You don’t need to be an expert in accounting and tax to start your own company.
Your highly developed skills, forward thinking enterprise and commitment to succeed, along with the accounting expertise & experience of 1st Contact Accounting – you have a winning formula!
Company is a clever way of starting up as a contractor or in business with minimal risk, affording you the advantages of ownership along with certain tax benefits.
1st Contact Accounting offers YOU a full range of accounting services so you are able to efficiently run and manage your Limited Company.
Let us guide you through the process of choosing a Company name that is suitable and process the formation with Companies House.
We will assist you with the following:
Applying for your PAYE reference number
Applying for your Corporation Tax number
Applying for your VAT and Flat Rate VAT registration
Opening a company bank account
Additionally, you will receive a consultation with an accountant, who will explain the statutory responsibilities that you would assume as director of a limited company, what records you would need to keep and how we would be able to assist in the efficient running of your limited company.
Call 1st Contact Accounting today to set up your Limited Company within one day
Limited liability companies
Limited companies exist in their own right. This means the company’s finances are separate from the personal finances of their owners.
Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees – for example, a bank loan. However, they may lose the money they have invested in the company if it fails.
The Companies Act 2006 makes a number of changes that will affect directors and shareholders of limited companies. You can read about the Companies Act 2006 on the Department for Business, Innovation & Skills website – Opens in a new window.
- Private limited companies can have one or more members, eg shareholders. They cannot offer shares to the public.
- Public limited companies (plcs) must have at least two shareholders and must have issued shares to the public to a value of at least £50,000 or the prescribed equivalent in euros before it can trade.
- Private unlimited companies – these are rare and usually created for specific reasons. It is recommended you take legal advice before creating one.
- Must be registered (incorporated) at Companies House.
- Must have at least one director (two if it’s a plc) who may also be shareholders. Directors must be at least 16 years of age. At least one director must be an individual, rather than a company.
- Private companies are not obliged to appoint a company secretary but if one is appointed this must be notified to Companies House. Plcs must have a qualified company secretary.
Management and raising finance
- A director or board of directors make the management decisions.
- Finance comes from shareholders, loans and retained profits.
- Plcs can raise money by selling shares on the stock market, but private limited companies cannot.
Records and accounts
- Accounts must be filed with Companies House before the time allowed for filing those accounts to avoid a late filing penalty.
- Accounts must be audited each year unless the company is exempt.
- When you file your annual return for the first time a letter will be issued to the Registered Office containing the company’s authentication code and instructions for use of Companies House web filing services. You should follow the instructions in the letter.
Directors are responsible for notifying Companies House of changes in the structure and management of the business.
- Profits are usually distributed to shareholders in the form of dividends, apart from profits retained in the business as working capital.
Tax and National Insurance
- If a company has any taxable income or profits, it must tell HM Revenue & Customs (HMRC) that it exists and is liable to corporation tax.
- Companies liable to corporation tax must make an annual return to HMRC.
- Company directors are an office holder of the company and therefore regarded as an employed earner for National Insurance. As such, company directors must pay both income tax and Class 1 National Insurance contributions on their director’s earnings. However, while regular employees’ Class 1 NICs are calculated on their monthly or weekly earnings separately, directors’ NICs are calculated on an annual cumulative basis. For more information, see the page on Class 1 National Insurance contributions for directors in our guide on Class 1 and Class 1A National Insurance contributions.
- Shareholders are not personally responsible for the company’s debts, but directors may be asked to give personal guarantees of loans to the company.
- A limited company is a type of business entity.
- In the United Kingdom or Republic of Ireland it is a corporation with shareholders whose liability is limited by shares (Ltd), which is the most common form of privately held company. Setting up as a limited company is an attractive option for many people as, unlike sole proprietorships, personal assets are distinct from company finances.
- The private company equivalent in Australia is the Proprietary Limited company (Pty Ltd). An Australian company with just Limited or Ltd at the end of its name is a public company, such as a company listed on the ASX (although public companies can be, and often are, unlisted). Australia does not have a direct equivalent to the plc.
