Setting Up a Limited Company

For independent contractors and the self-employed, establishing a limited company is a relatively simple and inexpensive process.

Before you can start operating as a limited company you have to complete a registration procedure with the Registrar of Companies based at Companies House, the main office of which is located in Cardiff.  This process of registration is known as ‘incorporation.’  Incorporation can relate to a completely new enterprise or an existing established one.  It is important before you start the process to ensure that forming a limited company is to your best advantage.  It may well be advantageous to take professional advice on this matter before proceeding.

If you wish you can complete the process of incorporation yourself.  A sum of less than £30 will secure the company name, along with the required Memorandum of Association and Articles of Association forms.  A company director and secretary must be named, but this can be the same individual if a sole contractor establishes the business.

When you have set up your company there are certain attendant responsibilities. An Annual Return Form must be submitted to Companies House.  This document provides general information about the company’s director(s), secretary, registered office address, shareholders, and capital. A filing fee, currently £30, must accompany this form.  This information is then made available for viewing by the general public to allow an individual to check the details of a company that they may wish to deal with.

All income and expenses generated by the company must be calculated properly and recorded on an annual Self Assessment tax return.

In addition to the Self Assessment and Annual Return, limited companies must submit all accounts to their local tax office along with payment for any corporation tax due on company profits.

Finally, a CT600 form must be completed annually.  This document provides an explanation of the sources of income received by the company and supplies the basis for how tax liabilities have been calculated.

The easiest way for contractors to make sure that their limited company accounts are in order is to keep meticulous records throughout the year.  It may be helpful to examine the Self Assessment form to gain a sense of how accounting information for contractors and limited companies is formatted so that company records can be organised accordingly.

Setting your business up as a limited company has the great advantage of limiting your personal financial liability if the business fails for some reason – your personal assets are not at risk.  This protection can however be affected if the business has not been operating legally or outside the terms of the Companies Act.