As a contractor, becoming a director of a limited company may seem overwhelming. The actions you must take to successfully launch your own business are listed below.
1. Select a name for your business
Selecting a company name that is both distinctive to your business and pertinent to your industry is the first step. When picking a name for your business, there are a few guidelines you should follow:
- ‘Limited’ or ‘Ltd’ must appear in the name
- It can’t be disrespectuful
- It must not contain sensitive language, expressions, or anything Companies House has excluded. It must not resemble or indicate a relationship with the federal, state, or local governments.
Please use the government company name availability checker to find out if a name is available for usage.
2. Name shareholders and directors
You have to designate a director to oversee the appropriate operation of your limited company. You must also appoint a shareholder. Both of these jobs are yours to hold.
3. Draft the articles of association and the memorandum of association.
Establishing the guidelines and policies for managing your PSC requires an Articles of Association and Memorandum of Association. The Memorandum of Association certifies that the first shareholders have agreed to form a business, and the Article of Association specifies the firm’s governance structure. For additional information on drafting an articles of association and memorandum of association, kindly visit the government’s website.
4. Make a Companies House registration
Register your PSC with Companies House as soon as you’ve decided on a name. You have the option to register with Companies House on your own or hire a contractor accountant to handle it for you.
The following details are required as part of the Companies House registration process:
- The company’s name
- Registered office address
- Director data (name, date of birth, nationality, occupation and address
- Any other information about directors or shareholders
- Information about the shares and share capital of the company
Additionally, you will require a minimum of three pieces of personal information regarding your shareholders or guarantors, such as:
- Town of birth
- Mother’s maiden name
- Father’s first name
- Phone number
- Passport number
- National Insurance Number
How to register your business
Use the government’s online registration facility to register your company with Companies House. By using this service, you can notify HMRC that you are hiring employees (including yourself if you are the only director) and register for PAYE and Corporation Tax.
Your corporation is typically registered within 24 hours, and it costs £12. You will be issued a certificate of incorporation upon registration. The company’s legal existence is attested to by a certificate of incorporation, which also provides the company number and founding date.
Sign up for Corporation Tax
The majority of firms register with Companies House, PAYE, and Corporation Tax at the same time. If you have registered your company with Companies House but not for Corporation Tax, if you have registered through an agent, or if you have registered using third-party software, or registered by mail, you will need to register for Corporation Tax.
After you start trading, you have three months to register; if you wait, you may be penalised. To register for Corporation Tax, kindly follow the instructions on the government’s website.
Register for PAYE
Even if you just work for yourself as the director of your limited company, you still need to register for PAYE. Since receiving your employer’s PAYE reference number might take up to 15 working days, you must register for PAYE prior to your first payday. To register for PAYE, please follow the instructions on the government’s website.
Obtain VAT registration
If your total VAT turnover over the previous 12 months exceeded £85,000, you are required to register for VAT. You must also register for VAT if you anticipate that your VAT turnover will exceed £85,000 in the next 30 days. You will also need to register for VAT if any of the following apply:
- Your company is based outside of the UK
- You supply products or services to the UK or expect to in the next 30 days
- You are based outside of the UK
Even if you have less than £85,000 in revenue, you can still register for VAT. We call this voluntary registration for VAT. This can be something you wish to undertake because it could help your business. For instance, you are entitled to a refund of any VAT you have paid on company expenditures if you are registered for VAT. On goods and services you provide to other VAT-registered firms, you may likewise charge VAT.
Online VAT registration is available. To register, you must have a Government Gateway user ID and password. Fear not—you can create a user ID when you log in for the first time if you don’t already have one. In order to file for VAT as a limited business, the following details must be submitted:
- Business bank account information
- Unique Taxpayer Reference (UTR)
- Company registration number
- Annual turnover information
Additionally, you can be asked for details on your corporation tax, self-assessment, and PAYE.
Using the online registration provided by the government, you can register for VAT.
5. Open a bank account for your company
Since a limited company is a distinct legal organisation that will guarantee you keep your personal and business finances apart, it is required to have a business bank account. Business bank accounts with varying features and perks are available from several high street and internet banks for both small and large businesses. It is highly advised that you look into business bank accounts that satisfy your needs.
6. Become familiar with the tax requirements and documentation deadlines for limited companies
You have particular duties as a director of a limited company, which include:
- Abiding by the company policies stated in the articles of association
- Maintain correct and current documentation, and notify HMRC or Companies House of any changes
- Pay Corporation Tax
- File your accounts and company tax return
- Notify other shareholders if you might profit personally from an activity
As a director of a limited company, you have to become aware of your tax responsibilities and record-keeping requirements. If you fail to fulfil your obligations, you risk fines, legal action, or removal from the board of directors of the company.
7. Invest in business insurance
To shield your firm from possible financial losses in the case of unanticipated events, you must have business insurance. Without the right insurance protection, your business may be open to legal action that could harm its finances or capacity to function. Furthermore, a lot of clients frequently demand that you carry specific insurance before they will even consider doing business with you. The three primary insurance kinds listed below are some of the important ones you should think about for your company:
- Employers Liability Insurance: This type of insurance, which covers employees’ claims for illnesses or injuries they receive while working for you, is mandated by law for any company that employs people. Your policy must be from an approved insurer and provide at least £5 million in coverage. If all of your employees are foreign nationals or members of your family, you might not require employers liability insurance. Please be advised that failing to have sufficient insurance carries a daily punishment of £2,500.
- Public Liability Insurance: This type of insurance shields your limited business from third-party lawsuits alleging injury or property damage. If your limited company deals with members of the public, such as clients, customers, or suppliers (such as couriers or delivery services), then this kind of insurance is a need.
- Professional Indemnity Insurance: This type of insurance shields your small business from client or customer claims of carelessness, mistakes, or omissions. Having Professional Indemnity Insurance is especially crucial if your limited company offers professional services, such as consulting or legal or accounting services.
Hire an accountant
You bear personal responsibility as a director of a limited company for maintaining company records, reporting modifications, filing your accounts, and filing tax returns. It can take a lot of time and effort to stay on top of your tax requirements, especially if you are new to contracting.
A lot of contractors who work via their own limited business and are not subject to IR35 will decide to designate a specialist contractor accountant to handle their accounts and make sure all paperwork is sent to HMRC accurately and on schedule. A competent contractor accountant would be well-versed in both tax requirements and the contract market. They can also provide proactive tax planning and guidance according to your objectives and type of business.
View our list of accountants for limited companies
We’ve created a handy directory of contractor accountants who hold a Professional Passport or FCSA accreditation.
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