What do I need to know about doing business through a limited company?
If you would like to find out what going Ltd would mean for your business, this free guide can help you to gather all the information you might need. As a cost-effective business structure, with specific advantages for start-ups and growing firms, this no-nonsense explanation to private and public limited companies in the UK will show you how to get set up, the possible financial advantages, and the important points to note.
What does the abbreviation Ltd mean?
Most corporate registrations are for private companies limited by shares, with a small number of shareholders or just a single shareholder. Limited companies with shares can be either public or private limited companies.
Unlike a plc (public limited company), a private limited company does not offer shares widely or trade them on open stock markets. Although less visible than their public counterparts, they still make a sizeable contribution to the economy and – in some cases – have been significant drivers of innovation.
In industry, many major brands started as partnerships or incorporated companies. In today’s marketplace, individuals who might also choose to upgrade from sole trader or an LLP (limited liability partnership) to operate as a limited company range from accountants, computer specialists and technology suppliers to architects, lawyers and.
Coincidentally, the term limited also refers to the International Maritime Organisation (IMO) Treaty, agreed in London in 1976. It replaced the earlier Brussels Convention on the limitation of liability for vessels and operators’ insurance claims.
What are shareholders?
When you set up your business as a Ltd company, it is a separate legal entity. It is, therefore, separate from the people who run it. Consequently, it has its own assets and can keep any profits it makes after tax.
New companies must have a minimum of one director and one shareholder, who may be the same person. When there is more than one director, each person becomes a shareholder when the company’s register of members includes their names. Importantly, the financial exposure of members or shareholders (also called subscribers) is limited to their initial investment or guarantee.
What are the personal tax advantages of changing to a limited company?
In the UK, some firms and SMEs can benefit from certain accounting advantages and tax arrangements if they structure themselves as a limited company. For those who start out as a sole trader, incorporating your small firm, contracting activity or self-employed consultancy means that you are likely to pay less personal tax than before.
As a director, you can opt to take a smaller salary and draw a larger part of your income as a dividend. This minimises the level of NICs (National Insurance Contributions) you need to pay as Ltd dividends are taxed separately and are not subject to NICs.
In short, sole trader incomes are all subject to NIC rules – by incorporating, you could see your actual take-home pay increase.
How do I register a UK limited company?
Setting up a company is called incorporation. Entrepreneurs in England and Wales need to register at Companies House in Cardiff, while the Edinburgh branch covers businesses registering with offices in Scotland. As a governmental agency, both locations fall within the remit of the Department for Business, Energy and Industrial Strategy.
In a document published in November 2018, Companies House clarified accessibility support for users with auditory, visual, speech, cognitive or motor impairments as well as seizure disorders. The agency stated it was striving to help users meet their responsibilities and was actively working with external agencies to research usability issues and maintain a high quality of service.
Entrepreneurs can register limited companies online if they opt to use the standard templates on the Companies House registration system. However, with bespoke company articles, direct online registration is not possible. Accordingly, the solutions include incorporating through accountancy service providers or company formation agents. Another valuable resource is gov.uk, which lists the detailed steps necessary to register a limited company correctly.
What information do I have to provide?
When you register a company, you will need to supply:
- A suitable company name. Notably, certain protocols and regulations apply to the choice of business name.
- A registered office address.
- Name(s) of the director(s).
- Optionally, the name of a company secretary. Though formerly a requirement, the Companies Act (2006) made this a matter of choice.
- Details of the proposed shareholding structure, also termed a statement of capital. Shares can be as low as £1 in value.
- A draft Memorandum and Articles of Association. Signed by the initial shareholders, these documents govern company management.
- A SIC (Standard Industrial Classification of economic activities) code, which gives a short description of the business.
Do I have to contact HMRC too?
Yes. In addition to registering the company itself, it is also mandatory to register with HMRC (Her Majesty’s Revenue & Customs) within three months of starting a business. Typically, the tax authorities determine the start date from advertising, selling, buying, renting property or employing someone. To avoid penalties, therefore, prompt registration is advisable for Corporation Tax – and PAYE (Pay As You Earn) income tax as an employer, if applicable.
Finally, VAT registration is mandatory when annual taxable turnover is £85,000 or higher (January 2019 figures), though VAT relief applies to non-profit organisations.