it used for personal spending, it may give rise to tax issues and even can complicate your accounts. Always pay off credit cards monthly to maintain good credit ratings
VAT Registration Requirements
You must register for VAT if your turnover reaches £90,000 over any rolling 12-month period. This threshold increased from £85,000 in April 2024.
VAT Registration Timeline:
- Monitor your turnover monthly
- Register within 30 days of crossing the threshold
- Consider voluntary registration for smaller businesses
VAT schemes available in 2025
Flat rate VAT scheme benefits:
- Available for businesses with turnover up to £150,000.
- Simplified accounting process.
- Potential tax savings depending on your sector.
- 1% discount in your first year.
| Business Type | Flat Rate % | Standard Rate |
|---|---|---|
| Retail | 4% | 20% |
| Consultancy | 14% | 20% |
| Construction | 9.5% | 20% |
Corporation tax and dividends
Only declare dividends when your company has sufficient profits. Illegal dividends result in penalties and potential director liability.
Key dividend rules:
- Check retained profit before declaring.
- Issue dividend vouchers.
- Maintain proper documentation.
Companies house requirements 2025-26
Filing deadlines
Private companies must file annual accounts within 9 months of their year-end. Corporation Tax returns are due within 12 months of the accounting period ending.
Annual Compliance Checklist:
- Annual accounts (9 months).
- Confirmation statement (yearly).
- Corporation Tax return (12 months).
- Corporation Tax payment (9 months + 1 day).
New requirements for 2025
By autumn 2025, Companies House will require all directors to verify their identity when filing confirmation statements. From April 2027, all companies must submit accounts using commercial software.
Cost-saving accounting strategies
Digital accounting tools
Modern accounting software can save time and money. These tools help track expenses, generate invoices and prepare tax returns automatically.
Benefits include:
- Automated bookkeeping.
- Real-time financial reporting.
- Easy VAT return preparation.
Professional accounting services
Consider hiring an accountant for difficult tax issues. They can identify tax savings and make sure that you stay current with changing regulations.
When to hire an accountant:
- Annual turnover exceeds £100,000.
- Complex business structure.
- Multiple income streams.
Common accounting mistakes to avoid
Record keeping errors
Keep all receipts and invoices for at least 6 years. Digital storage is acceptable but ensure backups exist to avoid problems in future.
Missing deadlines
Late filing results in automatic penalties. Set up calendar reminders well before deadlines.
Structure of penalty:
- Up to 1 month late: £150
- Up to 3 months late: £375
- Up to 6 months late: £750
Incorrect expense claims
Only claim correct business expenses. Personal costs cannot be claimed even if paid through the business account.
FAQs
1. What happens if I miss the VAT registration deadline?
You must register within 30 days of crossing the £90,000 threshold. Late registration can result in penalties and interest charges.
2. Can I change my company year-end date?
Yes, but this requires filing a shortened or extended set of accounts. Consider the impact on tax planning before making changes.
3. How often should I review my company finances?
Review your accounts monthly at minimum. Weekly reviews are better for active businesses with regular transactions.
4. What expenses can my limited company claim?
Legitimate business expenses include office rent, equipment, travel, and professional fees. The expense must be wholly and exclusively for business purposes.
5. Do I need separate insurance for my limited company?
Yes, your company needs its own insurance policies. Personal insurance doesn’t cover business activities or premises.
6. When should I consider paying myself dividends vs salary?
This depends on your total income, tax rates, and cash flow needs. Professional advice is recommended for tax-efficient extraction strategies.
7. What records must I keep for HMRC?
Keep all business receipts, invoices, bank statements, and expense records for 6 years minimum. Digital copies are acceptable with proper backups.
8. Can I run my limited company from home?
Yes, but consider business rates, insurance, and mortgage implications. You may be able to claim home office expenses.
Key takeaways
Running a limited company involves difficult accounting and tax requirements. Professional accountants can help ensure compliance while maximising efficiency in tax.
For expert accounting services as per your limited company needs, consider consulting with qualified chartered accountants who understand the latest 2025-26 regulations.
Talk to CloudCo Group Accounting
Do you need an accountant in Milton Keynes for your limited company? Contact CloudCo Group Chartered Management Accountants.
