If you have recently decided to work in the capacity of a contractor, your research must have told you that the most tax-efficient manner of doing that is to set up a limited company. If you have been wondering how to get started, we share with you 9 easy steps to begin contracting and billing your clients without any delay!

Understand How a Limited Company Works

The very first step to setting up your limited company is understanding how it works in the first place. In law, a limited company is often known as a ‘moral person,’ which means that it has a unique identity, and it carries out business activities under its own name.

It also has its own business bank account and can pay taxes as well as acquire debts like a physical flesh and blood person. Hence, understand the legalities and legal obligations of a limited company, such as submitting tax returns and maintaining financial records, before beginning with the set up in earnest. How much does it cost to setup Limited Company?

Decide on the Essentials

It is also crucial to consider some essentials such as coming up with a company name, deciding on where it will be based as well as the individuals who will be a part of the company. In case you plan on expanding your company or changing it in the future, you might want to go with some generic name of the company.

Issue Shares

It is also possible for you to include some other shareholders in your company according to your wish. That said, you must ensure that the total shares are proportionately divided into the capital. You might also find it beneficial to sell a share to someone else to ensure there is a tie-breaker in case of disagreements.

Set up Your Company at Companies House

The next important thing to do is to set up your company at Companies House. Limited companies are required to file annual accounts with HMRC and Companies House each year. Once the above decisions have been made after careful consideration, you must visit Companies House online to set up your company at a low fee.

The setup process is fairly straightforward, and you can simply use the online forms for guidance. You must also choose a unique name for your company as Companies House will verify it. It will also instruct you to appoint a company secretary and company director. You can carry out this process by yourself without worry, or you can also seek the help of a professional accountant.

File a Memorandum of Association

Another important thing you will have to take care of is to file a Memorandum of Association. This needs to be done with Companies House. A Memorandum of Association is essentially a document that conveys your reasons behind setting up a limited company as well your plan to run it. If you get into any legal quagmire or tax disputes in the future, this document can prove to be very beneficial. For instance, if you ever find yourself stuck in an IR35 case, courts will generally look into this document.

Consult an Expert

This is one of the most important steps to consider when setting up a limited company. Although getting started online is quite easy, availing the help of limited company accountants is always a good idea. For your own protection as well as for tax purposes, an expert accountant can suggest a number of structures and ways to make your new company more tax-efficient.

Moreover, these professionals know all about the industry, so they can use their experience to the best of your advantage. An accountant will not only take care of all the documentation and paperwork for you but will also handle your taxes and payroll for a small fee. It is a small price to pay to get such a huge workload off your hands and into the hands of an expert.

Advantages of setting up a limited company in the UK

Setting up a limited company in the UK can provide numerous advantages, creating a strong foundation for business success and growth. By understanding and leveraging these benefits, entrepreneurs and business owners can establish a more secure and prosperous business structure.

Limited liability: Shareholders’ liability is limited to the amount they have invested in the company. This means that personal assets are protected in case the business faces financial difficulties or legal issues.

Tax efficiency: Limited companies can benefit from lower corporation tax rates, tax-deductible business expenses, and the ability to split income between salaries and dividends to minimise tax liabilities. Additionally, understanding and managing the corporation tax liability is crucial for determining the amount of tax to pay and the dividends that can be taken.

Credibility and perception: Operating as a limited company can enhance the professional image of the business, as it implies stability, longevity, and a commitment to regulatory compliance.

Access to funding: Limited companies may find it easier to attract investment from investors, lenders, or government funding schemes, as they are perceived as separate legal entities with structured governance.

Growth opportunities: Setting up a limited company allows for easier scalability and expansion of the business, as it can facilitate partnerships, mergers, acquisitions, or transitions to public ownership.

Get a Business Bank Account

It can be a challenge to get a business bank account. You must consider using the High Street banks and ensure that all business expenses are paid through the company’s bank account. Again, an expert can help you in this regard. Alternatively, you can also avail of a bank account service to set up your business bank account within a matter of hours.

Register for VAT

Another crucial step to setting up your limited company is registering for VAT. You can visit the official HMRC website to register for it. You will realize that doing it online is much better and quicker than doing it through the paper route. If you experience a delay in getting the VAT registration, you can simply back bill your clients.

Claim the Start-up Expenses

Finally, you can claim all start-up expenses you have incurred while setting up the company against future revenues that are generated by your limited company. Managing your own accounts is crucial to ensure you can effectively claim these expenses.

And voila! Your limited company has been set up. Yes! It really is as simple as that! Set up your limited company with the help of Target Accounting today and also get specialist limited company accounting services

How do I register for taxes such as Corporation Tax and VAT for my limited company?

