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September 13, 2021

Setting Up a Limited Company in the UK



Registering a company


In order to set up a limited company, you will need to:

• ‎‎‎‎‎‎‎‎‎‎‎Cho‎‎‎‎‎‎‎‎ose a business name (e.g ABC Recruitment Limited). The company name does not need to be the same as your website name.

• Decide on where the company's registered address will be. It is a legal requirement for a company to have a registered address. This can either be your home address, the address of the company's office (if you have one), or you can choose a virtual address.

• Nominate who will be the director of the business (in this case it will be you)

• Decide who the shareholders are (again this will be you). This will mean you own 100% of the company.

• Prepare a document on how the company shall be run (Companies House offer generic models for you to adopt).

Setting up a limited company is a very straightforward process and can be done by making an application with the Registrar of Companies. You can do this here, https:/www.gov. uk/set-up­ limited-company . There is a filing fee payable to Companies house which costs £14.

Once the company has been incorporated, Companies House will issue a company number. They will also contact HMRC who will issue the company with a UTR (unique tax reference number).


Filing requirements for a limited company


Statutory Accounts

Companies in the UK are required by law to file a set of statutory accounts each year (formally called Financial Statements). This will contain information such as how much profit the company has made in a year (formally called a Profit & Loss account) along with a summary of its' assets and liabilities at the year end (formally called a balance sheet). These statutory accounts need to be filed within 9 months of the company's year-end.

For example, if a limited company was incorporated today, it would automatically have a year end of 31st March 2022. Therefore, the company would need to submit a set of accounts to Companies House no later than the 31st December 2022.


Annual Confirmation Statement

On an annual basis, the company will need to confirm with Companies House who are the directors and shareholders of this business. This can be done online at Companies House and is very simple exercise.


Annual Corporation Tax return

On an annual basis, the company will need to confirm with Companies House who are the directors and shareholders of this business. This can be done online at Companies House and is very simple exercise.


Annual Confirmation Statement

Each year the company will be required to file an annual corporation tax return with HMRC and pay tax on its' profits. Currently the rate of corporation tax is 20%. Therefore, if a company made a profit of £20,000 there would be a corporation tax bill of £4,000 to pay (£20,000 x 20%). This tax would need to be paid within 9 months and 1 day of the company's year-end. For example if a company had a year end of 31March 2021, the corporation tax would need to be paid by 1st January 2022.


VAT (value added tax)

If the company generates more than £85,000 in turnover in any 12 month period , then it is required to register for VAT. This means that the company will need to charge 20% VAT on any of its' invoices from that date it becomes VAT registered. For example, if you billed a client £1000 for a placement of a candidate, the client would need to pay you £1,200 (£1000 + 20%) and you would need to pay the £200 over to HMRC.

However, VAT registered companies can also claim any VAT that they pay on their supplier invoices. VAT registered company's need to pay their VAT over to HMRC once every 3 months.

This is not something you need to immediately be concerned about as I do not envisage that your sales will reach £85,000 for at least a few months.


Extracting money from the Company

As a director and the sole shareholder of the company, you can extract money from the company in two ways:

1. Pay yourself a salary. The company can employ you and pay you a salary. This salary would be subject to income tax and national insurance. It will also be an allowable cost for corporation tax purposes.

2. Take dividends. Assuming the company has generated profits you can pay yourself a dividend which will also be subject to tax (not national insurance).

The table below shows the tax and national insurance rates applicable to salary and dividends;

graph

Note- The above thresholds are annual.


Personal Tax Return

Should you wish to draw dividends from the company, you will personally need to complete a tax return. The tax year for individuals runs from the 6th April to the 5th April. For example, if the company paid you a dividend on the 30th March 2021, this would fall into the tax year ended 5th April 2021. You would then need to file a personal tax return (formally known as self-assessment) by the 31st January 2022.

Company Payroll

If you do decide to pay yourself a salary, the company will need to register as an employer, and submit details of your salary to HMRC each month. The company will be responsible for deducting the tax and national insurance and paying this over to HMRC. The tax and national insurance will fall due on the 19th of the following month.

Here is a list of government approved free payroll processing software.

https://www.gov.uk/payroll-software/free-software

Company bank account

The company should set up it’s own bank account. This is to ensure complete separation between the company's funds from the director's funds. I believe Metro bank and Starling bank are particularly good for companies that have just started out.

Accounting system

Limited companies have a legal obligation to keep all accounting records for a period of 6 years from the date of the year end. This includes contracts, invoices, supplier invoices, bank statements and payroll records. Hard copies and electronic copies are both acceptable.

Furthermore, the company should keep adequate accounting records and use some form of accounting software. Xero (www. xero. com) offers an accounting system at £12 a month. Or you can opt for some free accounting software call Bokio (www .bokio.co.uk).

Allowable Costs

A company can offset any expenses against its' profits providing the cost is wholly and exclusively related to the business. For general businesses I would suspect that you could claim the following costs against your business

• Website costs

• Advertising

• Insurance

• Telephone costs

• Internet costs

• A small percentage of your electricity bills if you work from home

• Office Costs

• Any salary that you draw against the Company

Financing your business

Typically start-up companies rely heavily on the owners of the business to initially fund cashflow. If you are looking to fund your business, you could look into obtaining a business loan. However, as the company has no real assets that can be secured against the loan, the lenders may look to you for guarantees.

Business Plan

Every business should have a plan, but this need not be a written plan, or even require the detail that a lot of business plan templates would suggest you write. There is no hard and fast rule on this, but you should at least consider the following;

• Your company's goals -are they financial, social, a personal interest.

• What your core business product/service is

• Who your customers will be (e.g. are you going to be targeting a specific industry e.g the finance industry or a specific location.

• Why customers will purchase the product/service from you (and not your competition). Will you be competing on cost, or will you be offering a high end service.

• How you will get customers (sales and marketing).

• What finances you need to survive (survival budget).

Despite what you may have heard do not feel obliged to write a traditional (20+ page) business plan. Provided you have thought about the above and have a clear strategy for them, do what is right for you and your circumstances.

Nevertheless, if you are looking for external investment in your business, e.g. from a bank they will likely want to see a written business plan.

Final Thoughts

I hope the above helps, and should you have any queries on the above, please do let me know. I would be more than happy to answer them.

Finally, we appreciate the above is very daunting and there are a lot of things to consider, so if you need any assistance, such as registering the company, or setting up a company bank account please do let us know.