Setting up a limited company
Setting up a limited company as a contractor may appear daunting at first but is simpler than many people realise.
To set up a limited company, you need to provide Companies House with information about your company and directors, submit legal documents and set up company accounts.
You will first need to decide what to call the company, then agree the address to be used for any company communications. This must be an address in the UK and may be that of the person who will manage your Corporation Tax.
You also need to appoint directors who will be responsible for running the company and making sure accounts are properly prepared. While a private limited company may have only one director, a public limited company must have two or three.
Most contractors will only require one director as they will be running a private limited company. This also gives them full responsibility for company finances and the opportunity to significantly increase their income as profits are not being shared with any other parties.
Company directors must authorise any legal documents for the limited company, including the “Memorandum of Association” and “Articles of Association”.
The Memorandum of Association is a document that details the purpose of the company and how you plan to run it, while the Articles of Association is a document that details the rules of running the company, as agreed by company directors.
Both documents must be submitted as part of the company registration process and have significant importance in the event of any legal disputes.
The final step in setting up a limited company is to establish the company accounts.
Before you can legally raise invoices for any work completed you will need to register for Corporation Tax and open a company bank account.
If you fail to register for Corporation Tax within three months of setting up your limited company, you may be penalised for not paying any tax.
All companies need to complete their tax return on an annual basis and submit this to HMRC by 5th October each year. While the process for filing your tax return is fairly straightforward, mistakes can result in costly fines.
Employing an accountant to complete your annual return ensures you’ll avoid any unpleasant fines or penalties.
The cost of setting up a limited company
The cost of setting up a limited company is relatively low, however, if you are planning on employing the services of an accountant when you need to file a tax return, it is worth considering whether you may benefit from monthly support with your accounts.
Registering your company through Companies House costs £12 when you register online or £100 if you want it set up on the day you make your application.
When you sign up with Cobia Accounting, we’ll set up your limited company for free and within 24 hours. Our monthly packages provide ongoing support with your limited company accounts so you’ll always know the tax you need to pay and how much income you can take home.