To register for taxes such as Corporation Tax and VAT for your limited company, you can follow these steps:

Corporation Tax Registration:

• Visit the HM Revenue and Customs (HMRC) website.
• Create a Government Gateway account if you do not already have one.
• Use your company’s Unique Taxpayer Reference (UTR) to log in and register for Corporation Tax.
• Provide details about your company, including its name, address, registered office, and date of incorporation.
• Once registered, you will receive a Corporation Tax reference number by post.

Additionally, it is a legal obligation for limited companies to submit a company tax return each year as part of their tax obligations.

VAT Registration:

• Determine whether your company’s taxable turnover exceeds the VAT threshold (currently £85,000 in the UK).
• If your turnover exceeds the threshold, you must register for VAT within 30 days.
• Access the HMRC website and register for VAT using your Government Gateway account.
• Provide details about your company’s business activities, turnover, and expected future turnover.
• Upon successful registration, you will receive a VAT registration certificate confirming your VAT number.

Choose the Right VAT Scheme:

• Decide on the most suitable VAT scheme for your company, such as the Flat Rate Scheme, Cash Accounting Scheme, or Annual Accounting Scheme.
• Each scheme has different requirements and implications, so carefully consider which one aligns best with your business model.
• You can change your VAT scheme in the future if your circumstances change, with approval from HMRC.

Maintain Accurate Records:

• Keep detailed records of your company’s sales and purchases to ensure accurate VAT reporting.
• Regularly reconcile your VAT returns with your financial records to identify any discrepancies.
• Store all relevant invoices, receipts, and documentation in an organised manner for easy access during tax inspections.

Comply with Deadlines and Regulations:

• Familiarise yourself with VAT return deadlines and ensure timely submission to HMRC.
• Stay updated on any changes to tax laws and regulations that may impact your company’s tax obligations.
• Seek professional advice if you encounter complex tax issues or require additional guidance on tax compliance for your limited company.

Are there any ongoing compliance requirements for a limited company in the UK?

• Annual accounts must be prepared and filed with Companies House within 9 months of the company’s financial year-end.
• Corporation tax returns and payments must be submitted to HM Revenue & Customs within 9 months of the company’s financial year-end.
• Companies must maintain statutory registers, including registers of members, directors, and persons with significant control.
• Filings such as changes to company details, appointment of directors, or changes to share capital must be reported to Companies House in a timely manner.
• Compliance with key legal obligations such as data protection laws (GDPR), health and safety regulations, and employment legislation is essential for limited companies to operate lawfully in the UK.

Overall, ongoing compliance requirements for a limited company in the UK are crucial to ensure legal and regulatory obligations are met, thus avoiding penalties and potential legal issues. Staying on top of these obligations helps maintain the company’s reputation and credibility. Failure to comply with these requirements can lead to fines, prosecution, or even the company being struck off the register.

Regular monitoring and updating of compliance procedures are necessary to ensure the smooth running of the business. Seeking professional advice and support can also be beneficial in navigating complex compliance matters and staying up to date with regulatory changes.

Frequently Asked Questions:

What is a limited company?

A limited company is a type of business structure in the UK where the company’s finances are separate from the personal finances of its owners.

What are the advantages of setting up a limited company?

Setting up a limited company can provide limited liability protection, tax benefits, and a professional image for your business.

What are the steps to set up a limited company in the UK?

The steps to set up your own limited company include choosing a company name, appointing directors and shareholders, registering the company with Companies House, and setting up a business bank account.

How do I choose a company name?

Your company name must be unique and not already in use by another business. It must also comply with certain naming regulations.

Who can be a director of a limited company?

Any person over the age of 16 can be a director of a limited company, as long as they are not disqualified from acting as a company director.

What are the requirements for shareholders in a limited company?

A limited company must have at least one shareholder, who can also be a director. There are no restrictions on the nationality or residency of shareholders.

What documents are required to register a limited company with Companies House?

You will need to provide a memorandum and articles of association, a completed IN01 form, details of the company’s registered office address, and information about the company’s directors and shareholders.

How long does it take to register a limited company?

Once all the necessary documents are submitted, it usually takes around 24 hours for Companies House to register a limited company.

What are the ongoing responsibilities of a limited company?

Ongoing responsibilities include filing annual accounts and confirmation statements with Companies House, maintaining statutory registers, and complying with tax and reporting requirements. Limited companies are also required to pay corporation tax as part of their legal obligations.

Do I need a business bank account for my limited company?

Yes, it is a legal requirement to have a separate business bank account for your limited company to keep your personal and business finances separate.

What are the tax implications of running a limited company?

Limited companies are subject to corporation tax on their profits, and directors and shareholders may also be liable for income tax and national insurance contributions.

Can I change the details of my limited company after it is set up?

Yes, you can make changes to your company details, such as appointing new directors, changing the registered office address, or altering the company’s articles of association, by filing the relevant forms with Companies House.