When you set up a limited company to contract through, you become a company director. For many contractors, that happens by filling in an online form, or your accountant sets the company up for you, and you start invoicing. Nobody sits you down and explains what you have just taken on.
This guide is for contractors who run their own limited company, and it assumes you have no prior knowledge of company law or tax. The aim is to make sure you know what you are responsible for before something goes wrong, not after. Being a director is a legal role with personal responsibilities, and many contractors take it on without fully understanding them.
Recent Changes
If you haven’t read anything about being a company director for a while, several things have changed in the past few years:
Identity verification is compulsory. Every director must verify their identity with Companies House. New directors have had to do this since November 2025; pre-existing directors are now in a 12-month transition period that ends in mid-November 2026.
The annual confirmation statement costs £50 to file (since February 2026).
Dividend tax increased. In April 2026, the basic dividend rate rose to 10.75%, and the higher rate went up to 35.75%.
The tax on overdrawn directors’ loans also increased. For loans made on or after April 2026, the rate is now 35.75%
Self Assessment has new questions for directors. From the 2025/26 return onwards, directors of close companies must complete extra boxes about the company, their dividends and their shareholding.
What you might assume... and what is true
Assumptions are a big red flag; whenever I hear the word “assume”, problems are often not far behind.
Here are 5 assumptions that tend to catch out new limited company directors.
My accountant is responsible for all of this.
You can engage an accountancy service provider to prepare and file things on your behalf - but the legal responsibility stays with you, as the director.
It's my company, so it's my money.
Company money belongs to the company. If you don't take it out as salary, genuine expense repayments, or dividends, it creates a director's loan and can trigger tax charges for you.
I'm the only director, so there's no one to answer to.
A sole director has the same legal duties as a company with multiple directors. Decisions still need minutes, and filings still have deadlines.
I'm not personally liable for anything. Isn't that the point of limited liability?
Limited liability is just that - limited. You can be personally liable for wrongful trading and unlawful dividends, and failing to file is a criminal offence.
A dividend is whatever is left in the bank.
As a new director, I made this mistake and learned the hard way. Dividends can only be paid from distributable profits, and each one must be properly declared and documented.
What being a director actually means
Your company is a separate legal entity
When you set up a company, it's a bit like giving birth to a whole new person. It is separate from you - it has its own bank account, signs its own contracts and pays its own taxes. You are not the company.
That separation is the main reason that people set up a limited company. If the company cannot pay its own debts, its creditors can normally only make a claim against the company, not your house or personal savings.
You wear many different hats
If you are the sole director of a limited company - which many contractors are - you will have several different roles at once, and each role comes with different responsibilities.
You need to be mindful about which hat you are wearing at any given time; for example, a dividend is money you receive as a Shareholder. Salary is money you receive as an Employee. Neither is the same as taking money out just because you're the director.
Being the only director doesn't mean fewer duties
A sole director has exactly the same legal duties as a board of 10 - you just don't have anyone to share the work with. Service providers like Growth Through Knowledge can help you to prepare accounts and file returns, but the legal responsibility stays with you.
Your Legal Duties
The Companies Act 2006 sets out 7 general duties owed to the company, not individual shareholders or clients, and they apply from the day you are appointed.
Two of them - avoiding conflicts of interest and not accepting benefits from third parties - can continue to apply even after you stop being a director, in relation to things that happened while you held the role.
What if you're not officially a director?
The general duties can also apply to someone who acts as a director without being formally appointed, and to someone whose instructions the board is used to following (a "shadow director"). If you are helping a client's small company, or a family member's, and effectively make its decisions, you may need to take advice about your position.
- Act within your powers
Follow the company's articles of association and use your power only for their proper purpose.
Example: Check the articles allow what you're doing, for example issuing new shares to a family member. - Promote the success of the company
Act in good faith in the way you think is most likely to benefit the company as a whole, thinking about the longer term.
Example: Don't strip out cash the company needs to pay its bills. - Use independent judgement
Make your own decisions. Take advice, but don't let others dictate them.
Example: An adviser suggests a scheme. You still decide, and you're still responsible. - Use reasonable care, skill and diligence
Do the job as a reasonably diligent person would, taking into account your own knowledge and experience.
Example: Read what you sign. Understand your numbers. Keep up with deadlines. - Avoid conflicts of interest
Don't put yourself in a position where your personal interests clash with the company's.
Example: Using a business opportunity the company was pursuing for your own benefit. - Don't accept benefits from third parties
Don't take bribes or gifts because of your position.
Example: A supplier offering you a personal kickback. - Declare interests in proposed transactions
If the company is about to enter into an arrangement in which you have a personal interest, declare it to the other directors.
Example: The company is renting a room from you, or buying a laptop you own.
What does "reasonable care, skill and diligence" mean in practice?
Checklist for Limited Company Directors
Now you know what your legal duties are, here's a practical checklist that you can use to make sure that you stay on top of them.
If you're a new director
- Verify your identity with Companies House and make a note of your personal code.
- Check the register of directors and PSCs for your company is correct.
- Confirm the registered office is an "appropriate address".
- Record your registered email address with Companies House, and make sure you can access it.
- Register for PAYE if you take/will take a salary.
- Put your Confirmation Statement and accounts filing deadlines in your calendar.
- Open a savings account or use a separate pot within your main bank account to set aside money for taxes.
- Set up direct debits for Corporation Tax, VAT and PAYE/NI to make sure you don't miss any payments when they are due.
At every financial year end
- Check your directors' loan account (DLA) and clear any balance owed.
- Check you have enough profits for every dividend payment you've made.
- Make sure dividend vouchers exist and minutes are on file.
- Reconcile payroll to your records.
- Prepare and review the accounts and Corporation Tax return.
- File the Confirmation Statement on time, with verified directors.