A Simple Guide to Setting Up a Limited Company in the UK

With over 900,000 new businesses launched in the UK in 2023, entrepreneurship is booming. With 2024 showing similar promise, it’s a great time to consider launching your own business. Setting up a limited company is a popular choice for many entrepreneurs as it offers several advantages, including the right balance of professionalism, personal financial protection, and tax benefits. Though the process might look a little overwhelming, this guide will break it down into critical steps for you.

What is a Limited Company?

A limited company has a legal identity that is completely different from that of its owner. That means your finances are not exposed to any business liabilities. In this structure, shareholders own the company, and directors run it. This limits your liability to the money you have invested in shares, shielding your personal assets if things go wrong.

There are two types of limited companies, including:

Private Limited Company (Ltd)
Public Limited Company (PLC)

Should You Choose a Limited Company?

While it offers several benefits, a limited company may not be the right choice for every business. Consider the following factors:

Liability Protection: Guards your personal possessions from business debts.
Tax Efficiency: Depending on your income level, you could pay less tax than if you were a sole trader.
Professional Image: Having ‘Ltd’ after your business name can add credibility with clients and suppliers.

Choose a Company Name

A company name is your first chance to make a great impression. Here are a few things to consider:

Unique: Use the Companies House name checker to ensure that the name is not already registered.
Appropriate: Avoid offensive or misleading names.
End with ‘Limited’ or ‘Ltd’: Unless you’re a charity or have an exemption.
Sensitive Words: Some words, like “Royal,” require special permission.

Gather Your Information

Before registering, you need the following:

Registered Office Address: A UK address for official correspondence.
Directors: You need at least one director responsible for the company’s operations.
Shareholders: Shareholders own the company. You can be both a director and a shareholder.
Share Capital: If there’s more than one shareholder, decide how shares will be divided.
Memorandum and Articles of Association: Legal documents outlining the structure of the company.

Register With Companies House

After collecting all necessary information, you can register a limited company with Companies House through the following three methods:

Online: This is the fastest method to complete registration within 24 hours.
Post: It takes about 8 to 10 days, and you must send the completed IN01 form to Companies House.
Through an Agent: An accountant or company formation agent can handle the registration for you.

Register for Corporation Tax

You must register for Corporation Tax with HM Revenue & Customs (HMRC) within three months of starting your company. You will need your company’s Unique Taxpayer Reference (UTR), which HMRC will send to your registered office. Failure to register before the deadline can lead to penalties.

Open a Separate Business Bank Account

It is legally required for limited companies to simplify accounting and bookkeeping. This makes it easier to calculate taxes, track business expenses, and manage cash flow. Furthermore, a separate business account adds credibility to the business, allowing access to loans that would be difficult to get otherwise.

Understand Your Legal Responsibilities

Setting up a limited company involves certain legal responsibilities, including:

Prepare and submit annual reports to Companies House.
File a confirmation statement at least once annually to confirm the information about the company.
Submit and pay any corporation taxes due within nine months of your accounting period.
Register for PAYE and manage payroll taxes if the company has employees.
Register for VAT if the taxable turnover exceeds the threshold.

Maintain Accurate Records

Accurate and updated records help with financial management and compliance. These include the following:

All income and expenses
Minutes and resolutions from the Director’s meetings
Changes in shareholding
Salaries, benefits, and tax deductions of employees

Conclusion

Establishing a limited company in the UK can seem complex, but its benefits often outweigh the challenges. By following these steps, you can start a legally compliant and financially organised business. Please visit the HMRC website for more details.

Once you start your operations, you will need to start filing your company accounts in Inline eXtensible Business Reporting Language (iXBRL) format as part of the Corporation Tax return to HM Revenue and Customs (HMRC). DataTracks professionals, with more than 19 years of experience, can help you prepare error-free iXBRL reports. Contact us at +44 (0) 203 608 8035 or via email at enquiry@datatracks.co.uk.