Starting a business in the UK as a limited company (Ltd) is one of the most popular choices for entrepreneurs, freelancers, and small business owners. With benefits like limited liability protection, tax efficiency, and enhanced credibility, it’s no surprise that over 800,000 new companies are registered in the UK each year.
But how exactly do you set up a limited company?
What are the legal requirements, costs, and ongoing obligations?
In this process, we’ll guide you through:
- Why choose a limited company?
- Step-by-step registration process
- Legal requirements & paperwork
- Cost breakdown
- Business bank accounts
- Post-registration compliance
- Common mistakes to avoid
By the end, you’ll know exactly how to register and run your UK limited company. whether you do it yourself or use a formation agent.
Why set up a Limited Company?
1. Limited Liability Protection
- Your assets, like your home and savings, are protected if the company faces debts or legal issues. Unlike sole traders, you are not personally liable for business losses.
2. Tax efficiency
- Tax rates for corporations, which are usually (19 % to 25%), are very low as compared to income tax for sole traders, that is, (20 % to 45 % ).
- In a limited company, you have more choices for tax planning, like dividends, pensions, and expenses.
3. Professional reputation
- It’s not that sole traders can’t be successful. But having “Ltd” after your business name automatically makes you look more established and trustworthy to others. It shows you’ve made the effort to set things up properly, and that you’re serious about your business.
- Registering as a limited company takes effort, and customers will notice that you are committed, not just running a side hustle. Also, they feel safe working with you, and many big corporations have policies to only work with limited companies.
4. Easier access to Finance
- Banks and investors are more likely to trust limited companies rather than sole traders.
- In the future, you can increase your capital by selling your shares.
Step-by-Step Guide to Setting up a Limited Company
Choose company name
The first step in setting up your limited company is choosing a name, but there are some important procedures you need to follow. Your company name must be unique, as no one else can use it. You will need to check the Companies House register to make sure it is available.
It is better if the name ends with “Limited” or “Ltd” so your clients know you are a properly registered business.
Here is a small tip while you are at it: once you have found an available company name, quickly check if the matching website domain is free too. This way, you can secure both your company name and website at the same time, saving potential headaches later when you are setting up your online presence. Your company name is often people’s first impression of your business, so choose something professional, memorable, and available across all the places you will need it.
Appoint Directors and Shareholders
So, who will run and own your company?
Every limited company needs at least one director, who is a person responsible for making sure the business implements all the legal rules and regulations. The good news is you can appoint yourself as director if you are running the business solo.
You will also need at least one shareholder – these are the people who own the company. In many small businesses, the director and shareholder are the same person, which is completely acceptable, and if you are starting with friends or partners, you will need to decide how to divide ownership.
Private limited companies don’t need to appoint a company secretary anymore, as this rule was implemented in the year 2008. While some bigger companies still choose to have one to help with paperwork, it’s completely optional for most small businesses.
Prepare Key Documents
Every limited company needs two important legal documents to get started. First is the Memorandum of Association – it’s something like the company’s birth certificate. It is a simple document that officially records who is establishing the company and their agreement to create it.
The second document is the Articles of Association, which work like a company’s rulebook. It covers how decisions will be made, how directors are appointed, and other valuable operating procedures.
It is easier than you think if you register your company online through Companies House or a formation agent; these documents will be created for you automatically. You’ll just need to review them to make sure everything is correct.
Register with Companies House
Now it’s time to make your company official by registering with Companies House. You’ve got three main options to choose from, depending on your budget and how fast you need it to be done:
- The cheapest and fastest way is to do it yourself online for £12 -£14. In this process company will usually be registered within 24 hours.
- If you prefer paper forms, you can post your application, which is usually done for £40 – £45, but it comes with disadvantages as it takes 8-10 days to process.
- For those who are unable to do it up given two ways, then they can take help from formation agents who handle everything, but it costs more, which is between £50-£150, as it depends on the agents. The registration process can be completed same-day or next-day.
No matter which method you pick, you will need to provide some basic information:
- Your chosen company name, a proper UK business address.
- Details about your directors and shareholders, including their names, addresses, and nationalities.
- You will also need to select a SIC code – this is just a standard number that describes what your business does.
The whole registration process is designed to be straightforward, especially if you do it online. Once approved, you will get a certificate of incorporation, which is your company’s official certificate, and you’re ready to start.
Costs of Setting up a Limited Company
- The basic company registration is quite suitable as you can do it directly with Companies House for £12 -£14 if you apply online yourself, or up to £150 if you use a professional formation service.
- You will also need to open a dedicated business bank account, which usually costs between £0-£25 per month, depending on the provider.
- Many entrepreneurs or early businesses hire an accountant, which costs them around £500-£2,000 per year. to handle tax filings and compliance.
- Other additional costs are the annual confirmation statement fee to Companies House, which is £13.
- VAT registration is free until your turnover exceeds £85,000 or you choose to register voluntarily.
- Altogether, your first-year cost will reach between £100-£1,500, depending on whether you handle everything yourself or get professional help with the setup and accounting.
Post Registration Requirements
Following the formal formation of your limited company, there are a few important steps to complete:
- Register for Corporation Tax
Within three months of beginning business operations, you must register for Corporation Tax with HMRC. This can be done online with ease using your Government Gateway account. - Set up a Business Bank Account
To keep your personal and business finances apart, it is strongly advised that you open a dedicated business bank account. - VAT Registration
Although many smaller businesses choose to voluntarily register to reclaim VAT on expenses, you are required to register for VAT if your business turnover exceeds £90,000 in any given 12-month period. - File Annual Accounts and Confirmation Statement
To notify Companies House of any changes to your company’s information, you must submit a confirmation statement, which costs £13 every year, and file annual accounts within nine months of the end of your company’s fiscal year. Although these may seem like pointless formalities, following them helps your business stay out of trouble and prevent penalties.
Common Mistakes to Avoid
- Choosing a company name that is already taken or contains restricted words is one of the most frequent errors. Always start by looking through the Companies House register.
- Another mistake is combining personal and business funds. Even if you are just starting, open a dedicated business bank account to keep everything tidy and prevent issues with HMRC.
- Another thing that new business owners frequently overlook is deadlines. Set reminders for important dates, such as your annual accounts and confirmation statement, because missing filings or late tax returns can result in penalties.
- Get organised data right away because HMRC requires you to maintain accurate financial records for at least six years.
Let Ola Accountancy handle your limited company’s Finances
Setting up a limited company is just the first step; keeping it running smoothly requires staying on top of taxes, filings, and financial records. That’s where Ola Accountancy comes in.
- We will assist you in correctly registering to prevent costly mistakes, and we will work all year long to maximise your tax position, whether it be about corporation tax, VAT, or dividend payments to you. We take care of all your mandatory filings with HMRC and Companies House, submitting accurate accounts and returns before deadlines so you never face penalties.
- We handle all your required filings with Companies House and HMRC, ensuring that you never face penalties by submitting accurate accounts and returns ahead of schedule.
- We will help you pay just what you owe in taxes while maintaining compliance for your business.
- With our experts handling the numbers, you are free to focus on what matters, that is, growing your business.
Why struggle with paperwork when you could have peace of mind? Let Ola Accountancy handle the financial heavy lifting so you can build the business you dreamed of.
