How to Easily Set up a Limited Company in the UK

How to Easily Set up a Limited Company in the UK

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This article will cover how to create a limited company in 2018, how much it will cost you and why a limited company is a great idea for ecommerce.

I discuss considerations for those earning under £1000 annually, becoming a sole-trader vs a limited company and show exactly how to register a new company using the Companies House website.

I started my first limited company when I began selling on the Amazon Marketplace using Amazon FBA for reasons of credibility and liability. Check out my guide to starting an Amazon FBA business if you’re just getting started.

Many people asked me how and why I started a company. They asked as if under some pretence that creating a company was some hefty, odorous ordeal that would break the bank and take a substantial amount of time. In the UK, the process is remarkably simple and costs just £12. With ease, you can register a new company and have a letter of incorporation in just a few hours.

Consequently, I’ve chosen to guide you through the process in the hopes that I might have you up and running today! Please note, I am not an accountant or lawyer, this is just a guide based on my personal experience – this is not professional advice.

With that bit out the way, lets start basic.

Do you make less than £1000 annually?

Say you’ve just started a side hustle to make a bit extra income on the side. Maybe you’ve started a blog or have released a product on Amazon. I’d wager most businesses start in this way, lightweight and simple.

If this is you, you are considered to be ‘self-employed’. However, until you are making over £1000 annually (in 2018) you can be self-employed and don’t need to tell the government anything at all.

However, operating under a company has large benefits, benefits which I think are too great to ignore.

Sole-trader vs limited company?

When you start making over £1000 you can register as a sole-trader or incorporate a limited company. For ecommerce and the retail of goods, I’d suggest choosing to operate under a limited company for the liability protection in case something were to go wrong!

Becoming a sole-trader can have its place though, for one it’s a lot simpler.

Benefits of becoming a sole-trader

Becoming a sole-trader is just a paperwork exercise. The process is literally just letting the government know that you are self-employed. It’s free to register online using Companies House and takes a few minutes.

Every 12 months you will have to submit a self-assessment tax return (if you don’t already). There is no need to hire an accountant to do this for you as it’s easy to do. You just need to know your income and your expenses. The profit will be the difference between these two figures.

You will pay income tax on the profit you declare here. I’ve included a copy of the self-assessment tax return below, sorry it’s a bit dated but it hopefully demonstrates its relative simplicity.

SEF Form

As you can see the process is simple, no accountant is required, and the paperwork is light.

Benefits of becoming a limited company

While becoming a sole-trader may keep everything simple. Registering a limited liability company will allow room for the company to scale among other benefits:

  • Liability – if the company were to get sued or forfeits its debts, you personally are not. Consequently, if legal fees for example were to bankrupt your company, your personal assets are protected (handy as I like my house). Sole-traders are personally tied to their business and are liable for its debts.
  • Business partnership – if you intend to start a business venture with a friend, limited companies allow for split ownership through shares. For example, you could split the company 50/50 when starting out.
  • Investment – limited companies can legally receive investment.
  • Selling up – once you’ve made your cheeky million you have the option to sell the company if desired.
  • Own multiple businesses – you can own multiple limited companies, allowing separate business ventures to remain separate.
  • Credibility – the second most important reason I chose the limited route. Not only will your venture look more professional, many other companies will refuse to work with sole-traders. For example, I couldn’t even get an account with TNT until I became a limited company!

The benefits are clear but they are slightly offset by the more complicated periodic accounting that is required. You may choose to outsource this to an accountant or do it yourself if you have the time and patience.

How to set up a limited company

The process is pretty easy and all done online.

First search the register to check that your desired company name is available.

Next, head to the page ‘Set up a private limited company’. There are a few sub-sections here that you may like to read too. Once you’ve finished reading, click ‘Register Now’.

You will be guided through the following steps:

  • Company name, address and business activity.
  • Officer details (Director and Secretary).
  • Share capital and shareholders details.
  • Persons with significant control (PSC).
  • Payment (£12).

The process will ask a series of simple questions. Here are a few pointers that may help you out if you are the creating the company as a one-man band:

  • You are the only shareholder and will hold at least one share.
  • You will be the company Director.
  • There is no difference registering as ‘Ltd’ or ‘Limited’, it is purely an aesthetic consideration.
  • The business activity section details what the nature of your business is, for example retail sale in non-specialised stores. If you’re operating an Amazon FBA business, you may not know exactly what you’ll be selling yet. My advice would be to add what you think you will be selling in the future, even if you don’t currently sell it.

The whole online process should take no longer than 20 minutes. Upon completion and payment, the certificate of incorporation will be emailed to you within 48hrs and looks like this.

