Forming a UK company / setting up a limited company for contracting & contractor company formation

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Introduction 

When you’re new to contracting, what’s the process when you undertake UK contractor company formation? In addition, what’s the official limited company formation procedure to follow as part of your contractor company setup? Further still, when you’re getting set up contracting, what does it cost to register a company (UK)? In this guide, we’ll research the forming a company (UK) process and see how to set up a limited company as a contractor. Indeed, there’s various things to do when you’re forming a limited company for future contracting. Therefore, in this guide to setting up a limited company we’ll cover various initial limited company advice, including how to set yourself up as a limited company contractor. We’ll also go over the steps involved for your new company setup in the United Kingdom.

When you’re registering a new company in the UK, there’s a government body that deals with this. The Registrar of Companies otherwise known as Companies House can be used when you register a UK company. Therefore, if you’re looking for a new company formation (UK), you or a third party will perform the new company incorporation (UK) procedure via Companies House.

Companies House is the UK’s registrar of companies, and they’re part of the UK government. When you register a limited company in the UK or indeed close one down, Companies House are the body that perform this Companies House formation process. What’s more, the register also shows specific data about each UK limited company. The Companies House public register shows all of these details and is available for the public to view online.

Initial thoughts on contractor company formation 

First thoughts on formation of a UK contractor company 

When you’re looking to register a company (UK), what should you consider first? Indeed, when you’re starting a limited company (first timer) and organise your contractor company formation for the first time, you may be moving from an employment role or from an umbrella company. Many sole traders also look to convert to a limited liability company once their business generates increased income and profits. The limited liability term refers to giving them extra protection as a director because as a result of any claims against the company, these are limited to company assets rather than the individual’s personal assets.

What does the formation of private limited company process involve? Basically, there’s specific steps for you to complete when you form a limited company (UK). In this guide, we’ll go over the formation of a contractor company process in detail. When you’re starting a ltd company (UK) for future contracting, there’s various steps to follow and we explain these below. What’s more, we have a guide which covers moving from an umbrella company to your own company. This explains what to consider when you go limited company contracting. There are also crucial differences to consider when you compare contracting to freelance in the UK, which are worth looking at.

As a contractor, when you register a new limited company for the first time, it’s a good idea to list your pre-trading expenditure. We’ve a first-timer’s guide to UK contracting, giving a complete overview of what to consider when you start your own contractor limited company.

If you’re moving from an umbrella company to working through your own company, please read our guide, which covers tax tips for UK limited company contractors.

Common questions

When a contractor is planning on forming a UK company, they may have questions in relation to this. Some examples of such questions on the formation of a limited company in the UK include:

  • How to start a limited company?
  • How to form a limited company?
  • What is the process when registering a new company?
  • How to register a company in the UK?
  • What to do after setting up a limited company in the UK?
  • How to set up a limited company as a contractor?

In this guide, we’ll look at the above and research both forming a limited company and the Companies House company formation process.

The UK contractor company formation process

The options available when forming a company in UK

You can form both a private limited company and a public limited company via the Companies House service. However, as a UK contractor with a small business, you’ll need to set up a private limited company. Therefore, when you’re thinking about how to set up as a contractor (UK) and company formation, contractor options include two ways of doing this. Importantly, both of these involve setting up a new company on Companies House for future contracting. Therefore, the two options for UK contractor company formation (Companies House) are:

  • You can go ahead setting up a company for contracting online via the Companies House website, or
  • One can complete form IN01 in relation to formation of a company in the UK and once complete, post this on to Companies House.

Other options for contractor company formation

A different option when you register a UK company as a contractor is to use a third party to form a UK company. The third party will carry out the business formation (UK) process which’ll save you completing this task. This method, when registering a new company, will also help to save you some time. Therefore, the choices here for UK company incorporation are your accountant or a formation agent.

Let your accountant form a UK company for you

When you’re setting up a limited company for contracting (UK), you can ask your accountant. Many IT contractor companies will appoint specialist contractor accountants and ask them to register a company (UK) for them at the outset. However, when you’re starting up your own business for the first time and decide to ask your accountant, what will they charge to form a new company? Most will likely arrange your UK company formation online and do it for free, if you sign up for a monthly payment service. The amount you’ll pay will depend on what type of service you take out with them e.g., a full bookkeeping service or a digital platform type service.

Find the best UK company formation agent

When we check out how to register a new limited company as a contractor, if you use a company formation agent (UK), they’ll offer several company formation packages (UK). There are lots of UK formation agents who can register a new company (UK) and they perform limited company formations (UK) all the time. They are experts at setting up companies and this includes contracting companies (UK). Indeed, they help hundreds if not thousands of companies set up every month. What’s more, you can find these formation companies (UK) online with a quick search. Therefore, you could try and find the best UK formation company, or you could search online for `companies formation packages in UK’.

