The Ultimate Guide to Starting a Limited Company in the UK

Why choose a limited company structure?

A limited company is a separate legal entity from its owners. This means the company itself owns assets, enters contracts, and is liable for debts. Shareholders' personal liability is limited to their investment in shares, protecting personal assets if the business fails.

Beyond liability protection, limited companies often pay less tax on profits than sole traders. Corporation tax is currently 25 percent (19 percent for small profits), compared to income tax rates up to 45 percent. Directors can also extract profits through tax-efficient combinations of salary and dividends.

• Limited liability protects personal assets from business debts
• Corporation tax rates are often lower than income tax
• Professional credibility with suppliers and clients
• Easier to bring in investors or sell the business
• Perpetual succession means the company continues regardless of ownership changes

Types of limited company

Most small businesses register as private limited companies (Ltd). These cannot offer shares to the public and have simpler reporting requirements. Public limited companies (PLCs) can sell shares publicly but face stricter regulations.

Within private companies, you can choose between limited by shares (most common for trading businesses) or limited by guarantee (typically used for non-profits and membership organisations).

What you need before registering

Before registering your company, you need to decide on several key elements. Choose a company name that is unique, does not infringe trademarks, and follows Companies House naming rules. You will also need a registered office address in the UK where official correspondence is sent.

Decide on your share structure including how many shares to issue and at what nominal value. GBP 1 ordinary shares are most common. Identify your initial directors and shareholders, and understand that from March 2024, all directors must complete identity verification.

• Unique company name not already registered
• UK registered office address
• At least one director (must be a real person)
• At least one shareholder (can be the same as director)
• Share capital structure
• Standard Industrial Classification (SIC) code for your activities

How to register your company

You can register online through Companies House, which costs GBP 50 and typically completes within 24 hours. Paper applications cost GBP 71 and take 8-10 days. Many entrepreneurs use formation agents or accountants who can handle the process and provide additional documents.

The registration creates your Certificate of Incorporation, confirming your company exists. You receive a unique company registration number used on all official documents. Companies House also creates your first set of statutory registers.

Essential documents

Your company needs several governing documents. The Memorandum of Association is created automatically on registration and states the subscribers' intention to form a company. The Articles of Association set out rules for running the company, with model articles available as a default.

You may also want a shareholders agreement covering matters like share transfers, decision-making processes, and dispute resolution. This is particularly important when multiple shareholders are involved.

Tax registrations after incorporation

Within three months of starting to trade, register for Corporation Tax with HMRC. If you will employ anyone (including yourself as a director taking a salary), register as an employer for PAYE. VAT registration becomes mandatory when turnover exceeds GBP 90,000.

Construction industry businesses must also consider CIS registration. If you will be making payments to subcontractors, register as a CIS contractor. If receiving payments for construction work, register as a subcontractor.

• Corporation Tax registration within 3 months of trading
• PAYE registration before first payday
• VAT registration when turnover exceeds GBP 90,000
• CIS registration if operating in construction

Opening a business bank account

Your limited company needs its own bank account separate from personal finances. Never mix company and personal money as this can jeopardise your limited liability protection and creates accounting nightmares.

Most high street banks offer business accounts, with many now providing online-only options. You will need your Certificate of Incorporation, proof of identity for directors, and details of your business activities. Some banks complete applications in days while others take weeks.

Director responsibilities

Directors have legal duties under the Companies Act 2006. You must act within your powers, promote the success of the company, exercise independent judgement, and apply reasonable care and skill. You must also avoid conflicts of interest and declare any interest in transactions.

Practically, directors ensure the company files accounts and confirmation statements on time, maintains proper records, and pays taxes when due. Failure to meet these obligations can result in personal liability, fines, or disqualification.

Ongoing compliance requirements

Every year, your company must file annual accounts with Companies House within nine months of your year end. A confirmation statement confirming company details are current is due at least annually. Changes to directors, shareholders, or registered office must be notified within 14 days.

Corporation Tax returns are due 12 months after your accounting period ends, with payment due 9 months and 1 day after. If you have employees, PAYE and pension contributions have their own monthly or quarterly deadlines.

• Annual accounts filed within 9 months of year end
• Confirmation statement filed at least annually
• Corporation Tax return within 12 months
• Corporation Tax payment within 9 months and 1 day
• Changes notified within 14 days

Paying yourself as a director

Most directors pay themselves through a combination of salary and dividends. A modest salary up to the National Insurance threshold (currently GBP 12,570) maintains pension contributions without triggering NIC. Dividends from profits are then taxed at lower rates than salary.

The optimal mix depends on your personal circumstances, other income, and company profits. We calculate the most tax-efficient combination for each client as part of our ongoing service.

Common mistakes to avoid

New company owners often make costly errors. Mixing personal and company finances undermines limited liability. Missing filing deadlines triggers automatic penalties. Paying dividends without sufficient profits creates illegal distributions.

Many also underestimate the admin burden. Without good systems from day one, paperwork accumulates and deadlines get missed. Working with an accountant from the start establishes proper processes and catches issues early.

• Never mix personal and company money
• Set up calendar reminders for all deadlines
• Keep board minutes and resolutions documented
• Check profits before declaring dividends
• Maintain proper statutory registers

Key takeaways

• Limited companies offer liability protection and potential tax savings
• Register online through Companies House for GBP 50
• Complete director identity verification before appointment
• Register for Corporation Tax within 3 months of trading
• File accounts within 9 months and pay tax within 9 months and 1 day
• Pay yourself through tax-efficient salary and dividend mix
• Keep company and personal finances completely separate

How we can help you

We specialise in:

• Company formation and registration
• Director identity verification
• Corporation Tax registration and returns
• PAYE and payroll setup
• Ongoing compliance support

Ready to start your limited company? K&R Accountants handles the entire formation process and sets you up for success. Contact us on 01782 499140 for a free consultation.