It’s perfectly natural to continue on the furrow you’ve ploughed as a freelancer or contractor for a number of years. But eventually, you could be eager to form a limited company, and get a better set of earnings for what you do.
Yet, as with any big decision, there are risks to avoid – many of which rest on a healthy level of foresight and professional nous. Join Bright Ideas as we count down the top four most dangerous pitfalls when setting up a limited company:
1. Failing to offer a suitable business address
When registering with Companies House, you’ll have to provide an address, which will be shown on their digital directory. Aside from being a relevant HQ for your business operations, it’s also the place where government communications will come to you i.e. sensitive information from HMRC.
A misspelling can undo your best-laid-plans for registration, as can a poor choice of venue. You may understandably want to leave your home address out of the equation if you’re still working in a domestic space – for this, you can pay for a virtual office service, which (on a rolling fee) will act as your main professional contact hub.
2. No distinction between ‘shareholders’ and ‘directors’
In theory, you can have as many shareholders on-board as you like, but that isn’t the same as setting another director in stone. They have legal responsibilities to uphold, relating to finances, due diligence and conflicts of interest.
Be sure to outline who is what if you’re looking to bring others on the same journey. Reasonable care has to be exercised, for example, to ensure listed directors can’t damage the business’ finances in a conscious act of sabotage.
3. Forgetting to register for Corporation Tax
We can follow the same vein as the point above: every company must give HMRC the right documentation for declaring what tax it owes. Failure to do so will carry penalties, more paperwork, and maybe even prompt a government investigation to see where your earnings are coming from.
One of the main benefits of a limited company is the tax breaks it gives you. By ignoring procedure, you’re doing yourself a disservice. It’s worth noting that an accountancy team like ours can bear the brunt of your financial obligations, so you’re free to get on with what you love.
4. Leaving your dividends in the dark
Limited company owners can pay themselves a basic wage through PAYE, just like an employee and umbrella contractor, or they can make the most of their personal tax allowance by chopping some of their earnings into dividends i.e. profits.
Strategizing your payment plan is essential – it’s the smart, logical means to earning more than you otherwise would. Again, an accountant can explain the ins and outs of dividends, should you require more help in the run-up.
Bright Ideas has seen many people succeed – where others stumble – when setting up a limited company. Most of the time, they’ve done the best they can with expert support… Our company formation service can make this process simple, as can our scalable packages, so it’s worth coming to us for advice moving forward.
