You don’t need a lawyer or accountant to set up a limited company for you. It is easy and pain-free to do it yourself. Here are ten top tips to setting up a for-profit limited company.
1. Use Companies House
Companies House is the UK companies regulator. If you use their platform you can incorporate your company and register with HMRC for corporation tax at the same time. Unlike other platforms, Companies House won’t spam you or try to cross-sell you services you don’t need. It will cost £12.00. Just visit www.gov.uk/limited-company-formation/register-your-company
2. Use standard articles of association
Articles of association govern the day-to-day rules of the company and the relationship between your directors and shareholders. During the registration process, you’ll be offered the choice of using standard articles or creating bespoke ones. Tick the box to use standard ones. They can be changed later, probably when you carry out your first investment round or bring new shareholders on board.
3. Choice of address
You’ll need to register your company at a UK address. Remember, this address will be made public so think twice before using your home address. Our clients can use our registered address and we charge £[AMOUNT] + VAT per year for this service. Make sure whatever address you use is reliable as you will receive important mail at this address.
4. Choose the right share capital
The shareholders are the owners of your company. When you incorporate, you will be asked to choose a type of share – choose ‘ordinary’ which carry a vote, the right to receive a dividend (of profits), and to share in any proceeds when the company is sold. You can add additional share classes later if necessary. You will then be asked to choose a number of shares and a nominal value. We suggest starting with 10,000 shares with a nominal value of 1p each, which totals £100 of share capital. Once the company’s bank account is set up, you will transfer £100 into it.
5. Open a company bank account
The next step would be to open a bank account in your company’s name. Although high street banks offer more comprehensive services than the challenger banks such as Starling and Tide, they have slow and archaic procedures for opening company bank accounts. If you want to speed up the process, you might want to go with a challenger. You can always switch to a high street bank at a later stage.
6. Appoint only one director at first
High street banks require at least one of the directors to be a UK resident. They also carry out checks on every company shareholder and director, so generally every director and shareholder will have to go into a branch and produce their ID. It is often easier to get the account opened if only one person is involved. You can add additional people later. If you don’t have a UK director, opening an account can be difficult. Try to speak with a bank in your home country and see if they can help getting an account opened in the UK.
7. Keep a look out for your mail
You will start receiving important letters from Companies House and HMRC. The first Companies House letter contains your online filing code, which you need when submitting your accounts and other documents online. The HMRC letter has your company’s Unique Taxpayer Reference (UTR), which you need when you register for VAT, file your accounts, and apply for tax reliefs. Don’t lose these letters as it can take months to receive replacements.
8. VAT – to register or not?
Now that you have set up your company and bank account, you need to consider whether to register for VAT. VAT is a tax charged on most goods and services in the UK at a default rate of 20%. When your annual turnover hits £85,000, you must be registered for VAT.
However, you are permitted to register sooner if you want. The advantage of registering is that you can reclaim the VAT you pay out in buying goods and services for your business and effectively save 20%. The disadvantage, however, is that you have to add VAT to every invoice you send which can make you 20% more expensive if your clients are not VAT registered and thus unable to re-claim it.
To register early or not? The answer tends to depend on whether your customers are primarily businesses or consumers. If your business mainly sells to consumers (the general public), you may want to delay registering for VAT as long as you can. Once you are registered you are 20% more expensive as consumers are not registered for VAT. If you sell to businesses, they will mostly be VAT registered so can reclaim the VAT you charge: for a B2B business you may consider registering sooner. Make sure to ask your accountant if you wish to register early, as some of the questions asked by HMRC are complicated and you want to make sure you get it right.
9. Paying yourself
You can pay yourself a salary or via dividends. If you want to be paid in dividends remember that your company can only pay a dividend once it’s profitable. Until then you will need to draw a salary. Many founders pay themselves a salary up to the limit of the nil-tax band (i.e. £12,500 p.a.), meaning they pay no tax. If there are profits they declare a dividend for the balance of their income.
Don’t forget that dividends tend to be taxed at the end of the year. You might want to consider paying a bit more tax on a monthly salary and avoid being hit with an unpleasant liability later on.
10. Keeping records
Don’t forget to keep your track records organised. Get accounting software from day one and commit to entering your invoices and receipts on a weekly basis to keep your records accurate and up to date. This will help you understand the financial position of your business and make life easy for your accountant when it comes to filing tax and VAT returns.
Buckworths is the only law firm in the UK market working exclusively with start-ups and high growth businesses. For further information and/or assistance on any aspect of setting up a start-up, raising investment and/or growing and scaling your business, please contact us on +44 20 7952 1723 or firstname.lastname@example.org.