Besides forming a company in the UK, many contracting companies in UK will need to register for VAT. Basically, some formation agents may include the VAT registration as part of their service. In addition, some agents offer the use of a London address for your company registered office. Further still, some offer opening a company bank account for you amongst other options.

Company registration fee

When you’re setting up your own company as a contractor, Companies House charges a fixed £12 fee if you undertake UK ltd formation online. On the other hand, if you do this through the post, the cost for forming a ltd company is £40.

Other initial thoughts on contractor company formation 

When we consider how long to set up a limited company, generally it takes about 24 hours. Sometimes it could be half a day and basically depends on how busy Companies House are at the time. If you plan to include any sensitive words as part of your UK ltd company formation (see later) it could take a while longer.

If your contractor accountant forms your new UK registered company for you, they may charge you a one-off fee for this. However, they may also provide the UK company incorporation service for free if you agree to sign up with them as a new client.

When setting yourself up as a limited company, the same information will need providing to Companies House whoever does this, you or a third party. If you do this yourself and get partway through and then need advice on setting up a limited company you can either ask your accountant, Companies House or do research online.

Once your company is officially set up, Companies House will send you the Certificate of Incorporation. Your new company will also appear on the companies register on the Companies House website.

When running your own company, it’s good to know your company’s future filing due dates. It’s also good to know what documents the company will need to file each year, e.g. the annual accounts and Confirmation statement etc.

When you register a UK company, something you must do is choose the directors and shareholders for the business. As this’ll be your own company, you’ll likely be both. Also, when you become a director, you’ll have specific director duties to bear in mind from the outset.

The choices to make when you register a company (UK) 

When you’re forming a limited company for contracting, there’s several choices to make in terms of your new company set up. 

Company name 

One of the first things to do when you decide on UK limited company formation for future contracting is your choice of a company name. What’s more, when we consider how to set yourself up as a contractor there’s specific UK contractor company formation guidelines in respect of your new limited company name which you need to follow regarding this:

  • Your company name can’t be identical or similar to an existing company name.
  • The choice of name should not be that your business is a connection of the Government or local authority.
  • Certain punctuation symbols aren’t allowed.
  • You must have the required permission to include certain sensitive words that relate to the government. These words include bank, Britain, Chartered, King, Queen, and many others. Here’s a complete list of these.

When we consider contracting company names as part of when you register a UK company, there’s various ways you can go about this. Choosing your company name is an important task, therefore it’s good to get this right from the outset when you perform ltd company formation (UK).

Registered Office address 

When forming a UK company, it must have an address where it can receive any official mail. This address is called the registered office. Many UK contractors use their residential address; however, you may be able to use your accountant’s address, and many contractors will choose to do this. A further option open to you when forming a new company, is to use a service provider.

Note: If you open a company in England or Wales, the registered office must be within England or Wales. The same rule applies to Scottish or Northern Irish companies.

Officials of the company 

As part of the set-up UK company online process, you may also decide to appoint a company secretary. Today, however, there’s no legal requirement for small companies to have a company secretary.

When you apply to register your company, you’ll need to have all your officials’ details to hand. These details include the full names, addresses, nationalities, and dates of birth. If you’ve concerns about the privacy of your home address, you can elect to use a ‘service address’. By doing this, your residential address won’t appear on the public record.

Trading activity 

As part of ltd company formation in the UK, every UK company has to state their trading activity. Therefore, as a limited company contractor, you’ll need to decide what best describes what you do. Companies House has a standard list of codes you can refer to when deciding which best summarises your business activity.

Each trade/industry has a unique SIC code to identify what a business does. Furthermore, section J of the SIC code list is likely to interest UK contractors the most. Please read our other guide, which explains the SIC code with Companies House in more detail.

Share capital 

When forming a limited company, you’ll need to decide on your company’s share structure. Therefore, as part of your contractor online company formation (UK) you’ll need to choose:

  • Who the shareholders will be.
  • The number of shares in your company. Usually, most new companies will start up with 100 shares. The shares will typically have a value of £1 or 1 pence each.
  • How many shares each person will hold.

Please take note that it’s also possible to set up different classes of shares when you are forming a company.

Shareholders 

As a shareholder in your own UK contracting company, you could decide to own all of the shares yourself. A further option when you form a company in the UK, is you could split the shares between you and your spouse. An additional option could be to bring in other people as shareholders.

In the future, your company may declare dividends. If it does, it must distribute and pay these in the same ratio as the shareholdings.

Most contractors who register their own company either:

  • Make themselves the sole shareholder; or
  • Make themselves and their spouse the shareholders. You could also decide to pay your spouse a salary if they do some work for your company, e.g., admin-type tasks.

When considering your company’s share structure, the best thing to do is to talk to your accountant.

Once you know your shareholders in your company, you’ll need to gather their information. These details will include their full name, address details, class of share, and the number of shares they’ll own.

