Registering as a limited company is a straight forward process using our easy to understand guide.
If you’ve decided to register a limited company in order to work as a contractor, the first thing you need to do – before you even start working – is choose the tax structure that is best suited to your needs. We recommend that you consult an accountant to decide on the best option for you.
Once you’ve decided how to organise your taxation, you’ll be ready to launch your company.
A limited company is recognised as a legal entity and is assumed to be a ‘moral person’ in the eyes of the law; meaning it has its own identity and conducts business under its own name. A limited company makes and loses money and can accumulate debt and pay taxes as a recognised individual – just like a person.
It is important to understand that your company is a separate and free standing entity; this is the easiest way of understanding the legal mechanisms behind the formation of a limited company. Just like when a baby is registered at birth, your company will need to be registered with Companies House.
Firstly, your company will need a unique name. You can check your proposed company name against other registered companies to make sure this is the case.
You can either set up your company directly via Companies House, employ a company formations agent, or ask your accountant to do this on your behalf.
Your company will also require a registered address. You can use a PO Box address, but must also include a physical address and postcode. You can also use your home address, or the address of the agent (see step 3) who will manage your corporation tax.
It is recommended that you appoint an accountant to look after your company’s affairs and act as your company ‘agent’. You will be required to complete form 64-8: tax agents and advisers and submit this to HMRC in order to register your agent. You will need to submit two copies if your accountant is going to take care of your personal tax affairs on your behalf. The whole authorisation process can also be completed online if initiated via your accountant.
If you expect to generate a turnover in excess of the current limit, you will also need to register for VAT. Once registered, you can benefit from reclaiming VAT on company purchases, for example PPE equipment required to fulfil your role.
There are different VAT schemes and your accountant will be able to advise on the best option for you.
You will need to register your business for corporation tax. When you register your business(as per step 2) you should automatically receive a welcome pack from HMRC with information to help you get up and running. In the first instance, you will also need to complete form CT41G and return it to HMRC.
In order to be paid, you will need to register your company as an employer, even if the company only employs yourself, for example as the only director of a limited company. This will enable you to run a company payroll, deduct PAYE and national insurance contributions. Once you’ve done this, you will receive a new employers’ pack from HMRC providing further information. Your accountant (as your agent) will typically set you up for the various tax schemes.
Most contractors will have small PAYE and NIC liabilities, and will only need to make payments on a quarterly basis – although you may decide to pay yourself a salary which is below both PAYE and NIC thresholds and take advantage of dividends. Again, your accountant will be able to advise on your options.
Once you’ve reached step 7 you will be up and running as a fully-fledged business, having met all statutory and legal obligations as a new limited company contractor. However, you may also want to take out business insurance to protect your financial assets, intellectual and physical property from a loss due to risks such as lawsuits, property damage, theft, loss of income, injuries and illnesses.
You should also divert some of your income into a pension and your accountant will be able to help you with this matter.