So you have decided to start your own business. Congratulations! You have defined its objectives, laid out a marketing, financial and operational roadmap, and are all set to start selling your products or services.
However, coming up with an incredible business plan is just the tip of the iceberg. When you first set up a business, it will be most likely as a sole trader, which means you are essentially self-employed.
But, is that the best business entity for you? Setting up and registering your business on your own can seem a pretty daunting task and we recommend approaching an accountancy practice to help you.
That does not stop you from doing your own initial research and there are a few parameters to review before you go ahead; here are seven tips on setting up your limited company:
1. Choosing the right company structure
Consider what company structure would best suit your business. A private limited company can be formed as either a company limited-by-shares or by guarantee. In addition, there are limited liability partnerships. LLPs are for professionals who operate in partnerships.
a. Is a limited company right for your business?
Registering for a limited liability company legally separates you from the entity. That means all the earnings belong to your business, and you must withdraw money as salary, dividends, or a loan.
On the other hand, as a sole trader, you will have complete control of your business and can keep all earnings after tax. Sole proprietorships are easier to form than limited partnerships.
However, as a sole trader, you are responsible for everything that goes wrong financially with the business. So you must think carefully about whether or not a limited company is right for you.
b. Should you go public or remain private?
You must determine the type of company you want to set up if you decide to proceed with limited company formation. Options include:
- A public limited company (PLC)
- A private limited company (LTD)
PLCs require at least two shareholders, two directors and a company secretary along with a minimum of £50,000 in share capital. Because of this, it is often preferable for small businesses, independent contractors, and freelancers to form a private limited company (Ltd).
2. Make sure your ideal company name is available
This is an exciting part of setting up a limited company. Online company registration requires a name for your business, which must be unique and follow specific criteria. After deciding on a name, check if it is available on the Companies House before sending in your application to register a company. Your company name must conclude with “Limited” or “Ltd.”
It is also a good idea to check if your company name is available as a website URL. There is nothing worse than registering your business name and then realising you are not able to have a website address with the same name.
3. Use a professional registered office address
Registering a business with the Companies House requires a corporate address. This is your “registered office address,” where HMRC and the Companies House will send you letters and notices.
The address will be published online on the Companies House website and be accessible to the public. If you run a home-based business, this might lead to an invasion of your privacy. In that case, use a professional registered office address. Most accountants will let you use their office as your registered office address for a small fee.
Your registered office address has to be an actual physical address within the UK and must be able to receive post. It needs to be based in the same country as your company is registered in so if your company is registered in England, your registered office cannot be in Scotland for example.
Besides an official address, you must register a SIC number, which defines your company’s services. You can identify your company’s SIC code on the Companies House website.
After registering your business with the Companies House, you will get a “certificate of incorporation” containing the company number and formation date. Online registration costs £12 and takes 24 hours.
4. Pick a share structure that makes sense
Choosing a company limited by shares means deciding how many shares to issue. You must give each shareholder at least one share, but there is no upper limit. If you are going to be a sole trader, then as a single shareholder, you can issue one share. That will represent 100% business ownership.
If you are starting your business with a partner, each of you should get two shares worth 50% of the business. To figure out how much money you are responsible for, you must give each share a nominal value.
Remember, the more value you assign your shares, the more you are accountable for company debts. An accountant will be well placed to provide advice on a suitable share structure for your business.
5. Register for VAT and Corporation Tax
Some businesses have to register for VAT, and some are not allowed to. If your company has an annual taxable turnover of more than £85,000, you must register for VAT. Even if you have a turnover of less than that, you can choose to register for it.
However, you cannot register for VAT if you only sell VAT-exempt goods and services. Registering for VAT means you can get back the VAT you paid on the goods or services bought from other businesses.
If you offer zero-rated products, your company will be eligible for VAT refunds. Voluntary VAT registration makes your company look bigger and more established, boosting its public image. In addition, register for Corporation Tax within three months of starting your business activity.
When a limited company is involved in buying and selling goods to make a profit, providing services, employing people, managing investments, and earning interest, HMRC views it as “active” for Corporation Tax. This holds true even if your business makes a loss and has no tax to pay. So, please keep that in mind while setting up a limited company.
6. Set up a business bank account
When registering a limited company, open a business bank account. Although that is not required by law, having one keeps your business revenue separate from your personal income, which makes it easy to manage the company money, maintain correct accounting records, and prepare accounts.
Setting up a business bank account for a UK limited company is easy, and most banks provide various account options. To open an account, each company director must present incorporation paperwork, ID, and proof of address.
7. Understand your new filing requirements and the records you need to keep
To ensure your business runs like a well-oiled engine, it is best to keep in mind the paperwork that needs to be filed. For instance, you must check that the information Companies House has about your company is correct and file a confirmation statement at least once every 12 months .
Prepare annual accounts for Companies House every year to report your company’s financial activity at the end of its financial year. This also applies to dormant companies.
You should also file Company Tax Returns and statutory accounts for HMRC and pay Corporation Tax on all taxable profits. Alternatively, if your business details change, update that on the Companies House.
In conclusion
Is it worth setting up a limited company? Oh, yes! It is absolutely worth it if you want to protect your finances and give your business the credibility it needs to grow. Setting it up involves many legal formalities and requires you to invest fully. If you do not do it right the first time, it may lead to issues later on.
That is where Lyel Accountants come into the picture. We make setting up a limited company a piece of cake for you. From registration with HMRC and Companies House and giving advice on the appropriate business structure to preparing and submitting finance applications – we can do it all. We can also look after your requirements on an ongoing basis and take care of such tasks as keeping your accounts up-to-date and filing them with Companies House.
Please fill out this enquiry form and let our experts take over from there. Speak soon!
