Following on from our article explaining some of the pros and cons between setting up as a Sole Trader v’s Limited Company this article will explain the basics of how to set up a Limited Company and will hopefully show that the process is quite a bit easier than you might have thought. Following are the main things you will need to do or consider.
1. Register your Company Details with Companies House.
The first step in setting up a limited company is to register the details with Companies House. This can be done online at the Companies House website and there is a small charge levied by them for this which, at the time of writing, is £12. To register your company you will need the following:-
- Choose a company name – This cannot be the same as another registered company’s name.
- A company address.
- A director – Your company must have at least one director.
- Details of the company’s shares and shareholders.
- The nature of business in the form of a Standard Industrial Classification (SIC) code.
- Memorandum and articles of association – Templates of these can be downloaded from the Companies House website.
Once you have these details you can go ahead and incorporate the company with Companies House and it is normally registered within 24 hours of submitting an online application. Companies House will assign the company a year-end accounting date and will inform HMRC who will issue a 10-digit Unique Taxpayer Reference. This reference will be posted to your company’s address usually a few days after registration.
2. Set up a Business Bank Account.
Once the registration has been completed there are still a few other things you need to put in place or consider. As the company’s finances are legally separate from your own, you need a dedicated business bank account to make and accept payments. This can take a few weeks to set up as the bank will need to see certain identification documents from shareholders and directors. The process can often be simplified and sped up by working with the same bank you already hold a personal account with but you should also check and compare banking charges and any free banking periods that may be available.
3. VAT Registration.
Another essential consideration when setting up a limited company is VAT registration. HMRC will not tell you when you need to register for VAT, it is your responsibility, as the company owner, to know what thresholds apply. If your company’s taxable turnover (i.e. the total of everything sold that isn’t VAT exempt) exceed £85,000 for any 12-month period or is expected to exceed £85,000 in a single 30-day period then you must register for VAT. If your turnover does not meet this threshold, you can choose to register for VAT voluntarily and, in some cases, this may benefit your business.
Once you have completed the VAT registration process, you will receive a VAT number (which must be listed on all invoices from that point on) and a VAT registration certificate. This will include your date of registration and will tell you when your first VAT return needs to be submitted. Registering for VAT will usually take around a week.
4. Business Insurance.
There is no legal requirement to take out any kind of business insurance when you set up a limited company. However, if you employ anyone other than yourself or a family member then you must have employers’ liability insurance in place. Some professional bodies also require their members hold professional indemnity insurance in order to act in their qualified capacity. If members of the public come to your premises then public liability insurance should be a serious consideration though this is not a legal requirement.
Other insurance covers you may wish to consider include:-
- Product liability.
- Key man cover.
- Property and buildings.
- Business assets.
5. PAYE Registration.
Another requirement for all businesses with one or more employee is to register as an employer and set up a PAYE scheme. This applies even if you are only paying yourself as the director of a limited company. You must register before the employee’s first pay date and it usually takes about one week to get your PAYE reference number and complete your registration. You cannot register more than two months before you start paying employee’s salaries. You should also think carefully about how you intend to pay yourself as a company director.
6. Workplace Pension.
One last thing to consider when setting up a limited company is to make sure any qualifying employees are enrolled in a workplace pension scheme. Employees must be enrolled in a workplace pension if they:-
- Are aged between 22 and the State Pension age.
- Earn £10,000 or more a year.
- Usually work in the UK.
Conclusion.
Although these are the main factors you need to consider when setting up a limited company, there are other business issues you may need to take into account. Feel free to contact us if you would like any help or assistance with anything mentioned above.