Incorporation cert

Do I need to pay VAT?

If your sales revenue falls below the threshold of £85,000 in any 12-month period (in 2018), you do not need to register for VAT.

This helps new businesses learn the ropes before hitting them with frustrating complications and increased accounting-induced headaches.

If your sales revenue is over £85,000 in any 12-month period, firstly congratulations but secondly unlucky, as you are now legally obliged to register for VAT.

VAT stands for Value Added Tax and it presents itself in the form of 20% tax added to the price you sell your goods or services for. Both sole-traders and limited companies are obliged to register for VAT.

VAT can be a bit of a dark cloud over your business however, don’t be put off by it. Your business will more than likely be doing well if you hit the threshold. If you’re turning over £85,000, you likely have scope to adjust pricing to allow for VAT without making a loss. So be aware of it but realistically keep it on the back burner until the time comes to address it.

Limited company accounts

The following list details the major deadlines for filings and payments. Depending on your individual circumstances, you may have different reporting or payment deadlines. I don’t have any employees in my companies and thus can ignore a large portion of these requirements.

There are two bodies that want information about companies each year, Companies House and HMRC.

Submissions required by Companies House:
  • Confirmation Statement – previously called an annual return. For new companies, the review period starts on the date of incorporation and ends 12 months later. This usually involves simply ticking a few boxes indicating no changes have been made to the company.
  • Annual Accounts – also called statutory accounts. These detail how the company is getting on including profit/loss and a balance sheet. Small companies can submit less information (micro-entity accounts) than larger companies.
Submissions required by HMRC:
  • Corporation Tax Payment – if you made a profit in the accounting period, you must pay HMRC within 9 months and one day after the end of the accounting period.
  • Personal Tax Return – as the owner of a company, you are obliged to complete a personal tax return by 31st Jan annually (separate to the company tax return).
  • CT600 – also called a company tax return, filed to HMRC due 12 months after your first year end and then each year within 12 moths of your accounting period end. This is very similar to your Annual Accounts and can be filed at the same time on the HMRC website.
  • Quarterly VAT Return – if you have registered for VAT, not required before then.
  • PAYE – required monthly if you have employees being paid a salary. I employ no one so don’t concern myself with this.
  • P11D – outlines benefits and expenses to employees regarding extra tax – ignore unless you have employees.
  • VAT Bill – payment only required if VAT registered, due quarterly.
  • Payroll Taxes – paid monthly if you have employees.

Here’s a quick timeline example for a company with an incorporation date of 15th October 2018.

Accounting Timeline

If you have employees, the accounting gets more complicated and you will require an accountant without a doubt.

If you want more information there is a really useful area on the website about running a limited company.

Parting thoughts

The registration process for new companies is actually fairly easy and well put together in the UK. It can all be done online using Companies House for £12.

The admin burden grows as your company grows, this is great for newbies just setting up their first company. The levels of company ownership are fluid and evolve as your business evolves.

If the credibility and liability protection of a limited company is not required, you may wish to start as a sole-trader for ease. Then move to a limited company as you grow, before registering for tax at the threshold.

However, for me this was not an option. I wanted to ensure that I’m covered in the unlikely, gut-wrenching event of my products harming someone, or someone’s child. Not only would I feel terrible on a moral/ethical level – but my assets could also be at risk if the company faced legal action and I wasn’t protected. I might add that this is not a substitute for product liability insurance, which is a beast of its own.

Furthermore, I was finding it difficult to forge partnerships without the ltd badge. This led me to the early limited incorporation – which was the right decision for me.

Related: I recently discovered how to massively reduce payment fees when sourcing goods and services overseas using TransferWise.

I hope this has been useful and has given you the information needed to start your own company, good luck!

Take care,

Dom Sign off

4 Replies to “How to Easily Set up a Limited Company in the UK”

  1. Just wanted to say that I read every single word of that post, and it was enlightening, accessible to a layman (and someone slightly spooked by the responsibilities of a company), and reassuring. Thanks so much for writing it, and know it is appreciated 🙂

    1. Hi Matt,
      Thanks for the comment, I’m so glad it was helpful. You sound exactly like I was before I got stuck in and realised it wasn’t that bad!
      Take care.

  2. Hi Dom,

    Thanks for great explanation. I would like to ask whether I have to establish and pay salary to myself if I were Director of the company, or I can just get money from profits only as owner.

    1. Hey,

      There are many ways to ‘pay yourself’, including salary, dividends etc. I would suggest you talk to a qualified professional for such advice, they will be able to give you the best course of action for your specific situation.

      Thanks for the comment.

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