So you’ve decided to take the plunge and become a fully-fledged director of your own limited company, but how to start? Well, first thing is to make your company a reality.
Question about setting up your limited company? Submit your queries to Contractor Doctor.
Probably the most ‘fun’ aspect to creating your own limited company is choosing the name. The name can be anything, but once incorporated (registered with Companies House), you must include the term ‘Limited’ or ‘Ltd’ at the end (e.g. Mr. Contractor Ltd). Most contractors keep their company names simple by using their name or initials, house name or even pet name. Some make use of online name generators to help with ideas, while others take the time to come up with something more creative and original. However you decide to name your company, here are some tips for a good company name:
For a limited company to officially come into existence, you must ‘incorporate’ it by registering with Companies House. Once registered, you will receive a certificate of incorporation which is the legal proof of your company.
You can register with Companies House online, by post or through an agent:
Having registered with Companies House, you will be required to prepare full annual accounts and send your accounts to Companies House at the end of each financial year.
For information on incorporating a Limited Liability Partnership, please visit Companies House for an in-depth guide.
As well as sending your accounts to Companies House, you will also be required to send them to HMRC as well as file a company tax return with HMRC and pay any corporation tax due or tell HMRC that you don’t owe any. A penalty exists for non-notification to HMRC for setting up a business. To do this, you must tell HMRC about your company within three months of starting any business activity (this includes advertising for example) by registering online. You must tell them:
HMRC will also want to know the date up to which you will be preparing your first accounts.
Once you have informed HMRC of your company, they will send you your Unique Taxpayer Reference to your registered office address with details on how to give HMRC the information they need as well as how to set up an online account for paying corporation tax and completing company tax returns.
Before you begin trading, you will need the banking facilities to do so. As the finances of a limited company are considered a separate entity to the personal finances of their directors, you are legally obliged to open a separate bank account for your business finances. Doing so has its benefits, as when reconciling your accounts, it is easier to differentiate between your personal and business finances if they are separate. Get maximum value from your business bank account by considering the following when choosing:
Crossing over from a permanent job to your new contract role can be the hardest part of making the step to self-employment. Depending on the demand for your particular skillset, you may not need to quit your job prior to applying for contracts, but if you do, it can be a highly stressful time, as companies will usually take preference to those who are readily available. Here are some tips to make the transition as smooth as possible:
Good preparation and planning is key for ensuring you are not left with financial distress.
Now you should officially have your own limited company, but we’re not quite ready. There are a few more things to consider including the IR35 legislation, finances and securing a contract before you fly the nest.