New businesses generally fall into three categories; sole trader, partnership or limited company.
Each option has pros and cons. The main advantage of setting your business up as a limited company is that the business will be a separate legal entity to you, this limits your liability which can be beneficial as the business grows and accumulates liabilities.
However, running a limited company involves more paperwork with increased oversight compared to sole traders and partnerships. It is therefore important to know what is required before setting up the limited company.
Legal Requirements of Limited Companies.
- File annual confirmation statement and statutory accounts with Companies House.
- File a Corporation Tax Return with HMRC every 12 months, Corporation Tax payments are due to HMRC within 9 months of financial year end.
- Report any changes to Companies House, this can include but is not limited to; changes to director / shareholder details, changes to people with significant control (PSC), updates to the statement of capital, a change of the companies registered office address.
- If turnover exceeds the £85,000 VAT threshold your company must register for VAT and file VAT returns with HMRC.
- Employees of the company (including directors) that are paid a wage or salary may be required to pay income tax and class 1 national insurance contributions depending on earnings. Any income tax or national insurance due is calculated by the company and deducted directly from payslips via PAYE. The company must be registered for PAYE with HMRC with payments and deductions reported to HMRC on or before each payday.
- The company may be required to register for pension auto-enrolment dependant on circumstances.
- Record and keep details of any official company meetings by directors and shareholders including votes taken.
- Keep a record of dividend payments to shareholders in the form of dividend vouchers.
How do I form a limited company?
1. Choose a limited company name.
This must be unique and end with either limited or ltd. You can search the Companies House register for names which have already been taken here - https://find-and-update.company-information.service.gov.uk/
2. Choose a registered office address.
This must be a UK address. It can be a residential address and does not have to be companies trading address.
Official documents from Companies House and HMRC are sent to this addresses and it will be made public on the Companies House register.
There is the option of paying to use a registered office address that is not the companies trading address, typically this service can cost upwards of £40 per year depending on what is included. As a standard part of the service the company managing the registered office address will scan and email to you all letters received from Companies House and HMRC.
3. Submit Memorandum of Association documents online.
This includes; the names of the company officers, directors and people with significant control over the company (PSCs); the amount of share capital and how this is divided between shareholders as well as the trading activities of the company (SIC Codes).
You can find template documents here - https://www.gov.uk/topic/company-registration-filing/starting-company
Using a company formation agent.
Many business owners use a formation agent to form the limited company and complete the relevant paperwork. Formation agents typically also offer a registered office address service if you do not want to use the companies trading address.
Personally, I recommend an online formation agent called "Your Company Formations" to clients (www.yourcompanyformations.co.uk/).
Matrix Accountancy Services can start this process for you. The formation agent will require ID verification as part of the process.
I am an AAT Licensed Accountant specialising in working with start ups and small and medium sized limited companies.
Matrix Accountancy Services provide customised accountancy packages for limited companies starting from £45 per month, more information can be found here - www.matrix-accounts.com/services
Based in Rugby, Warwickshire, services are available remotely throughout the UK with ongoing advice and support via email, phone, zoom and whatsap.
You can contact me at firstname.lastname@example.org or on 01788 486065.
I will be happy to provide assistance and answer any questions you may have.
- This article was written by Will Farmer MAAT,
AAT Licensed Accountant and Director of Matrix Accountancy Services Limited.