10 Myths About Running a Limited Company

Myth 1: “I can use the company bank account however I want.”

A limited company is a separate legal entity — it’s not “you,” even if you’re the only director. Treating the business account as a personal wallet is one of the fastest ways to get into trouble.

If you withdraw money without classifying it properly (salary, dividends, expenses, or repaying a director’s loan), HMRC could treat it as an overdrawn director’s loan account. That can lead to extra s455 tax charges, benefit-in-kind reporting, or worse — personal tax investigations.

💡 Practical advice:

• Pay yourself via proper channels (payroll/dividends).

• Keep expense receipts and mileage logs.

• Reconcile the bank every month so nothing slips through.

👉 Key Point: Protect yourself — keep company and personal finances separate.

Myth 2: “If things go wrong, I’ll just walk away.”

Company insolvency is serious. If debts outweigh assets, directors have a legal duty to act in creditors’ best interests. Simply “walking away” could mean director disqualification for up to 15 years, personal liability, or even legal action if wrongful trading is proven.

💡 Practical advice:

• Keep financial forecasts up-to-date so you can spot issues early.

• If you see problems ahead, get insolvency or accounting advice before it spirals.

• Don’t trade while insolvent — it increases personal risk.

👉 Key Point: Always have an exit strategy. If you’re struggling, deal with it early — don’t ignore it.

Myth 3: “I’ll just take dividends and avoid tax.”

Dividends aren’t a tax-free shortcut. They’re paid after corporation tax (19–25%), and then taxed again at dividend tax rates (8.75%–39.35%).

If you only take dividends and no salary, you could lose out on National Insurance contributions — which count towards your state pension and benefits. Plus, if HMRC thinks your dividends are disguised salary, you could face backdated PAYE/NIC bills.

💡 Practical advice:

• Take a mix of small salary + dividends to balance tax efficiency and NI contributions.

• Review your pay mix annually — what worked last year may not work this year.

• Keep board minutes for dividend declarations.

👉 Key Point: Plan your pay smartly — don’t just chase “dividends only.”

Myth 4: “VAT? I’ll worry about that later.”

Hit the £90,000 turnover threshold, and VAT registration becomes mandatory. HMRC can backdate your liability and demand payment of VAT you never charged clients — leaving you to foot the bill.

💡 Practical advice:

• Track turnover monthly on a 12-month rolling basis.

• Consider voluntary registration early — it can improve cashflow if you reclaim VAT on purchases.

• Learn the difference between Flat Rate, Standard, and Cash Accounting VAT schemes.

👉 Key Point: VAT can bite. Plan for it before you’re forced to.

Myth 5: “I haven’t made any money, so I don’t need to file anything.”

Even if you’ve made no sales, you still need to file annual accounts with Companies House and usually a corporation tax return with HMRC. Missing deadlines means automatic penalties — no excuses.

💡 Practical advice:

• Use Companies House email reminders to avoid fines.

• File dormant accounts if the company truly hasn’t traded.

• Keep your registered office updated so notices don’t go missing.

👉 Key Point: No trading ≠ no responsibilities. File every year.

Myth 6: “I don’t need an accountant—I’ve got QuickBooks.”

Bookkeeping software is powerful, but it can’t replace human judgment. Mis-categorise CIS deductions, VAT rules, or director’s loans, and you could end up with costly errors. Software also doesn’t prepare statutory accounts or keep you compliant with changing tax rules.

💡 Practical advice:

• Use software for day-to-day bookkeeping.

• Use an accountant for compliance, tax efficiency, and HMRC protection.

• Treat your accountant like a business partner — not just a form-filler.

👉 Key Point: Software helps — but an accountant keeps you safe.

Myth 7: “I’ve got limited liability, so I’m fully protected.”

Limited liability protects your personal assets in theory, but in practice, many lenders and suppliers demand personal guarantees from directors. If your company defaults, you may still be personally liable.

💡 Practical advice:

• Before signing a guarantee, consider whether the business can realistically service the debt.

• Explore trade credit insurance for supplier accounts.

• Diversify funding sources — don’t overexpose yourself with one lender.

👉 Key Point: Limited liability has limits. Always read the fine print.

Myth 8: “I don’t need a payroll—I’m the only one.”

If you’re withdrawing money, consider paying yourself a small salary through payroll. It’s tax-deductible for the company and ensures you stay in the National Insurance system.

💡 Practical advice:

• A salary at the NI threshold (£12,570 for 2025/26) is often tax-efficient.

• Payroll also makes it easier to employ staff when the time comes.

• Even one-person companies benefit from proper records.

👉 Key Point: Payroll isn’t just for big teams — it can save you money too.

Myth 9: “I can just use my personal bank account.”

Mixing personal and business money makes accounting messy, increases the risk of missing deductible expenses, and looks unprofessional to clients, suppliers, and banks.

💡 Practical advice:

• Open a dedicated business account from day one.

• Use business debit/credit cards to keep all expenses clean.

• It also builds business credit history — helpful for future finance.

👉 Key Point: Keep accounts separate. It saves money, time, and stress.

Myth 10: “HMRC will tell me everything I need to do.”

HMRC will send reminders, but they won’t explain your full duties as a director. The responsibility sits firmly with you. Miss a filing or misinterpret a rule, and you’ll still face the penalty.

💡 Practical advice:

• Use a compliance calendar to track deadlines.

• Lean on your accountant to flag obligations you may miss.

• Educate yourself — ignorance isn’t an excuse.

👉 Key Point: Don’t rely on HMRC to spoon-feed you. Own your responsibilities.

Final Word

Running a limited company can be fantastic for growth — but only if you avoid these common traps. Myths cost money. Knowledge saves it.

👉 Want to stress-test your setup against these myths? Let’s book a quick review.