Setting up a limited company is one of the smartest ways to get paid for your work.
With your own limited company, you get to define your brand, own everything you do, run your business in the most tax-efficient way, and pitch for work you wouldn’t be able to get as a sole trader. If you’re not quite sure what it all entails then check out Crunch’s beginners guide to limited companies. If you’re ready to set up your limited company then here’s what you need to know.
Five simple steps to setting up a limited company
1. Choose which type of limited company to set up
Firstly, you have to choose which type of limited company you wish to form. The two main choices are:
- Private Limited Companies (LTDs)
- Public Limited Companies (PLCs)
Most freelancers, contractors, start-ups and small businesses will opt for a Private Limited Company, as PLCs must have a minimum share capital of £50,000, at least two shareholders, two directors and a qualified company secretary.
2. Pick your name
This bit is equal parts the most fun and most frustrating part of the whole process for most new limited companies. Much like a web address, your company name has to be completely unique. You can differentiate in a few ways to guarantee a unique name – for example, a limited company name can use either “Limited” or “Ltd.” (i.e. “Crunch Limited” or “Crunch Ltd.”). You can find available company names using the Companies House WebCheck service, but with over 1,500 companies formed every day, the availability of your preferred name could be limited.
Stuck for ideas? Here are some ways to create unique company names.
Download and keep our handy PDF guide
Starting a Limited Company Guide →
3. Set up your limited company
If step two was the fun and frustrating part, this one’s the tricky and bureaucratic part – or at least it’s seen to be. It’s actually really simple if you’re organised though. You can go online and set up your limited company yourself in about ten minutes, and all for the cost of a takeaway pizza.
You just have to supply certain personal details to help Companies House identify you as a company director, and you’re good to go. Companies House will often have your limited company formed in a few hours.
4. Complete the incorporation process
Companies House is responsible for all limited company registration in the UK. Their website provides detailed information. The following documents must be completed and returned to Companies House in order to complete the incorporation process. Often, your company formation agent or accountant will complete these on your behalf:
- Memorandum of Association – limited company name, location, business type
- Form 10 – director’s names, addresses and registered limited company address
- Form 12 – states the limited company complies with terms and conditions of the Companies Act
- Articles of Association – outlines director’s powers, shareholder rights etc. (this is often provided by the formations company that sets up the limited company).
5. Take care of the legal requirements
Short answer: it shouldn’t be.
Traditionally, being a sole trader has been thought of as the easiest option for running a small business. Your tax responsibilities are easy to account for, if not necessarily as efficient as they could be. But many of our clients have enjoyed the benefits of switching from a sole trader set-up to a limited company business structure.
It seems wrong for a freelancer, contractor or small business owner to be put off saving tax because of the perceived hassle involved.
The key to getting it right
As a freelancer, contractor or small business owner, it’s important to have the systems in place to take advantage of the tax-savings afforded by a limited company without having to spend ages on irritating admin duties. You shouldn’t have to pay astronomical accountancy fees, either.
You’ll know you’ve got the right accountancy solution when your accountant is doing most of the work for you and leaving you with greater take-home pay. Being a limited company director should be blissfully easy, and Crunch ensures it is.
Maintaining your limited company
There are many horror stories of freelancers or contractors who’ve had a nightmare with running a limited company, either because of accountants who left them to fend for themselves or a hackneyed attempt at DIY accounting.
One of the important jobs of a good accountancy service is to ensure that you spend as little time on your accounting as possible. At Crunch, our service combines online accounting software with expert accountancy advice, so that you have everything you need in one place.
The bread and butter of running a limited company is drawing up and sending invoices, plus keeping a record of expenses. Both of these can easily be done if you use online accounting software, which provides templates, automatically calculates VAT (should you be VAT registered) and enables simple recording of expenses. These are the same processes you’ll have been used to as a sole trader, but now you need to make sure that you keep on top of these to understand how your business is performing and how much you can take in dividends.
Preparing and filing tax returns
Our article “Limited company directors: What you need to file with HMRC & Companies House” outlines your tax paying duties and deadlines. What’s important to keep in mind is how crucial it is to have a good accountant and sophisticated online accounting software (Crunch provides both) with which to take away the strain.
For example, with Annual Accounts, you barely have to do a thing – the accountants our end will perform all the necessary actions, leaving you to simply approve your accounts. It’s annual accounts at the click of a button!
If you’re registered, VAT is simple because whenever you draw up an invoice, the VAT’s automatically added. When it comes to an actual VAT return, the Crunch system will do the calculations and you can file the return directly from your Crunch account each quarter.
Dealing with your tax paying and filing duties can become a muddle when business owners keep all their information in separate places. However, when it’s all organised in one secure online system, the information is readily available and it becomes significantly easier to file returns and accounts for taxes. If there are any problems, our team of expert accountants are on hand to help.
Claiming prior business expenses
It’s entirely possible that, should you decide to go the limited company route when setting up your business, you may have incurred business costs prior to forming your limited company. You can still claim these costs as business expenses – we’ve written a guide to help you figure out exactly what you can claim and how.
Get an accountant
Well, we would say this, wouldn’t we! Getting an accountant is a great way to keep on top of your finances. They’ll remind you of important tax dates and payments due, show you ways of keeping your accounts in excellent shape, advise you on allowable expenses and how to report them so you’re as tax efficient as possible.
They can help you with things like estimating how much tax and NI you’ll need to pay every six months, or quarterly for VAT. They’ll also help to ensure you’re not forgetting a payment on account, which catches many people out every year.
Find out more Crunch’s accounting for limited companies service.