How To Set Up A Limited Company
Are you looking for ways to get paid for your hard work in a tax-efficient manner? If so, then the best thing that you can do is to set up your own limited company. Having your own limited company gives you the chance to create your own brand. Everything that you do is solely own by you and no one else. You can enjoy working while operating your own business in the most tax-efficient way.
If you are not sure where to begin, then this ultimate guide to limited companies can definitely help you. Once you have learned all the details, then you can simply register your company. Are you ready to learn how to set up a limited company? If so, then here are some of the most important things that you need to consider:
Setting Up A Limited Company In Four Easy Steps
Determine The Type Of Limited Company To Set Up
Once you have determined that you want to set up a limited company, then the next thing to do is to select which type you want to create. Generally, there are two major choices. These are Private Limited Companies (LTDs) and Public Limited Companies (PLCs).
Well, to give you some idea, most contractors, freelancers, small businesses, and start-ups would prefer Private Limited Company. This is because PLC only needs a minimum share capital of £50,000. It also requires less staff, in fact, you only need two directors, two shareholders, and a company secretary.
Choose Your Preferred Name
Among the various processes for new limited companies, choosing a name for your company proves to be the most challenging part, but at the same time, it’s also a fun experience! Just like choosing a domain name for your website, your company name should be unique.
However, there are some ways that you can do in order to obtain a unique name. For instance, your limited company could either use “Ltd.” or “Limited.” Sometimes finding a unique name for your company can be hard, most especially since there are more than 1,500 companies created each day.
Establishing Your Limited Company
If the previous step was fun and challenging, then this one is a bit complicated and bureaucratic as what it seems. But actually, if you are an organised person then you might find this quite simple. All you have to do is provide some personal information that can help Companies House recognize you as the company director when done then you are good to go. Most often, Companies House can create your limited company in just a few hours.
Finish The Incorporation Process
When it comes to the registration of limited companies in the UK, Companies House will take care of it. All you have to do is visit their website in order to get more details. There are specific documents that you need to complete and return back to Companies House so you can finish the incorporation process. Oftentimes, these forms will be completed by your formation agent or accountant.
The documents that you need to complete are Memorandum of Association, Form 10, Form 12, and Articles of Association. The Memorandum of Association consists of your company name, the type of your business as well as the location of your business. Form 10 is where you will fill up the registered limited company address, the name of the directors and their addresses. The company address is not necessarily the place where you work. Just keep in mind that this is the address that will be used in sending legal correspondence from HMRC and Companies House.
Form 12 is where you can find the terms and conditions of the Companies Act, and it also shows that the limited company complies with it. Finally, the Articles of Association describes the powers of the directors, the rights of the shareholders, and so much more! Most often this document is created by the formations company that establishes the limited company.
And that’s it! These are pretty much what you need to do in creating a limited company. So, what should you do next?
Well, there is other admin stuff that you need to take care of, including those annoying reporting and filing tasks that need to be done. First of all, your limited company will require a business bank account. Be sure to look for a good business bank account. You are also required to get some small business insurance that can cover you and your business activities.
How much does it cost to establish a limited company?
You only need to spend £10 if you want to register a limited company.
What Are Your Duties And Responsibilities As A Limited Company Director?
As a limited company director, you have a lot of responsibilities. There are documents that you need to file and you have to be aware of their deadlines. Here, we made a summary of the duties and legal responsibilities of a limited company director.
- You must register your newly set up limited company at Companies House.
- Every year you are required to file Annual Accounts and Confirmation Statements and submit them to the Companies House.
- Each year, be sure to send your accounts to HMRC.
- You must complete and file your annual Corporation Tax return and pay your tax due to HMRC within nine months and one day of the company’s year-end.
- It is your job to register for self-assessment and file for a personal tax return to HMRC. This should be done yearly. Except if your limited company is a non-profit organisation. For instance, charities, and other types of institutions that do not obtain any income or benefits.
- You need to obey the company’s rules, as was stated in its articles of association.
- You must be responsible for keeping all the records and reports of the company.
- As the director of the company, you must be honest with your shareholders and reveal to them if you have gained any personal benefits from the company’s transactions.
If these things are too much for you to handle, then you can always hire other people to do the work for you. For instance, get an accountant to handle your finances. However, you need to be careful since you are still legally liable for all the records, accounts, and activities of your company. If you cannot meet the requirements and responsibilities of a director, then it is possible that you will be fined, disqualified, or even prosecuted since you act as the director of your company.
