Every business trading legally in the UK must register with HMRC and Companies House. This applies to new business startups and to companies already registered internationally and looking to trade in the United Kingdom.
A limited company is one which is registered with Companies House. The financial responsibilities for the company are separate to those of the individual(s) who run it. To register as a limited company, your business must have a registered address in the country in which you wish to trade. Here is our guide to limited company formation.
WHO WOULD SET UP A LIMITED COMPANY?
At the beginning of 2014, there were over 1.5 million limited companies registered in the UK. Limited companies are typically set up by new businesses or to those who have previously been trading as a sole trader and want to separate the finances of the business from their personal affairs, usually for the purposes of growing it.
Many businesses will prefer to work with a limited company than a sole trader – a benefit that, for many business owners, outweighs the downsides of stricter regulations and more paperwork that face the limited business. There are also tax implications to your choice of business structure, which are worth reviewing then deciding whether being a limited company is the right choice for you.
Typically, business owners choose to become limited companies when:
- their target client base prefers to work with limited companies
- their income passes the threshold where corporation tax is more economically beneficial than income tax
It’s also worth noting that, as a limited company, you will only be able to withdraw money from the business when it is recorded as a salary or dividend payment.
WHAT YOU NEED TO DO FOR LIMITED COMPANY FORMATION
You need to do two things to register as a sole trader:
- Register with Companies House (‘incorporate’)
- Register with HMRC
REGISTERING WITH COMPANIES HOUSE
You need the following to register your business with Companies House:
- Company name
- Business address
- At least one director
- At least one shareholder
- The ‘memorandum of association’, which is the agreement of the shareholders to create the company
- The ‘statement of capital’ which explains the share structure
- The ‘articles of association’ which explain how the company should be run
NOTES ON YOUR COMPANY NAME
You can name your business anything you like – within certain limitations. Your business may not use the same name as another, for example, nor can it use expletives. Your business name also cannot be similar to another, e.g. ‘Dinamix’ and ‘Dynamics’ so as to avoid any confusion further down the line.
NOTES ON YOUR BUSINESS ADDRESS
Your business address is the address at which you officially register your business. It does not need to be the address you actually trade at. For example, if you run a home-based business, it is a good idea to keep the business address separate so as to direct all mail there and avoid any potential privacy threats.You cannot register a business with a residential address; if this is all you have, you can purchase a registered office address from as little as £15 per month. Your company address will be publicly visible on your Companies House record so choosing an address in a prestigious business district can positively affect the way your company is viewed by others, too.
Once you have all of this information, you can register your business with Companies House. This can be done online, by post or through an agent. To register online, visit the gov.uk site; this will cost £15 and takes up to 24 hours.
REGISTERING WITH HMRC
You must provide information to HMRC about your business within 3 months of starting. They will use this information to work out when you will pay corporation tax and set you up with your tax code.You can do this online using this form.
You will need your unique taxpayer reference (UTR) to complete the form. This will be sent to you by post to your registered address within a few days of you registering with Companies House. This means it is essential to ensure you can receive post at your registered address and that that post will be forwarded to you – find out about our registered address services, which include handling of mail from HMRC and Companies House, here.
LIMITED COMPANY VS SOLE TRADER
One of the questions most commonly asked by new business owners is whether a limited company or sole trader status is best for them. Most businesses will start initially as sole traders. This gives you the opportunity to test out your business and start generating interest without the paperwork and regulations often associated with being a limited company.Being a sole trader also means you retain sole control and responsibility of your business – though you can employ people to work with you, the bucks stops with you. You will also pay a different form of tax – income tax rather than corporation tax – which can work out to be more economically beneficial for you if your turnover is below a certain threshold.
One of the biggest pitfalls of working as a sole trader is that your business and your individual finances are not separate, meaning your business debt and credit ratings are applicable to you as an individual too.
Limited company status allows you to separate your personal affairs and can also be seen as a more attractive prospect for clients considering working with you as it suggests a stronger presence and longevity.
Whether you’re looking to set up as a limited company now, or if you think you will in the future, it’s worth registering your business with Companies House now, which allows you to protect the business name from being taken by someone else.
published under Starting a Business
