There are currently so many self-employment working options to choose from, sometimes it’s difficult to tell which is the right path for you. Although each option will provide you with the freedom and flexibility of being your own boss, the way you set up your new business will always involve certain advantages and drawbacks.
For many people, forming a limited company often seems the most appealing form of self-employment. Whereas becoming a sole trader typically involves far less paperwork and is notoriously simple to set up, registering your business as a limited company will significantly improve your take-home pay and create a certain sense of credibility.
However, setting up a limited company is inevitably much more convoluted than the sole trader or umbrella employment routes. Fortunately, we’ve put together a beginner’s guide on how to get started, along with some simple tips on how to make sure the process runs as smoothly as possible.
What is a Limited Company?
A limited company is a business structure where the owners will only be financially responsible for their initial investment. This limited liability ensures that your personal possessions and assets will remain perfectly safe in the event of bankruptcy, offering greater levels of security than other forms of self-employment.
When setting up your business, you’ll need to decide whether you want to operate as a Private Limited Company (LTD) or Public Limited Company (PLC). While an LTD will distribute profits among the business’ shareholders, a PLC allows you to offer these shares for sale to the public. If you’re a freelancer working by yourself, then the LTD option will probably be best for you, as this means you can take home all of the profits and maximise your take-home pay.
Make no mistake, setting up your own limited company is a major commitment, and more casual freelancers or contractors may feel much more comfortable in going down the sole trader route.
Registering at Companies House
When forming a limited company, one of the first decisions you’ll have to make is what to actually name your business. Before getting your heart set on a snappy name which perfectly sums up the services and values of your business, you’ll need to make sure that this particular name hasn’t been taken by anybody else (there are tools online you can use for this).
Once you’ve done that, you’ll then need to register your business at Companies House, where you’ll be asked to confirm the name, address, share capital and owners of your limited company. For those wanting to register online, Companies House charges a fee of just £12, while those hoping to register by post will have to pay £40.
What Documents are Required to Form a Limited Company?
Registering at Companies House always involves a significant amount of paperwork. For starters, the details listed above (company name, address, etc.) will need to be submitted through a Memorandum of Association. You’ll also have to create Articles of Association, which will outline the rules and regulations of your organisation, while you’ll receive a Certificate of Incorporation once your business has been successfully registered with Companies House.
Since the entire process can quickly become overwhelming to more inexperienced business owners, many people choose to work with a company forming agent, who will make sure your company is registered quickly and correctly.
Why Limited Companies Need a Specialist Accountant
Most overwhelming of all, however, is the prospect of managing your business’ finances. As the owner of a limited company, you’re now solely responsible for paying tax, claiming expenses and, ultimately, making sure that your business isn’t in breach of any modern tax legislation (such as IR35).
Once you’ve registered your company, you’ll need to let HMRC know about your new business, and a failure to do so can result in harsh financial penalties. When you aren’t completely clued up on the industry, it’s all too easy to miss an important deadline or make a mistake on a vital form, especially when you’re incredibly busy running your own company, managing clients and completing your workload.
When you’re all set up and the clients start rolling in, a specialist contractor accountant will help you keep a firm grasp on your finances and ensure your business remains as profitable as possible. In addition to submitting relevant paperwork and offering sound business advice, the team here at Brookson will make your limited company as profitable as possible.
If you’re interested in setting up your own limited company, then contact our dedicated experts to learn more about our services and how we can help you develop your new business.