Furthermore, there are specific persons who are banned from acting as a company director. This includes persons who are below 16 years old, disqualified people, and bankrupts. Although, there is actually no mandatory qualification required in being a director, yet a director is expected to perform the duties and responsibilities that we mention above in an effective manner.
Being a director, you must be very careful in making your decisions and make sure that it can benefit the company and not yourself. Although this may seem confusing if you are acting as the director, employee, and sole shareholder of the company. However, a decision that may be beneficial to you may unfavourably affect the company’s performance.
Is It Hard To Be a Limited Company Director?
Well, the best answer would be, it shouldn’t be. Some people think that being a sole trader is just simple and easy. It gives you a chance to run your small business smoothly. Also, it will be easier for you to keep track of your tax responsibilities if you are a sole trader. However, some people tend to switch from being a sole trader into a limited company business structure. If you are a contractor, freelancer, or small business owner, then it seems inappropriate to evade from saving tax just because of the anticipated hassle involved.
What Is The Key In Getting It Right?
Being a contractor, freelancer, or small business owner, you should ensure that a system is in place so you can benefit from tax-savings allowed for a limited company without having to pay for those admin fees for years. You don’t even have to pay those huge accountancy fees, either.
Having the appropriate accountancy solution would be when you’ve hired an accountant that can do most of the work for you and leaves you with bigger take-home pay. We can ensure you that being a limited company director is not too difficult at all.
How To Prepare For A Business Plan?
By writing a business plan, you will be able to determine if your business idea could succeed or not. You must be able to prove that you have done some market research and perceived how to provide service to your clients. Having this business plan can help you convince your potential partners, investors, and employees that it is worthy to work on your company.
How To Maintain Your Limited Company?
We’ve heard a lot of horror stories from freelancers or contractors who are having trouble running their limited company. Perhaps it is because of an accountant who has left them or they are trying to do DIY accounting. By engaging in a good accountancy service, you can guarantee that less time will be spent on your accounting. Look for an accounting firm that provides all the accounting service that you need so you can have everything you need in one place.
The main responsibility of running a limited company is creating and sending invoices. Additionally, you will also be responsible for keeping track of your expenses. By having an online accounting software, you can easily do these things. It offers templates so you can choose the one that is best for you. Also, it will automatically compute VAT, in case your company is VAT registered and records your expenses. These are the things that you have been doing when you were still a sole trader. The difference is, with a limited company, you have to ensure that you are on top of things so you will be able to comprehend the performance of your business and how much dividends you will be earning.
How To Prepare And File Tax Returns
When it comes to your tax duties and deadlines, the most important thing to keep in mind is to have a good accountant and advanced online accounting software so you can accomplish your task effectively and quickly.
For instance, if you want to create Annual Accounts, then you barely have nothing to do. All the relevant things will be done by the accountant. All you need to do is simply to approve the accounts. You can get your annual accounts with just a click of a button!
If you are VAT registered, then you do not have to do any computation since every time an invoice is generated, the VAT will automatically be added. When it comes to your tax filing and paying duties, sometimes it can be a mess when all the relevant information are placed in different places.
However, when everything is organised in one place such as in a secure online system, then the information can be easily retrieved when you need them, making it easier to file returns and accounts for taxes. If you will encounter any problems, then our team of expert accountants are always here to help you.
How To Get A Reimbursement For Pre-Trading Expenses From Your Limited Company?
There is a possibility that you have acquired business expenses before you started setting up your limited company. These are known as pre-trading expenses and this includes stuff such as office rent, accountancy expenses, domain name registration, business insurance, stationery as well as computer equipment and software.
Keep in mind that these expenses should be solely for business only and not for personal use. We can help you determine what you can claim and how you can claim them. Just like any other company trading expense, you will need receipts or any proof of purchase when claiming. Take note that any training expenses incurred before the incorporation are not allowed. Other preliminary activities including contract negotiations or writing a business plan is not permitted.
But the good news is there is a chance that you can claim expenses provided that they occurred within seven years from creating your company. Always remember to keep all your receipts or invoices when running a business. They always come in handy whenever you need them.
Hire An Accountant
Well, you would expect us to say this, would you? Hiring an accountant can help you keep track of your finances. They will remind you of your tax payments and due dates. Also, they will teach you how to keep your accounts in great condition. These accountants will give you some advice on what are the expenses that are allowable and how you can report them to make it tax-efficient.
Hiring an accountant can help you in a lot of things such as making an estimate on the amount of your tax and NI which you need to pay quarterly or semi-annually for VAT. They will also make sure that you will not forget any tax payment on account, which can happen to a lot of people every year.