The registers and official documents when you are forming a limited company (UK) 

PSC Register 

As part of starting a company in the UK, all companies must also now keep a record of all ‘People with Significant Control’ (PSC).

Therefore, when you go through contractor company formation, a PSC is someone who:

  • Holds more than 25% of shares or voting rights in a company.
  • Has the right to appoint or remove the majority of the board of directors, or
  • Otherwise exercises significant influence or control.

After the initial registration of your company, the PSC information will need updating via the annual Confirmation Statement. All companies must submit this form to Companies House each year. As a result, this’ll keep the UK Companies House register up to date.

Certificate of Incorporation of a private limited company (UK)

After forming your UK company, you’ll receive the Companies House Certificate of Incorporation (UK). This is an important document, and you can view this as your company’s birth certificate. The document proves that your company exists, and you may need to provide this to third parties such as your company bankers and future clients.

Articles of Association 

In the UK, all companies have a set of Articles. These, in turn, act as a rule book. The Articles will govern all aspects when you run your own company.

The articles include:

  • Directors’ powers.
  • Decision-making by shareholders.
  • Voting rights.
  • How the company will distribute dividends.

You can elect to use ‘model articles’ (this is a generic document), which should suffice in most cases.

When you’re forming a company yourself, you may decide to create your own set of articles. If you opt to do this as part of your contractor company formation, you can’t form a company online. Instead, you must use the postal method here (Form IN01).

Memorandum of Association 

This agreement confirms the intention of initial subscribers to form a company (UK) in the first place. It’ll also have the following wording:

`each subscriber to this memorandum of association wishes to form a company under the Companies Act 2006 and agrees to become a member of the company and to take at least one share’.

A list of all of the subscribers will follow this wording.

The Memorandum and Articles of Association are two important documents. Therefore, you should store these in a safe place. In most instances, your accountant will usually look after these for you.

Corporation Tax

When you’re forming a limited company in the UK, Companies House will pass your new contracting company details on to HM Revenue & Customs (HMRC). As a result, HMRC will issue your company with a Corporation Tax number, and you’ll use this number in the future when you file a company tax return.

What to do after contractor company formation 

Initial steps after new company formation in UK 

As a contractor, when you first start your company in the UK, there’s other tasks to undertake once you successfully register a company (UK) and this is in place. Besides contractor company formation, when we look at how to become a contractor (UK) the other tasks you’ll need to think about after you’ve formed your new company will include:

  • Set up your business bank account. Indeed, you can apply for business banking for small businesses in the branch or online via the bank website. Certainly, this is now much easier to do this online nowadays.
  • When you start a limited company, choose an accountant for your business. It’d help if you do your research to pick the best one for you. A good, experienced contractor accountant will help advise ways for you to operate tax efficiently and maximise your tax relief.

Further initial steps

These include:

  • Check if you need to register for VAT. As part of this, you’ll need to consider whether the VAT Flat Rate Scheme or standard VAT scheme is the best option for you -today, the standard scheme is the usual choice for contractors as they’re better off using this. If you need to register, your accountant will be able to do this for you and help you file your quarterly VAT returns in the future.
  • Decide how you want to pay yourself. You could take a tax efficient salary and the rest of your income as dividends. Therefore, another consideration at the outset is will there be any other shareholders in the company besides yourself.

Further steps after limited company formation (UK) 

Some other things for you to do, once you have registered your UK company, are: 

  • Learn what your company’s statutory records are and how to look after these. When you appoint an accountant, they’ll usually do this for you.
  • Register for Corporation Tax within three months of carrying out some business through your company. Nowadays, when you register your new company, Companies House will contact HMRC for you.
  • If you’ll take a contractor salary in the future or have other employees such as your spouse, your company will need to register as a new employer with HM Revenue & Customs (HMRC). HMRC will then set up a PAYE scheme for your business. In most cases, your accountant will do this, and they’ll also look after any submissions to the tax office.
  • If you like to be organised, a good start when you’ve your own company is to be aware of when the various filing dates are for the filing of documents and the payment of company and personal taxes. What’s more, it’s also useful to learn when you’ll pay taxes for your company.
  • You might also decide to set up your business website to help promote your business.

Final thoughts 

Many contractors will use their accountant to register a company (UK) for them, when they first sign up. Therefore, they’ll handle the contractor company formation process on their behalf. Basically, UK company formation via your accountant is usually the easiest option when you’re setting up a contracting business. However, when forming a limited company and undertaking the UK limited company incorporation process, you may prefer to do this yourself. As a result, this guide should give you a good overview of how the process to register a UK company works yourself. As a final thought, the actual company formation process online takes between 15 and 30 minutes.

Finally, if you’re considering closing your company for any reason, there’s also a certain process to follow.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: January 4th, 2024 / Categories: First timer guide, Starting Up Your Own Company /

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