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How do I set up a limited company: A step-by-step guide

  • 6 min read
  • Last updated 16 May 2024

Whether you’re switching over from being a sole trader or starting a business and looking to make it official, setting up a limited company can be confusing. So, how do I set up a limited company, you ask? We’ve created the ultimate step-by-step guide for you to follow to cover all your bases.

Step 1: Sole trader vs limited company

In some cases, you’ll need to opt into being a limited company straight away. In others, you can wait. Figuring out which option is best for you can depend on a few things.

Choosing a limited company 

What’s a limited company? It’s an organisation you set to run your business, which means you wouldn’t be completely or wholly responsible for it. It creates a separation between your personal finances and debts and your business ones. 

In terms of tax liabilities, first, you need to decide how you’re going to pay yourself:

  • Through a salary -> set up a PAYE scheme for yourself
  • Through dividends -> your company will have to pay Corporation tax
  • Or a combination of both

If you’re a director, you’ll also need to pay National Insurance for both yourself as an employee and as an employer.

Choosing to stay a sole trader

What’s a sole trader? A sole trader is, you guessed it, a self-employed person! It’s just a fancy (legal) way of saying it.

When you’re a sole trader, the legal line between your business finances and debts and your personal ones is blurred. To be frank, it’s almost nonexistent. 

Tax implications for a sole trader are a little different. You’ll pay Income Tax on your self-employed income, minus allowable expenses. 

For National Insurance, you’ll need to pay Class 4.

Step 2: The pre-preparation

Before we even get into the documents you need, the websites you have to visit and the people you need to talk to, HMRC has a list of things they recommend you do to get your limited company affairs in order from the get-go. 

We like to call this stage, pre-preparation. It never hurts to be overprepared!

Here’s HMRC’s list:

  1. Choose a name 
  2. Choose directors and a company secretary
  3. Decide who the shareholders or guarantors are + people with significant control
  4. Prepare documents agreeing on how to run your company
  5. Check what records you’ll need to keep
  6. Register your company 

It’s completely up to you how you want to run your company, how many directors you want, etc. Usually, when starting off, limited companies will have just one director (and alas, no secretary) – that would be you, the owner. Let’s carry on.

Step 3: Records you’ll need to keep

The two types of records you need to keep are company records and financial/accounting records. Specifically:

  • Records about the company specifically
  • Financial and accounting records

Don’t get caught out by HMRC’s random compliance checks

HMRC does random checks to make sure you’re paying your taxes properly by checking your company and accounting records.

Get a professional, accredited accountant to make sure all your records are in order and to sort and file your company tax return and annual accounts to HMRC and Companies House, respectively.

Company records

  • Information about the directors, shareholders and company secretaries
  • Results of any shareholder votes/resolutions
  • Loans, when they’ll be paid back (specific date) and to whom
  • Indemnities documents – if something goes wrong and it’s your company’s fault, you will need to make payments for it
  • Documents showing the transactions when someone buys shares in your company
  • All loans and/or mortgages taken against company assets
  • A list of ‘people with significant control’ (PSC) A.K.A someone who:
    • Has more than 25% shares or voting rights in your company
    • Has the ability to appoint/remove a majority of directors
    • Can influence/control your company or trust

These documents are usually kept at the company’s registered address. If that’s not the case for you, you’ll need to let Companies House know. 

Financial/accounting records

  • All the outgoings (money spent) by your company
  • Details on assets owned by your company
  • Debts your company owes or is owed
  • Stock your company owns at the end of the financial year
  • The stocktakings you used to work out the stock figure
  • All goods bought and sold
  • Who you bought and sold them to and from (unless you run a retail business)
  • All money spent by the company – receipts, petty cash books, orders, and delivery notes
  • All money received by the company – invoices, contracts, sales, books, and till rolls
  • Any other relevant documents like bank statements and correspondence

🚨You can be fined £3,000 or disqualified as a company director by HMRC if you do not keep accounting records.

You need to keep records for 6 years from the end of the last company financial year they relate to. 

Sometimes, you might have to keep them longer if:

  • They show a transaction that covers more than one of the company’s accounting periods
  • The company has bought something expected to last more than 6 years, like equipment or machinery
  • You sent your company tax return late 
  • HMRC has started a compliance check into your company tax return

Avoid sending a late company tax return…

… by using TaxScouts! An accredited accountant will your company return on time, or request an extension if possible, to make sure you’re filing correctly and on time.

What do I do if my records are lost, stolen or destroyed?

If you cannot replace your records after they were lost, stolen or destroyed, you must: 

  • Do your best to recreate them
  • Tell your Corporation Tax office straight away
  • Include this information in your company tax return

Step 4: Almost ready to register your company

Now we’re talking! This is where your business is being officially introduced – world, meet the new business. New business, meet the world. 

First, you’ll need to register an official address and email address for your company and choose a SIC code. A SIC code identifies what your company does

The address you register must be:

  • A physical address in the UK
  • In the same country your business is registered in 

You can’t use PO box addresses to register your company. 

🚨Your company could be struck off the Companies House register if you don’t provide a registered office address that meets all the requirements.

If you want to keep your address private

Remember, your company’s registered address is publicly available on the online register. To keep your home address private, you have two options:

  1. Use a different address  – like an accountant’s or solicitors’ (although don’t forget to get their permission first or things could get awkward!)
  2. Appoint an agent who will give you an address to use

You must have the address sorted before you register your company.

You’ll also need to provide an email address. It won’t be public info, but make sure it’s accessible and you keep up to date on any emails you receive. Companies House can sometimes contact you via email about your company. Still asking yourself, “how do I set up a limited company?”? We’re almost there!

Step 5: Register your company – hooray!

You can register your company with Companies House through HMRC’s website and register for Corporation Tax together. You might also need to register for VAT.

If you’ve already registered your company but still need to register for Corporation Tax, you can follow this HMRC guide using your business tax account.

Yipee, you’ll get a ‘certificate of incorporation’. This confirms the company legally exists and shows the company number and date of formation. 

You’ll need at least 3 pieces of personal information about yourself, your shareholders or guarantors:

  • Town of birth
  • Mother’s maiden name
  • Father first name
  • Telephone number
  • National Insurance number
  • Passport number 

Other important information:

  • It costs £50 and can be paid by debit or credit card
  • It usually takes 24 hours (longer if HMRC is experiencing delays)

Other things you can do as you register:

  • Register for PAYE to tell HMRC you’re employing staff – this includes you as the director 
  • Continue an application if you’ve already started registering

Register here!

Other ways to register

You can also register by post (it costs £71 which you’ll have to pay by cheque made out to ‘Companies House’ and takes between 8 to 10 days), using an agent, or even using a third party. 

Congratulations, you’ve officially registered your company🎉

 How do I set up a limited company? Well, you’re the expert now! And, you also know what records you need to keep. We can’t think of a cleaner, smoother start than that!

It’s always worth getting a tax professional to sort this

And who better than one of our accredited accountants? Use our limited company tax returns service to sort your annual accounts and corporate tax return. All for a low, fixed price.

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