A limited company is a separate legal entity from its owners. As such, you’re protected by limited liability. Should your company go into debt, you’re only legally responsible up to the extent of the nominal value of your shares.
Running a limited company offers a more tax-efficient way to operate. Relative to sole traders, you’re able to pay a lower rate of income tax and NICs, as well as claim a wider range of allowable business expenses.
Being registered as a limited company also lends credibility to your company. This could lead to increased business opportunities, particularly for contractors, as it isn’t uncommon for established organisations to specify that they’ll only work with freelancers operating through their own limited company.
You’ll also benefit from easier access to funding. As a separate legal entity, your company presents a lower risk to lenders—which increases your chances of obtaining external financing at a lower interest rate, compared to sole traders. Additionally, you have the option of raising funds through selling shares.
If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.
As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:
It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics - and here's where our guide comes into the picture.
Limited companies provide numerous benefits, from tax savings to limiting your liability.
But the first step is to understand what a limited company is exactly, and whether setting up such a company can help you achieve your goals. This article will clearly explain the pro's and con's so you can make an educated decision.
In a nutshell, a limited company is a private company that's a separate legal entity from its owner(s). For freelancers and contractors, a limited company is one of the three main business structures that you may use to run your business (the others being sole trader and umbrella companies).
In this article, we walk you through:
A company number (also known as a company registration number) is an eight-digit number that is assigned by Companies House to a company upon incorporation.
You can locate the number on your certificate of incorporation. The first digit of the company number is usually a zero, and is omitted in most instances. As such, your certificate of incorporation will show a seven-digit company number.
To restart a dormant business, you need to take the following steps:
You can appoint a new director, terminate the appointment of a director or change the director's personal details online, or by downloading the relevant forms and submitting it to Companies House by post.
Before you begin your registration process to set up a limited company, there are a few things you need to consider.
You need to choose the type of limited company you need (public limited company or private limited company), choose a company name and decide on how you’re going to set up your company. For the latter, you have the option of registering with Companies House or using a third-party service, like an accountant or company formation agent.
This involves completing documents like the Memorandum of Association, Articles of Association, Form 10 and Form 12, after which your application will be processed. Companies House will typically provide an update in the next working day, and mail out a hard copy of your articles of incorporation.
You need to open a business bank account, ensure that you’ve received your company UTR number and complete your VAT registration (or if you were VAT-registered as a sole trader, you need to notify HMRC of your transition to a limited company structure).
You’ll also need to set up your payroll, update your company details on your website and business documents (such as your order forms and business letters), and get your accounts sorted out.
If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.
Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.
One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.
While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:
If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.
Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.
In the UK, the majority of self-employed people operate as sole traders. While there are many advantages to being a sole trader, you could take home more money and give your business a professional edge by setting up as a limited company.
In this article, we'll look at the advantages of operating as a private limited company to see how it could benefit you. If you're interested in seeing whether a limited company could be a good option for your business, check out our Business Structure guide. If you're already operating as a sole trader, making the jump to a limited company is more straight forward than you think.
Who can turn their nose up at the prospect of increased take-home pay? Well, that's the principle benefit of setting up a limited company and one of the main factors that drive people to switch from a sole trader.
As a director of a limited company, the way you pay tax is different from how you pay as a sole trader. As a sole trader, you'll pay 20% or more on everything you earn over the tax threshold. As a limited company, you typically pay yourself a small salary so you incur as little personal tax as possible. The majority of your income will come in the form of dividends that are taxed at a much smaller rate, meaning you're able to maximise your take-home pay.
As well as the tax benefits, paying the majority of your income through dividends means that you're able to pay less National Insurance Contributions (NICs) as these do not apply to dividend payments.
Example - Here's a quick comparison of the difference in take-home pay for a sole trader and a limited company.
As you can see, you save £965.64 as a limited company. What's not to like?
The advantages of operating as a limited company are well known. It can be a great way to maximise your take-home pay, improve your credibility with customers and limit your personal liability. Like most things in life, it's a case of what's best for your situation. While the positives outweigh the negatives for most people, there are a few things you should know before you make the jump to a limited company.
In this article, we'll outline the disadvantages of operating as a private limited company. Bear in mind that there are many advantages to a limited company and in many cases, these advantages will outweigh the disadvantages, so don't think of this as a report of doom and gloom.
There are a couple of ways to go about registering a limited company:
We've included further details in our guide on setting up a limited company.
To register a business as a sole trader, you need to:
Once you've registered, you need to fulfil your responsibilities as a sole trader. These include:
To set up a limited company, you need to:
To set up a business partnership, you need to:
Being a limited company director comes with several legal responsibilities. In addition to your statutory duties, you’re also responsible for meeting your filing deadlines.
Send the FPS on or before your employees’ payday. The FPS must be submitted each time you pay your employee. This means that if your employee is paid weekly, you’ll need to make 52 submissions across the year.
Tax season can be stressful for small business owners.
You don't have the convenience of having an employer filing for you. While there are all kinds of tips and strategies for managing your taxes, the first order of business is to get key deadlines noted on your schedule, and determine how and when to make your payment.
Here's what you need to know:
If you're paying salaries to employees or directors, you need to register for PAYE and pay your PAYE bill to HMRC.
There are various ways to make your payment.
RTI late filing will incur a monthly penalty of £100, depending on the number of employees you have.
A late filing penalty of £100 is imposed if your tax return is up to three months late. The penalty increases if you're later than three months, or if you pay your tax bill late. Additionally, interest will be charged on late payments.
You may be required to pay a surcharge if you submit a late return. Surcharges for late payments or VAT return filings are indicated on the HMRC website.
HMRC's penalties are as follows:
The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:
The first accounting year end date for a new company is the last day of the month in which the first anniversary falls on. For example, if your company was incorporated on 15 January 2021, the first accounting year end date will be 31 January 2022.
“What do I need to do after setting up a limited company?” is a question we’re often asked by users who’ve registered for our limited company accounting packages.
Here’s a brief overview of what you need to do:
Starting a new business?
Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.
However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?
More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.
Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.
Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.
It might sound complicated, but take it one step at a time and it's actually quite manageable.
If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.
As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.
While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.
Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.
A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks.
While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.
Here are five accounting mistakes that can derail growth for small businesses and how to avoid them.
Speak to one of our accountants on a free 30 minute accounting consultation.