Setting up your own company may sound like a lot of work – but is it?
We’ll walk you through some frequently asked questions to shed some light on the process of starting a limited company.
What is a limited company?
A limited company is a business structure which includes at least one director and one shareholder. Unlike a sole trader, a limited company is a separate legal entity from the person in charge. This means that neither profits nor debts belong to an individual, but rather to the company itself.
How to set up a limited company?
So, you’ve decided a limited company structure is right for you. These are the next steps.
1. Choose the type
There are two kinds of limited companies – Private Limited Companies (LTDs) and Public Limited Companies (PLCs).
PLCs are usually larger companies with a high share capital (at least £50,000) and more than one shareholder and director, so small businesses are almost always LTDs.
2. Choose a name
Your company name must have ‘Limited’ or ‘Ltd’ as a suffix, it must be unique and mustn’t be misleading or offensive.
There is a handy checker on the HMRC website where you can find out whether your proposed company name has already been taken.
3. Select a SIC code
A Standard Industry Classification (SIC) code helps HMRC identify what type of business you’ll be. There is a list on the GOV.UK website – make sure you read it thoroughly as there are hundreds to choose from.
4. Decide on an address
Companies House require a business address for your company. Some people use their home address, but bear in mind it will be publicly available.
Your limited company accountants can provide an office address on your behalf – with the added benefit that all business correspondence will get sent straight to them!
5. Nominate directors and shareholders
You can be the sole director/ shareholder, although you can have as many as you want. Director responsibilities include record-keeping and reporting and paying tax to HMRC.
Shareholders are essentially owners of the company, whether sole (if you’re the only shareholder) or part (if you have several shareholders).
6. Prepare the documents
There are several legal documents you’ll have to submit to Companies House. These include a Memorandum of Association (a legal statement signed by shareholders confirming the formation of the company) and Articles of Association, which sets out the contract between the company and all involved parties.
There are templates for these documents known as ‘model articles’ on the HMRC website.
You’ll also need a Statement of Capital – a breakdown of the shares allocated within your new company.
7. Register with Companies House
Register online on the GOV.UK website by creating a Government Gateway ID.
After entering the details of your company and its directors and shareholders and paying the fee, you’ll receive your Certificate of Incorporation, and your company will be registered within around 24 hours.
At QAccounting, we can help first time contractors set up a Limited Company and try to ensure the process is as seamless and manageable as possible. To learn more about our Limited Company accounting packages, please get in touch.
How much does it cost to set up a limited company?
It costs just £12 to register your new limited company on the Companies House website.
How much tax does a limited company pay?
A limited company is liable for Corporation Tax, which is 19% of all company profits.
As director, you’ll pay Income Tax on any salary you draw from the company, at either 20%, 40% or 45% depending on the amount.
If your business has an annual turnover of over £85,000, it’ll also be liable for VAT.
Can I set up a limited company myself?
You can, but the admin involved in running a small business soon catches up with you. This is why most small business owners get the help of limited company accountants from the very beginning to ensure their business hits the ground running. If you are interested in learning more about our limited company accounting services, please get in touch with a member of our team.
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