Why register a company?
As the decision maker in a UK business, whether as a self-employed sole trader, a general partnership or a small firm, you may be considering whether you should register a limited company. To make an informed decision, it is always advisable to do some research and see how SMEs (micro, small and medium-sized enterprises) can benefit from incorporation as a private limited company.
As well as reduced personal liability, going limited confers other advantages. Not least, self-employed traders, partnerships and firms can reduce tax liabilities and gain accounting advantages by registering as a limited company.
In the UK, a limited company is a legal entity in its own right. As an independent body and distinct from the director(s), its corporate funds are separate from personal finances. Significantly, a private company can keep retain post-tax profits or distribute them through share dividends.
In a small limited company, the sole director, shareholder and single employee can be the same person. Some examples of this business model include consultants and contractors, especially in technical trades and professions. For such entrepreneurs, company formations enable remuneration through low salaries and substantial dividends, thereby increasing total net income. However, it is essential to plan the timing and amount(s) to optimise corporate and personal self-assessment tax due.
Some firms opt for a limited liability partnership (LLP), instead of a limited company. However, depending on the jurisdiction, LLPs often require guarantors. In the UK, at least one partner must be a general partner and, therefore, liable for business debts. Thus, LLP formations combine elements of general partnerships and corporations.
How do you register?
In England and Wales, Companies House in Cardiff handles limited company and limited partnership incorporation. Part of the Department for Business, Energy and Industrial Strategy, this executive agency runs an office in Edinburgh for registrations in Scotland. Similarly, in Northern Ireland, applications for registration go to the office of the Belfast Registrar.
Companies House also publishes advice on UK company formation for non-residents. Additionally, a company formation agent will usually be able to advise on choosing a registered office and using a forwarding address.
Online company registration using one of the standard templates takes a maximum of twenty-four hours. New registrants who need to alter the template articles of association can register by post instead, using form INO1.
Similarly, LLP registration is possible online, or by post using form LL IN01.
DIY registration or agent?
You could register online or use a formations agent. Using a registered formations specialist gives more time to focus on start-ups, new business and one’s customers while knowing that the completion of the application, choice of company name and preparation of shareholder certificates will all be handled correctly.
What company formation details must you supply?
If you have decided to register a company, you will first need to decide on the:
- Company name, which must comply with current regulations and not infringe trademark or copyright rules. Apart from the registered company name checker, look on the Whois database to see if the same domain name is free too.
- Company director(s). Under the terms of the 2006 Companies Act, which simplified the legislative regime, the nomination of a company secretary is now optional.
- Registered office address, if it is different from your usual office address.
- Share capital structure, or a statement of capital. Each share certificate may have a nominal value of as low as £1. Companies House require residential addresses of people with more than 25 per cent of the share certificates.
- Content of the company documents, including a memorandum and articles of association. Initial shareholders sign these documents at the first board meeting of the new private limited company, usually at the registered office.
Registering with HMRC
Once registered with Companies House, Her Majesty’s Revenue & Customs (HMRC) requires new companies to register for Corporation Tax. If there will be employees in the new company, it is also necessary to register for employer Pay As You Earn (PAYE) income tax. In both cases, the director(s) should register within three months of commencing activity, i.e. buying, advertising, selling, renting premises or taking on staff.
It is obligatory to register for value added tax when taxable turnover reaches £85,000 (January 2019). Below this level, VAT registration is optional.
After company registration
As a new director, you will need to open up a business bank account. Retaining an accountant is advisable, too. Finally, every year, going concerns have to complete a confirmation statement with Companies House to verify their continued active status. Previously called an annual return, this administrative task is quite simple to do online.