- Private company limited by guarantee
- A company that does not have share capital, but is guaranteed by its members who agree to pay a fixed amount in the event of the company’s liquidation. Charitable organizations often incorporate using this form of limited liability. Another example is the Financial Services Authority. In Australia, only an unlisted public company can be limited by guarantee.
- Private company limited by shares
- Has shareholders with limited liability and its shares may not be offered to the general public. Shareholders of private companies limited by shares are often bound to offer the shares to their fellow shareholders prior to selling them to a third party.
- Public limited company (plc)
- Public limited companies can be publicly traded on a stock exchange — similar to the U.S. Corporation (Corp.) and the German Aktiengesellschaft (AG).
- A shareholder in a limited company, in the event of its becoming insolvent (equivalent to bankruptcy in the U.S.) would be liable to contribute the amount remaining unpaid on the shares (usually zero, as most shares are issued fully paid). ‘Paid’ here relates to the amount paid to the company for the shares on first issue, and not to be confused with amounts paid by one shareholder to another to transfer ownership of shares between them. A shareholder is thus afforded limited liability.
- A limited company can be registered in England and Wales, Scotland, Northern Ireland, the Republic of Ireland, Canada, or Australia. The registration of companies in Great Britain (England, Scotland, and Wales) is done through Companies House. In Canada, a person wishing to register a limited company must file Articles of Incorporation with either their provincial government or the federal government . Registration of companies in Australia is done through the Australian Securities and Investments Commission (ASIC).
- The registration of companies in Northern Ireland has been the responsibility of Department of Enterprise, Trade and Investment. From 1 October 2009 responsibility transfers to Companies House, under the Department for Business Enterprise and Regulatory Reform (BERR).
- Northern Ireland will retain a registry function and presence along similar lines to the Companies House Scotland model. This means that the office will remain in Belfast and we will retain the Registrar for Northern Ireland.
- Equivalent constructs to limited companies can be found in most countries, although the detailed rules governing them vary widely. It is also common for a distinction to be made between the publicly tradable companies of plc type (for example, the German Aktiengesellschaft (AG), Czech a.s. and the Mexican, French and Polish S.A.), and the “private” types of company (such as the German GmbH, Polish Sp. z o.o., and the Czech s.r.o.).
- In the United States the expression corporation is preferred to limited company (because corporations there have limited liability). A limited liability company (LLC) is a different entity. However, some states permit corporations to have the designation Ltd. (instead of the usual Inc.) to signify their corporate status.
What is a private limited company?
Many small businesses operate via private limited companies. There are around 1.15 million limited companies operating in the UK currently, compared to around 2.8m sole traders and 500,000 partnerships.
So, what is a private limited company?
- Under the limited company business structure, your company and personal finances are kept separate, unlike the sole trader structure.
- Limited companies are subjected to corporation tax on their profits, whereas sole traders are taxed under the self assessment system.
- If your limited company is going to turnover £70,000 or more per year (from 1st April 2010. Previously it was £68,000), you must register for Value Added Tax.
- Limited company directors have more legal, financial and administrative responsibilities, whereas sole traders have an easier life when it comes to paperwork.
- A private limited company is owned by its shareholders
- If things go wrong and a limited company fails, its directors and shareholders have ‘limited liability’ in that their personal assets cannot be touched. For sole traders, their personal liability is unlimited.
- A private limited company cannot offer shares for sale on the stock market, whereas a Public Limited Company can.
- All limited companies must be registered at Companies House.
- All limited companies should submit an ‘Annual Return‘ to Companies House each year as well as their annual accounts.
- In some industries, most businesses are limited companies for a number of reasons – it may look more ‘professional’, it may help if you need to raise external finance, and it may be more tax efficient than other business structures.
- From April 2008, limited companies are no longer required by law to have a company secretary. They can now operate with just a sole director.
- You can read more about the steps involved in the limited company incorporation process here, and also a good legal overview of all the main business structures.
Before you start
When making the choice of business structure, you should always consult a professional, as each business has different needs.
There is no ‘right’ or ‘wrong’ business structure to use -it all depends on what you do, your financial situation, the industry you are in, and how large your operation is likely to become.
What is a dormant limited company?
What is a dormant limited company?
