Setting up a limited company or personal service company (PSC) remains a popular option with contractors today, despite much IR35-related controversy surrounding this particular method of self-employment. Many choose to offer their services and receive payment through a limited company structure in the name of greater tax efficiencies and financial protection over and above other contracting arrangements such as being a sole trader or operating through an umbrella company.
When you’re just starting out, setting up a limited company may seem like a more complicated process than the other options. Becoming a sole trader is arguably the quickest and simplest way to start your own business, but most limited company owners find that any additional financial and administrative responsibilities they face are outweighed by the financial benefits they receive in the long run.
So, if you’ve decided that setting up a limited company is the best route for you, read on to get started.
Choose the type of limited company to set up
Limited companies are legally separate from the people who run it, have separate finances from personal ones, have shares and shareholders, and can keep any profits made after paying tax.
There are two types of limited company: private limited companies and public limited companies. Many freelancers and contractors in the UK have limited companies – they only require one director and shares cannot be offered to the general public. PLCs’ shares can, but they must have a minimum share capital of £50,000, at least two shareholders, two directors and a qualified company secretary.
Select a company name
This can be both a fun and frustrating process. Just like a website or social media username, your company name must be completely unique. And with hundreds of new companies being set up every day, it’s likely that you’ll have to get creative if you want to get close to your preferred choice.
There are a few rules around naming to consider, all available on the government website. You can’t, for example, use anything offensive in your company name, and you must be careful that what you choose isn’t too similar to somebody’s else’s name. If it is, Companies House will contact you and you may be forced to change it.
There are some ways to differentiate your name from others by using Ltd and Limited, but it’s worth using the name availability checker to be sure.
Provide details about your limited company
This involves a few steps, including deciding who the shareholders or guarantors are, identifying people with significant control over your company and preparing documents agreeing how to run your company, including a memorandum of association and articles of association. More information and a step-by-step process can be found on the government website.
These details all need to be registered with Companies House and HMRC, who will verify your information and use it for future reference, including your annual tax return.
Register your company
This is the final step to getting your limited company set up and can be done online. Although it’s worth noting that if you do not want to use ‘limited’ in your company name, you’ll need to register by post instead.
You’ll need to answer a few questions and register for a Government Gateway user ID and password before submitting certain documents to Companies House, including the memorandum of association and articles of association mentioned earlier.
You’ll also need to supply at least three pieces of personal information about you and your shareholders or guarantors, for example:
- Town of birth
- Mother’s maiden name
- Father’s first name
- Telephone number
- National insurance number
- Passport number.
The setting up process costs £12 and can be paid by debit, credit card or PayPal. You’ll then be issued with a certificate of incorporation, which confirms the company legally exists and shows the company number and date of formation. This is usually done within 24 hours.
You’ll need to ensure this process is completed within three months of starting to do business.
Protect your business
Not only will you need to set up a business bank account for your limited company, but you’ll need insurance to cover your business’s liabilities too. This includes professional indemnity insurance and public (& employers’) liability insurance. You may also want to consider taking out IR35 tax investigation and liabilities insurance to protect yourself from any future tax enquiries from HMRC.
To find out more about how we can help protect your limited company, please get in touch with our team of experts. You can also find more topics related to this in our Knowledge Hub.