Your responsibilities as a company director – what you need to know
11th May 2020
Running your own business sounds like a brilliant idea and many people choose a limited company as the vehicle for doing that, but do you know about your responsibilities as a company director?
This blog has been on our list to write for a while, but it’s even more pertinent given the current Covid-19 situation and the possibility that some company directors will furlough themselves. When they do, they can only carry out their duties as directors, and are prevented from doing any income-generating work for their business. More on that at the end of this blog, but in the meantime, what are a director’s duties?
Tactical duties of a company director
As the director of a limited company you have a series of legal duties and expectations placed on you. These can’t be avoided or passed on to professional advisors, so even if you use lawyers or accountants to assist you, as a director you remain responsible for making sure certain things happen.
The most tactical of these responsibilities are making sure that HMRC gets the relevant information about your company within the right timescales.
The information they require includes:
* the confirmation statement – also known as an annual return, this confirms to Companies House that the information they hold is still accurate
* the annual accounts – these are due nine months and one day from your year-end date, also called an accounting period
* any change in your company’s officers or their personal details
* any change to your company’s registered office
* details about the allotment of shares if there is more than one shareholder of the company
* registration of charges (mortgage)
* any change in your company’s people with significant control(PSC) details
As your accountants, we will prompt you to agree your confirmation statement and will also prepare your accounts once you have confirmed that all of the information we need is available. But you remain responsible for agreeing the accounts and for paying Corporation Tax on time.
You can read more about being a company director on Gov.uk.
Strategic duties of a company director
The Institute of Directors (IoD) is the professional body representing company directors. You don’t have to be a member, but they position the organisation as a lobbying body on behalf of directors.
The duties of directors that the IoD focuses on are more around good governance. They list a director’s duties as to:
1. Follow the company’s constitution and articles of association
2. Promote the success of the company
3. Form an independent judgement – don’t rely on the knowledge or judgement of others in forming a view about the company’s performance.
4. Exercise reasonable care, skill and diligence
5. Avoid conflicts of interest
6. Be wary of third party benefits – you may only benefit from those allowed by the company and which don’t cause a conflict of interest
7. Declare interests in a transaction e.g. if a family member is involved with a company about to win a contract from yours
8. Keep things confidential
9. Not mis-use company property
If you are the sole director of your own company you will take many of these duties for granted. They are still relevant, but feel more so when applied to someone being employed as a director of a bigger organisation as they aren’t so personally invested in it.
Directors’ responsibilities and insolvency
Directors also have a responsibility to be aware of the laws around insolvency, and how to know when a company is trading insolvent (known as wrongful trading), rather than just dealing with debts.
If you think your company is in difficulty, it’s a good idea to have a director’s meeting and discuss your plans to turn the situation around and why you think you can recover. Make sure there are minutes for the meeting and keep a copy safe.
If things aren’t looking good at your year-end, it’s your accountant’s responsibility to make a note in your statutory accounts about whether the company can continue to be a going concern.
In March 2020 the rules on wrongful trading were temporarily suspended in order to provide some breathing space for companies during the Covid-19 pandemic. This change removed the personal responsibility from directors for the damage done by allowing a company to continue to trade without reasonable prospect of survival, or when it is going insolvent.
Under insolvency rules, directors can be held financially and sometimes criminally liable for debts run up after the point at which they should reasonably have known that the company could not honour the debts.
Personal duties a company director is legally responsible for
As a company director you will be required to complete a self-assessment tax return. As your accountants we can do this for you, but only if you provide us with the relevant information. We create a checklist each year to help you gather all of the details together so that we can prepare your tax return, but any liability for missing the deadline of midnight on 31 January is yours.
What you’re allowed to do if you are a furloughed company director
The Coronavirus Job Retention Scheme was created to preserve jobs and to give the economy a fighting chance when the immediate issues relating to the Covid-19 pandemic are over. It pays 80% of people’s PAYE income, up to £2,500 a month and company directors can apply. Read more about the scheme in this blog from our friends at business growth specialists Alpaca.
If you choose to furlough yourself as a company director, you can do no income-generating work while on the scheme. You cannot do work which requires invoicing suppliers or clients, you can only carry out your statutory duties, which amounts to filing VAT returns and annual accounts, and not a huge amount more. The Government’s guidance on furloughed company directors is here.
If you’re unclear on your duties and responsibilities as a company director we’re happy to chat this through with you. Do just get in touch.