4 Pitfalls To Avoid When Setting Up A Limited Company

Google reviews
October 01, 2017

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.

setting up a limited company


Recent Articles

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax (IHT) has reached a record level in the UK, with £7.5 billion flowing into Treasury coffers in 2023/24, up from £7.1 billion the previous tax year. One key reason for this growing tax take is rising property prices - the average house price in the UK...

Tipping Act Code of Practice to bring fairness to employees

Tipping Act Code of Practice to bring fairness to employees

Whenever you leave a tip in a restaurant or a hairdressing salon, for example, you would hope that the tip money you left will go directly to the person who provided you the service you are tipping for. But for many restaurants and other industries, that hasn’t always...

Everyone should check their tax code now

Everyone should check their tax code now

HMRC will provide new tax codes at the start of every new tax year if the Personal Allowance has changed, if someone has had a change of circumstances, including perhaps had a pay rise, and even to those who are taking their pensions for the first time. It’s important...

Ready to join us?

Whether you’re a contractor, freelancer, or small business, Bright Ideas can help remove the burden of time-consuming and complex finances. We’ll draw on our years of knowledge and experience earned helping sole traders just like you.

When you choose us, you’ll be assigned a dedicated Account Manager who’ll provide one-on-one support that’s customised to your business. Communication is key, so we’ll always answer your questions or requests as soon as we can. In fact, we offer a same-day response guarantee for emails and calls received before 3pm.

Contact us to get started

Give us a call us or send an email today!

Looking to switch accountants?
We make the transition simple.

Does your current accountant give 1-to-1 support? Are they fast and thorough?
Slap-dash services hold businesses back, so try our experts instead.

Move to an accountancy service that goes the extra mile…

Start the conversation

Let’s make your finances Brighter

Call us Monday to Friday 9am - 5pm

0161 669 4221

Request a call back