What is the process when you are forming a UK company and what does it cost to set a new company up?
Well, first of all you have certain director duties from the outset to consider.
Companies House is the UK’s registrar of companies, and they are part of the UK government. They register new companies, and they dissolve companies that close down. What’s more, the register also shows certain data about each company. The Public Register shows all of these details, and it is available for the public to view online.
When you come to set up your own company for the first time, there are specific steps for you to follow. I will go over these steps in my article below. I have a guide that covers moving from an umbrella company to your own company and this sets out what you need to consider. There also key differences to consider when you compare contracting to freelancing in the UK which are worth looking at.
When you set up for yourself the first time it would also be a good idea to make a list of your pre trading expenditure. I also have a first timer’s guide to contracting in the UK which gives a full overview of what to consider when you start out.
If you are moving from an umbrella company to working through your own company have a read of my article covering tax tips for contractors (this is a member only article and you can read it if you sign up as a member).
First of all, when you forming a UK company, there are two choices available to you. These are:
- set this up online via the Companies House website, or
- complete form IN01 and post this on to Companies House
A further method that you can use when you set up your company is to use a third party. This method will help to save you some time. The choices here are your accountant a formation agent.
Please note, Companies House charges a fixed £12 fee if you apply for a new company online. On the other hand, the cost is £40 if you do so through the post. It is also £100 if you would like a same day service through the post.
Other initial thoughts
Typically, your contractor accountant will set up your new company for you. As a result, they may charge you a one-off fee for this. Please note, they may provide this service for free if you agree to sign up with them as a new client.
You will need to provide the same info to Companies House, whichever method you decide to choose.
When you are running your own company, it is good from the outset to be aware of your company’s future filing due dates. It is also good to be aware of what the company will need to file each year e.g. the annual accounts and Confirmation statement etc.
Choices to make
One of the first things to decide when you are forming a UK company is your choice of a company name. What’s more, there are certain guidelines that you need to follow:
- Your company name cannot be the same or very similar to an existing company name
- The choice of name should not simply that your business is a connection of the Government or local authority.
- The name that you choose cannot be offensive.
- Certain punctuation symbols are not 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 is a complete list of these.
Every UK company must have an address where you can receive any official mail. This address is called your registered office. As a result, many contractors will use their residential address. On the other hand, you could use your accountant’s address, and many contractors choose to do this. A further option is to use a service provider.
Key to note, if you set up a company in England or Wales, the registered office has to be within England or Wales. The same rule applies to Scottish or Northern Irish companies.
Officials of the company
When you apply, you will need to have all of your officials’ details to hand. These details include the full names, full addresses, nationalities, and dates of birth. If you have concerns about your privacy, you can elect to use a ‘service address.’ By doing this, your residential address will not appear on the public record.
Every UK company has a trading activity. Therefore, you need to decide what best will describe what you do. Companies House has a standard list of codes that you can refer to when you decide which best describes what you do. 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 be of most interest to contractors. Please have a read of my other write up. This article explains the SIC code with Companies House in more detail.
When you are forming a UK company, you will also need to decide on your company’s share structure. Therefore, you will need to choose:
- Who are the shareholders
- The number of shares in your company. Normally, most companies will set up with 100 shares. The shares will normally have a value of £1 or 1 pence.
- How many shares each person will hold
It is also possible to set up different classes of shares in your company.
As a shareholder in your own company, you could decide to own all of the shares yourself. A further option is that you could split the shares between you and your spouse. Another choice could be to bring in other people as the 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 themselves.
Most contractors who set up 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
The best thing to do when you consider your company’s share set up is to talk to your accountant.
Once you know who your shareholders are going to be in your company, you will need to gather their info. This info will include their full name, full address details, class of share, and the number of shares they will own.
Registers and official documents
As part of forming a UK company, all companies in the UK must also now keep a record of all ‘People of Significant Control’ (PSC). A PSC is someone that 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 set up of your company, the PSC info needs updating via the annual Confirmation Statement. All companies need to send this to Companies House each year. As a result, this keeps the UK public register up to date.
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 company. These include directors’ powers, decision making by shareholders, voting rights, and how the company will distribute dividends. You can elect to use ‘model articles’ (this is a generic document), and this should suffice in most cases.
When you set up your company, you may decide to create your own set of articles. If you do opt to do this, you cannot set up your company online. Instead, you will need to use the postal method here (Form IN01).
Memorandum of Association
This agreement confirms the intention of initial subscribers to form a company in the first place. It will 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. You should store these in a safe place. Your accountant will usually look after these for you.
What to do after forming your company
Some more tasks that you will need to do or may need to think about when you are forming a UK company and these include:
- Set up your business bank account. You can do this in branch or online via the bank website.
- Make a list of your pre trading expenditure.
- Choose an accountant for your business. You should do research here yourself to pick the best one for you.
- Learn about what details to show on your invoice and how to recharge expenses, if appropriate.
- Decide how you are going to keep your accounting and business records. Nowadays, most contractors use online accounting software and a popular choice is FreeAgent. It is also good from the outset, to know how you should maintain your business records and how long you need to keep these for.
- Consider taking out insurance for your business. You should consider Professional Indemnity insurance and perhaps other insurances too.
- Check if you need to register for VAT. As part of this you will need to consider whether the VAT Flat Rate scheme or normal scheme is the best option for you -today the normal scheme is the usual choice for contractors as they are better off using this. If you do need to register, your accountant will be able to do this for you and help you to file your quarterly VAT returns.
- Find out what are the legal and financial obligations for company directors.
- Learn what your company’s statutory records are and how to look after these. When you appoint an accountant, they will usually do this for you.
- Register for Corporation Tax within three months of carrying out some business through your company. Nowadays, when you set up your new company, Companies House will contact HMRC for you.
- If you are going to take a contractor salary in the future or you have any 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 will also look after any submissions to the tax office.
- If you like to be organised, a good start when you have your own company is to be aware of when the various filing dates are for the filing of documents and payment of company and personal taxes
- You might decide to set up your own business website to help promote your business
When forming a UK company, many contractors will use their accountant to set up their UK company. When you are forming a UK company, you may decide you would prefer them to do this. On the other hand, you can perform this process yourself, as described above. As a final thought, the actual setup process online takes between 15 and 30 minutes. I hope this read was a helpful guide for you.
If you are thinking of closing your company for any reason there is a particular process to follow.
Link to Contractor Advice UK group on LinkedIn https://www.linkedin.com/groups/4660081/