Forming a UK company

Introduction 

What is the process when you are setting up a limited company and what does it cost to set this up?

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 Companies House public register shows all of these details, and it is available for the public to view online.

First steps when you are setting up a limited company

When you come to forming a UK company for the first time, you may be moving from n employment role or working via an umbrella company. Many sole traders also convert to a limited company once their business begins generating increased income and profits.

There are specific steps for you to follow when you register a limited company. We will go over these step by step below. We have a guide that covers moving from an umbrella company to your own company and this sets out what you need to consider when you do this. There also key differences to consider when you compare contracting to freelancing in the UK which are worth looking at.

If you are moving from an umbrella company to working through your own company, please have a read of our article which covers tax tips for contractors.

Options available 

First of all, when you forming a UK company, there are two choices available to you. These are:

  • You can set this up online via the Companies House website, or
  • One can 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 or a formation agent.

Please note, Companies House charge 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.

Other initial thoughts 

If your contractor accountant will set up your new private limited company for you, they may charge you a one-off fee for this. Please note, they may also provide this service for free, if you agree to sign up with them as a new client.

You will need to provide the same information 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.

When you set up a limited company, you will need to choose the directors and shareholders. If this will be your own company, you will more than likely both of these and when you become a director and you will also have certain director duties to bear this in mind from the outset.

Choices to make   

Company name 

One of the first things to decide when you are forming a limited company is your choice of a company name. What’s more, there are certain guidelines that you need to follow with regards to this:

  • Your company name cannot be the same or very similar to an existing company name
  • The choice of name should not simply be that your business is a connection of the Government or a local authority.
  • 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.

Registered Office address

Every UK company must have an address where it can receive any official mail. This address is called the registered office. Many contractors will use their own residential address however you may be able to use your accountant’s address and indeed many contractors will choose to do this. A further option that is open to you 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 are forming a UK company, you may also decide to appoint a company secretary. Today, however, there is no legal requirement for small companies to have a company secretary.

When you apply to set up your company, 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.

Trading activity 

Every UK company has a trading activity. Therefore, you will 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 summarises your business activity. Each trade / industry has a unique SIC code to identify what a business actually does. Furthermore, section J of the SIC code list is likely to be of most interest to contractors. Please have a read of our other article which explains the SIC code with Companies House in more detail.

Share capital

When you are setting up a limited company, you will also need to decide on your company’s share structure. Therefore, you will need to choose:

  • Who will be 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 each.
  • How many shares each person will hold.

Please note, it is also possible to set up different classes of shares in your company.

Shareholders 

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. A further option 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 information. These details will include their full name, full address details, class of share, and the number of shares they will own.

Registers and official documents 

PSC Register 

As part of forming a limited company, all companies in the UK must also now keep a record of all ‘People with 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 information will need updating via the annual Confirmation Statement. All companies need to submit this form to Companies House each year. As a result, this will keep the UK Companies House register up to date.

Certificate of Incorporation

After forming your UK company, you will receive the Certificate of Incorporation. 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, 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. 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 set up your company, Companies House will pass the new company details on to HM Revenue & Customs (HMRC). As a result, HMRC will issue your company with a Corporation Tax number and you will use this number in the future when you file a company tax return.

What to do after forming a UK private limited company

Initial steps  

Some more tasks that you will need to do or may need to think about when you are forming a UK company include:

  • Set up your business bank account. You can do this in branch or online via the bank website. Please note, it is now much easier to do this online nowadays.
  • Choose an accountant for your business. You should do your own research here 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.
  • 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 in the future.

Further steps

Some further things to do are: 

  • 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 the payment of company and personal taxes.
  • You might also decide to set up your own business website to help promote your business.

Final thoughts 

When one is forming a UK company, many contractors will use their accountant to set this up. When you are undertaking this process, 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.

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/

Published On: March 22nd, 2021 / Categories: First timer guide, Starting Up Your Own Company /

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