A dormant company is one that doesn’t trade and has no accounting transactions. Small companies may choose to buy a dormant company to protect the name, or for other reasons.
Trading companies may also elect to become dormant if they cease trading and may wish to trade again in the future.
Why would you need a dormant company?
There are several reasons why small business people may use a dormant company.
1. Protection – You may have a trademark or brand name you wish to protect. Securing a dormant company of “brand name limited” will prevent competitors from using the same brand name for unscrupulous reasons.
2. Future Proofing – You may not yet be ready to push ahead with a new project. By securing a dormant company, you can help prepare in advance for the future.
How long can a company remain dormant?
There is no time limit for keeping a company in a dormant status. However, the directors of dormant companies must still perform some administrative duties each year, as explained below:
Administration of a dormant company
- Even though your company may be dormant, you are still liable to complete an Annual Return to Companies House (costs £15 if you file online, or £30 if you file a paper return).
- All dormant companies, even those who have not traded, must file annual accounts at Companies House. This will mean a balance sheet and relevant notes for dormant companies.
- For Companies which have never traded, they can file their annual accounts via Form AA02 (PDF). Companies who traded in the past, but have become dormant may be able to use Form AA02 (DCA), but only if no transactions have been recorded in the current financial year and no residual balances exist.
- During this time, the company must not generate any transactions at all, otherwise you will have to submit full accounts to Companies House, and meet any liabilities these transactions may create.
- If you decide to appoint a Company Secretary, Director, or any of their details change which the company is dormant, you must notify Companies House via the correct Form .
- Even a dormant limited company must have a registered address. Any change of registered address must be sent to Companies House via Form AD01. (PDF)
Limited company advantages – an overview
Although the sole trader route is the most popular way of running a business in the UK, there are significant advantages of working via a limited company.
Setting up as a sole trader is without doubt the simplest way to get going in business. All you need to do is inform HMRC that you are working as ‘self employed’, and account for your business activities via the annual self assessment process.
Starting up in business via a limited company involves a more complex formation process, and the financial and administrative responsibilities of running a limited company are certainly greater than those of a sole trader. However, there are many advantages to working via a limited company, which we cover in this article.
Limited Company Advantages
1. Tax – The main advantage of working via a private limited company is that you are likely to pay less personal tax than a sole trader. Company profits are subject to Corporation Tax at 21%. If you are the director and shareholder of a limited company, you may elect to take a small salary (and pay little or no PAYE or National Insurance Contributions) and take most of your income in the form of dividends. Dividends are taxed separately, and are not subject to NICs. As a sole trader, your entire income is subject to standard PAYE and NIC rules.
2. Distinct Entity – A limited company is a completely separate entity from its members, whereas a sole trader and his/her business is treated as a single entity for tax and administrative purposes. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s members.
3. Limited Liability – As the name suggests, if you run a limited company, you are protected in case things go wrong. Assuming no fraud has taken place, you will not be personally liable financially for any losses made by your limited company. This is not the case for sole traders, who are not protected from financial claims in the event that things go wrong with their businesses.
4. Professional – In some businesses and industries, working via a limited company can provide a professional image (in some industries it is a mandatory requirement if you want to seek business). If you are doing business with larger companies, you may find that they prefer to deal only with limited companies rather than sole traders or partnerships.
5. Funding – Limited Companies may find it relatively easier to secure business funding (although acquiring capital for all types of business structure has become progressively more difficult since the credit crunch).
6. Naming – Once you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar.
7. Shareholders – A limited company can issue various classes of shares. This means you can easily sell stakes in the company, or transfer ownership of shares.
8. Costs – Many people prefer to operate as sole traders rather than limited companies as the start-up and running costs are perceived to be significantly lower. However, with company formation costing less than £100 (in some cases, much less), it has never been cheaper or easier to register a new company. You can register a company online via our formations portal here
9. Pensions – Rather than paying for a pension out of tax-free income, your company can fund its employees’ executive pensions as a legitimate business expense.
10. Succession – If a shareholder wishes to retire, sell his shareholding, or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.
There are many things to consider when deciding upon a business structure. You should always seek professional advice before starting up in business, as your choice of a business structure will depend very much on your own individual circumstances.