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 for undertaking UK contractor company formation? In addition, what’s the official limited company formation procedure to follow as part of your contractor company setup? Further, when you’re getting set up contracting, what does it cost to register a company (UK)? In this guide, we’ll research forming a company (UK) and see how to set up a limited company as a contractor. Indeed, there are various things to do when 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 cover the steps involved in your new company set up in the UK.

When you register a new company in the UK, a government body handles this. The Registrar of Companies, 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 it’s part of the UK government. When you register a limited company in the UK or close one down, Companies House is the body that performs this Companies House formation process. Moreover, the register 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 

When you’re looking to register a company (UK), what should you consider first? Indeed, when starting a limited company (first-timer) and organising your contractor company formation for the first time, you may be moving from an employment role or an umbrella company. Many sole traders 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. This is because claims against the company are limited to company assets rather than the individual’s assets.

What does the formation of a private limited company process involve? There are 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 in detail. When starting a Ltd company (UK) for future contracting, there are 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 into limited company contracting. Indeed, there are crucial differences to consider when you compare contracting to freelance in the UK, which is worth looking at.

When you set up a contractor company for the first time, it’s a good idea to list your pre-trading expenditure. Our first-timer’s guide to UK contracting gives 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.

UK contractor company formation process

What are forming a company options in the 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, it’s best you set up a private limited company. Therefore, when considering how to set up as a contractor (UK) and company formation, contractor options include two ways of doing this. Indeed, both 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 about the formation of a company in the UK and post this to Companies House once complete.

What are other options for contractor company formation?

A different option when registering 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, saving you from completing this task. This method, when registering a new company, will 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

When you plan to form a company for contracting, you can ask your accountant to do this. 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 which 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). Many UK formation agents can register a new company (UK) and constantly perform limited company formations (UK). They’re experts at setting up companies, including contracting companies (UK). Indeed, they help hundreds if not thousands of companies set up every month. Moreover, you can find these formation companies (UK) online with a quick search. Therefore, you could try to find the best UK formation company or search online for `companies formation packages in the UK’.

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

Company registration fee

When setting up your own company as a contractor, Companies House charges a fixed £50 fee if you undertake UK Ltd formation online. On the other hand, if you do this through the post, the cost of forming a Ltd company is £71 or £78 for an online same-day service.

Other initial thoughts on contractor company formation 

When we consider how long it takes to set up a company, it generally takes about 24 hours. Sometimes, it could be half a day, depending on how busy Companies House is. It could take longer if you plan to include any sensitive words as part of your UK limited company formation (see later).

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

When setting yourself up as a limited company, the same information is provided to Companies House, whoever does this, you or a third party. If you do this yourself, get partway through it, and then require advice on how to complete the process, you can ask your accountant or Companies House or research online.

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

When running a company, it’s good to know its future filing due dates. It’s good to know what documents the company has to file each year, e.g., the annual accounts and Confirmation statement.

When registering a UK company, you must choose the directors and shareholders for the business. As that’ll be your own company, you’ll likely be both. Also, when you become a director, you’ll have specific duties to remember from the outset.

Initial choices when you register a company (UK) 

When you’re forming a limited company for contracting, you have several choices regarding the actual set-up process.

Company name 

One of the first things to do when deciding 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 are specific UK contractor company formation guidelines in respect of your new limited company name, which you must follow regarding this:

  • Your company name can’t be the same as an existing one. If you choose one similar to another company, you may have to change it if someone makes a complaint.
  • The choice of name should not suggest a connection with the Government or local authority.
  • Certain punctuation symbols aren’t allowed.
  • You must have the required permission to include certain sensitive words related to the government. These words include bank, Britain, Chartered, King, Queen, etc. Here’s a complete list of these.

There are various ways to go about this when considering contracting company names as part of registering a UK company. Choosing your company name is an important task. Therefore, getting this right from the outset is good when you perform a Ltd company formation (UK).

Registered office address 

When forming a UK company, it must have an address to 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.

Company officials 

You may appoint a company secretary during the UK company online set-up process. However, small companies have no legal requirement to have a company secretary.

When you apply to register your company, you must have all your officials’ details on hand. These details include the full names, addresses, nationalities, and dates of birth. If you’re concerned about your home address’s privacy, use a ‘service address’ instead. This way, your residential address won’t appear on the public record.

Trading activity 

As part of a Ltd company formation in the UK, every UK company must state its trading activity. Therefore, as a limited company contractor, you must decide what best describes your business activity. Companies House has a standard list of codes to 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 will likely 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 must decide on your company’s share structure. Therefore, as part of your contractor online company formation (UK), you must 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 note that it’s also possible to set up different classes of shares when forming a company.

Shareholders 

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

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

Most contractors who register their own company either:

  • Make themselves the sole shareholder; or
  • Make themselves and their spouse the shareholders. You can also consider paying 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 company’s shareholders, you must gather their information. This includes their full name, address, class of share, and the number of shares they will own.

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

PSC Register 

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

Therefore, when you go through 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 your company’s initial registration, the PSC information must be updated via the annual Confirmation Statement. All companies must submit this form to Companies House each year, which helps keep the UK Companies House register current.

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 your company exists, and you may have 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 govern all aspects of running 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. However, you can’t form this online if you do it as part of your company formation. 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. What’s more, it’ll 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 the subscribers will follow this wording.

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

Corporation Tax

When 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, which you’ll use this number in the future when you file a company tax return.

What are the next steps after contractor company formation?

Initial steps after new company formation in the UK

As a contractor, when you first start your company in the UK, there are other tasks to undertake once you successfully register a company (UK), and this is in place. Besides company formation, when we look at how to become a contractor (UK), the other tasks you should consider after you’ve formed your new company 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. Indeed, it’s 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 did your research to pick the best one. A good, experienced contractor accountant will advise you on operating tax efficiently and maximising your tax relief.

What are the further initial steps after registering a company?

These include:

  • Check if you must register for VAT. As part of this, you should 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 it. If you must register for VAT, your accountant can help you file your quarterly VAT returns.
  • 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 whether there will be any other shareholders in the company besides yourself.

What are some more further steps after limited company formation (UK)? 

Some other things for you to do once you’ve registered your UK company are: 

  • Learn about your company’s statutory records and how to maintain them. When you appoint an accountant, they’ll usually do this for you.
  • Register for Corporation Tax within three months of conducting 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 must register as a new employer with HM Revenue & Customs (HMRC). HMRC will set up a PAYE scheme for your business. In most cases, your accountant can do this and look after any submissions to the tax office.
  • If you like to be organised, a good start when you have your own company is knowing when the official filing dates are for filing documents and the payment of company and personal taxes. What’s more, it’s helpful to learn when you’ll pay taxes for your company.

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. UK company formation via your accountant is usually the most straightforward option when setting up a contracting business. However, you may prefer to do this when forming a limited company and undertaking the UK limited company incorporation process. As a result, this guide should give you a good overview of how registering a UK company works. 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 a specific process to follow.

Link to Contractor Advice UK group on

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

Published On: April 6th, 2024 / Categories: First timer guide, Starting Up Your Own Company /

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