There are many things to consider before deciding on whether a Limited Company is the correct structure to operate your business through (which will be covered in another article), but the below will provide a basic background to setting up a Limited Company.
A Limited Company can be set up at Companies House for as little as £12.
There are also many formation agents out there who can set up your company for you. However, getting your company set up correctly from the start is very important, and it is recommended that you speak with a professional.
Companies House and HMRC
Companies House is the Government Department that incorporates and dissolves limited companies. They register company information and make it available to the public.
They are completely separate to HMRC, who are the UK’s tax, payments and customs authority. Their purpose is to collect the money that pays for the UK’s public services and help families and individuals with targeted financial support.
Companies House and HMRC don’t “talk” to each other. If you change things about your company at Companies House you have to tell HMRC. That’s the same when you file accounts; you have to file accounts with both Government Departments. HMRC will also want corporation tax returns from you as well.
Companies House and HMRC are slowly merging many of the online systems under a ‘.gov’ system and linking the two, but aren’t there yet!
The ownership of a company is determined by way of the purchase of shares. The payment for the shares is recorded as share capital in the accounts of the company. Simply put you, as the owner, buy shares in the company.
In terms of the amount and number of shares that you buy, the key is to keep it simple. There is usually no need to set up a complicated share structure, (although in some circumstances they are required), so I’d recommend 100 shares at £1 each. This will provide the company with a small £100 float in the bank and enough shares to allow changes in shareholding in the future if needed.
Do remember that for each share that is allocated to you as a shareholder you must pay the limited company (separate legal entity) for the value of the share.
So avoid setting the company up with you buying 1,000,000 shares of £1 each as you’ll be expected to pay £1million to the company!
A company must have at least one Director. The Director can also be the shareholder (and is the most common set up structure in small companies)
The requirement that a Limited Company must have a company secretary was removed from Company Law many years ago.
The company secretarial duties for a ‘one person’ limited company are straight forward and in general there is no need to pay for secretarial services that are offered by many formation houses.
Your accountant will be able to support your company secretarial duties as part of the accountancy package they provide you with.
Business Bank Account
The company will need a separate business bank account in the name of the company.
Even though you may own the company you must always think of it as being a separate legal entity with its own business bank account.
Any financial dealings that you have with the company, such as putting money into it or taking money out by way of a salary, dividends or a claim for expenses (costs paid from your own funds) need to be accurately recorded as arm’s length transactions in the books of the company.
Avoid using the company’s money to pay personal costs for your own use.
Register with HMRC
Getting the company registered at Companies House is easy and usually takes less than 48 hours. However, this is just one part of the story. The company has to be registered at HMRC for corporation tax and possibly VAT and PAYE. As a director of the company you should also register for self assessment if you’ve not registered before.