The Limited Company – Why Use One?
For the vast majority of contractors a limited company is the obvious choice. It is more tax efficient than working as a sole trader and gives your business a more professional image. A limited company means your private and business finances are separate and you are only liable for business debts up to the amount of money in the company (Limited liability). When taking money out of the business, dividends and pension contributions mean you can keep more of your salary in your pocket. In the right circumstances, these tax advantages will save you thousands of pounds every year compared to PAYE or umbrella company arrangements.
How to Set Up Your Own Ltd Company
- Select a Company Name: Register your chosen company name with Companies House (costs £50 if online, 24 hours turnaround). There are rules and restrictions on company names (no “sensitive” words like “Royal”). Important to use the company name checker to ensure the name is available. At this stage you may also check whether the domain is available etc
- Register the company: File your details with Companies House. You will be the director and shareholder. You will need a registered office address (use our [Registered Office Service](https://biaccountancy.com/services) for just £10/month). Alternatively you can use your home address however bear in mind this will be publicly available.
- Open a business bank account: All the main high street banks offer business accounts, as do specialist providers like Starling or Mettle. Most challenger banks have accounts with no monthly fee or charges for essential transactions. We partner with Mettle to provide free banking to all of our clients.
- Register with HMRC: Within 3 months of trading, you’ll need to register with HMRC for corporation tax. If your turnover is likely to be over £90,000 a year, you’ll also need to register for VAT (optional before then).
- Get Professional Indemnity and Public Liability Insurance: Most contractors need professional indemnity (£20–£50/month) and public liability insurance, to provide when you get asked for client references.
- Set Up Bookkeeping Software: Included as standard in our Solo package (£109+VAT/month) is the FreeAgent accounting software that will record your expenses and create your real-time tax estimates. Keep on top of your profit and avoid nasty surprises when your accountant does your tax return!
Why FreeAgent?
After trialling a number of bookkeeping packages, we’ve settled on FreeAgent as our number 1. It does all the boring stuff for you like invoicing, paying suppliers and tracking expenses. FreeAgent gives you 24/7 access to your accounts to work out your tax liabilities so that you can always be prepared and never have nasty surprises when you do your accounts! We set everything up and give you all the training you need so you feel confident using it from the outset.
Avoid these set-up errors
- HMRC registration deadlines: If you miss deadlines when registering with HMRC, you can be fined between £100 and £1,000!
- Don’t mix private and business finances: Always have a separate business account and make all your purchases from it. This will make bookkeeping much easier.
- VAT? If you are VAT registered (mandatory over £90,000 turnover, or voluntary before that) you can significantly increase your profits. For example, a contractor charging £500 a day would net an additional £1,680 in profit in the first year if voluntarily VAT registered on the Flat Rate scheme.
Compliance after set up
Companies must file annual accounts, a corporation tax return and an annual confirmation statement. If VAT-registered, quarterly VAT returns are due. These all need to be filed with a MTD compliant software but it’s our job to keep on top of them so you don’t have to worry. We even guarantee same-day responses to any questions you have.
Conclusion
Setting up your own limited company really is easier than you might think, so don’t put it off. Give us a call now to book your free consultation and we’ll make sure everything is set up and working before you take on your first client.
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