Understanding My Responsibilities

Directors’ duties are set out in the Companies Act 2006. There are seven statutory duties:

• To act within the powers set out in the company’s articles of association.
• To promote the success of the company for the benefit of its members.
• To exercise independent judgement.
• To exercise reasonable care, skill and diligence.
• To avoid conflicts of interest.
• Not to accept benefits from third parties.
• To declare any interest in a proposed transaction or arrangement.

In addition to these statutory duties, directors have obligations under tax law, insolvency law and employment law. The role carries genuine legal weight, and ignorance of the duties is not a defence.

Companies House imposes automatic financial penalties for late filing of accounts. The penalty depends on how late the accounts are:

• Up to one month late: £150
• One to three months late: £375
• Three to six months late: £750
• More than six months late: £1,500

These penalties double if the company files late in two consecutive years. Persistent non-filing can lead to the company being struck off the register, which has serious consequences for any assets held by the company.

Filing a confirmation statement late is also a criminal offence, although prosecution is rare. HMRC and Companies House share information, so filing failures rarely go unnoticed.

HMRC imposes automatic penalties for late filing and late payment. For Corporation Tax:

• A return filed one day late incurs an automatic £100 penalty.
• Three months late: a further £100.
• Six months late: HMRC may raise a tax assessment and charge 10% of the unpaid tax.
• Twelve months late: a further 10% of unpaid tax.

For Self Assessment, late filing penalties begin at £100 immediately and escalate with time. Penalties also apply for late payment of Corporation Tax, Self Assessment, VAT and PAYE.

Interest accrues on all overdue tax, currently at a rate significantly above base rate. The combination of penalties and interest can turn a small delay into a material cost.

The limited liability of a company is a protection for shareholders, not an absolute shield for directors. Directors can be held personally liable in a number of circumstances:

• Personal guarantees. If you have given a personal guarantee on a company loan or lease, the lender or landlord can pursue you personally if the company defaults.
• Wrongful trading. If a company continues to trade after the point at which the director knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation, the director can be required to contribute to the company’s assets.
• Fraudulent trading. Trading with intent to defraud creditors carries both civil and criminal liability.
• Tax liabilities. HMRC has powers to collect certain tax debts, particularly PAYE and National Insurance, directly from directors where the company has failed to pay.
• Breach of fiduciary duty. Where a director has acted in their own interest at the company’s expense, they can be held personally liable for the loss.

Read it carefully and act promptly.

Companies House correspondence is usually one of the following:

• A reminder about an upcoming filing deadline.
• A penalty notice for late filing.
• A notice that the company is to be struck off for failure to file.
• A request for information.

If it is a reminder, take action immediately, do not leave it until the deadline. If it is a penalty notice, assess whether there is a reasonable ground for appeal, although penalties are rarely waived without a compelling reason. If it is a strike-off notice, this is serious. Once a company is struck off, its assets vest in the Crown. Act urgently to file the outstanding documents and apply to restore the company if necessary.

If you are unsure what a letter means, send it to your accountant without delay.

A confirmation statement (previously called an Annual Return) is a document filed with Companies House that confirms the company’s registered information is accurate and up to date. It includes details of directors, shareholders, the registered office address and share capital.

It must be filed at least once every twelve months, within 14 days of the anniversary of either the company’s incorporation or the date of the last confirmation statement.

Filing a confirmation statement is separate from filing annual accounts. Both are required. The fee for filing a confirmation statement is currently £34 online.

HMRC requires a company to keep accounting records for six years from the end of the accounting period to which they relate. For sole traders, the requirement is five years after the 31 January filing deadline.

HMRC can investigate further back than six years if it suspects fraud or deliberate understatement of income. In practice, it is wise to retain records for at least seven years as a matter of routine.

Companies House statutory records, including registers of members, directors and resolutions, must be kept for the life of the company and, in some cases, beyond.

A company that cannot pay its debts as they fall due, or whose liabilities exceed its assets, is insolvent. This is a serious situation that requires immediate professional advice.

Options available to an insolvent company include:

• An administrator is appointed to attempt to rescue the company or achieve a better outcome for creditors than immediate liquidation.
• Company Voluntary Arrangement (CVA). An agreement with creditors to repay debts over a fixed period, allowing the company to continue trading.
• Creditors’ Voluntary Liquidation (CVL). The directors and shareholders agree to wind up the company and a licensed insolvency practitioner is appointed as liquidator.

Directors who allow a company to continue trading while insolvent, particularly if they take on new obligations knowing the company cannot meet them, risk personal liability for wrongful trading. If your company is facing financial difficulties, seek advice from an insolvency practitioner at the earliest opportunity, not as a last resort.

Wrongful trading occurs when a director continues to allow a company to incur debts after the point at which they knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation.

If a liquidator finds evidence of wrongful trading, they can apply to court for the director to contribute to the company’s assets, in effect, to contribute personally to the amounts owed to creditors.

The test is objective: what would a reasonably diligent director have known at the relevant time? Ignorance of the company’s financial position is not a defence if a reasonable director would have sought to find out.

Yes. The Company Directors Disqualification Act 1986 provides for directors to be disqualified from acting as a director or taking part in the management of a company for a period of up to 15 years.

Grounds for disqualification include:

• Unfit conduct in the management of an insolvent company.
• Fraudulent or wrongful trading.
• Persistent failure to file accounts or returns.
• Criminal conviction in connection with the management of a company.

Disqualification is a serious consequence with significant personal and professional implications. It is one of the reasons why directors must take their obligations seriously from the outset, not only in times of difficulty.

If any of the topics covered in this section raise questions about your own business, we would be happy to help.

Call us on 07795 574904 or 07484 601560

Email us at ahmad@careaccountantslimited.co.uk or info@careaccountantslimited.co.uk

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