How do I register a limited company?
A limited company is an organisation that is set up to run your business. The main difference with being a sole trader is held in legal and tax liabilities. In fact, you will no longer be wholly responsible for it, as business finances will be separated from personal finances, meaning that the company’s debts are not directly your personal ones. Moreover, profits made will be subject to corporation tax set at 19%, and most limited companies are limited by shares.
Here's everything you need to know about registering a limited company.
When shall I register a limited company?
There’re two main reasons why a limited company might be more convenient for you than being a sole trader.
The first one is that a limited company has limited liability and it’s a separate legal entity. This means that in case of financial difficulties, your personal assets won’t be impacted but only what you’ve invested in the company.
The second reason is tax efficiency. This is mainly convenient for high earners (earning above £50,270. The reason is that as sole traders, they would be taxed 40% on their income, whereas limited companies are charged 19% in Corporate Tax.
How to register a limited company
You need to register your company (online or via post) with Companies House to obtain a Certificate of Incorporation.
To do this, you have to provide different information. Specifically:
- Choose your company name (remember to check if the name is available or under an existing trademark)
- Choose a company director (can be yourself)
- Decide who the shareholders or guarantors are (there must be at least one and it can be yourself if you run a small company)
- Identify people with significant control over your company (with voting rights or more than 25% of the shares) and declare them
- Prepare documents stating how to run the company (specifically, memorandum of association and articles of association)
- Check what records you’ll need to keep
- Register your company address and choose a SIC code
- SIC (Standard Industrial Classification) code: a 5-digit code that describes what your company does. You can select up to 4 codes from a list provided to you by Companies House.
- Address: you need to provide a registered or certified office address, a director service address (where you’ll receive HMRC correspondence), a director residential address, and a registered directors’ service address (from all directors, shareholders, and other people with significant control)
Note that given that your company’s finances are separated from your own, you also need to set up a separate business bank account.
Moreover, the director of a limited company also needs to:
- Complete annual self-assessment tax returns
- Pay tax and national insurance through PAYE
- Follow company rules through articles of association
- Keep company records and reports
- Report changes
- Inform other shareholders of any personal benefits from a transaction
Do I need to pay for registering my company?
The answer is YES but the amount depends on whether you register via post or online. In fact, if you register online the cost will be £12, whereas if you register via post you’ll pay £40.
Do I need to register for VAT?
If your takings exceed £85,000 per annum, you must register for VAT. Therefore, you must maintain annual statutory accounts, send companies house and annual returns and provide HMRC with annual tax returns.
Read more about VAT and how to register for it here.