How to Become a Limited Company

Many sole trader clients and self-employed contractors who use the services of VW Taxation will face important decisions surrounding their business.

The most common of these is whether to stay as a self-employed individual or become a limited company.

The Benefits of a Limited Company

There are several benefits to moving to limited company status:

  • You should end up paying less tax as an individual. You could, for example, draw a small salary from the new company and take the rest in dividends.
  • If you are planning to grow your company or simply want to get more business, limited company status can enhance your reputation and your credibility with customers.
  • You have protection if things go wrong for you. The company is liable for financial losses, not you personally or your home.

The one thing you need to be aware of is that a limited company is a separate entity and has its own bank account. Therefore, most banks now offer business accounts with added benefits and packages which can be useful. You do, however, need to be aware that all your financial dealings as a company will now go through this new account.

You will almost certainly need to make adjustments to the way you operate, registering with Companies House and submitting annual accounts.

Steps to Becoming a Limited Company

  1. If you’ve decided limited company status is right for you, the first step is to think of a name. There are a few rules here including not being offensive and not being too like any other company’s name.
  2. Agree your business address contact details and who the participants or directors are.
  3. You will be required to issue shares for your limited company. If you are a sole trader these can go directly to you. If you have a partnership, you may want to split 50-50.
  4. Future dividends paid out by your company will be based on this division of shares. This is the most common way of producing dividends but there are some other options. Therefore when it comes to share structures you may want to discuss these with your tax advisor first.
  5. The next step is to register with Companies House which can be done online by filling in a form. You need to nominate one company director and one company secretary. Companies House will process your form and register your business as long as there are no problems with the application.

What is a Memorandum of Association?

This needs to be filed with Companies House and is basically a document explaining why you have set up your company and the way in which you are going to run it.

If there are issues with your company such as tax disputes or legal actions taken against you in the future, the Memorandum of Association may be used as evidence. You also need to have Articles of Association which set out rules for your company.

The key is to keep these documents simple if you are writing it yourself. You may, however, want professional input considering how important the Memorandum of Association may well be in the future. There are different types of memorandum online which you can use and which is best will depend on the type of business you run.

Working with a Specialist

While setting up a limited company can be a relatively simple process, you want to get everything right from the outset to avoid problems further down the line. That’s why it’s advisable to work with a professional such as an accountant. They can help with important issues such as your tax liability in the future.

As a limited company director, you will also have other responsibilities that could benefit from the input of a qualified and experienced accountant, including:

  • The company will need to produce annual returns and file these with Companies House.
  • You will need to have company accounts and give an abbreviated version of this to Companies House.
  • The business will need to register your company for VAT, if it is over the threshold, and submit digital VAT to HMRC.
  • The company director must also file an annual self-assessment.
  • If you have staff, you also need to file an employee return.
  • Should you suddenly decide to stop trading for some reason, you have an obligation to inform Companies House and HMRC.

Discuss Becoming a Limited Company with TW Taxation

If you have a business operating in Portsmouth or the surrounding Hampshire region and you are contemplating limited company status, it’s important to get the best advice. We deal with a wide range of different sole trader enterprises, including in the construction industry where going limited can have specific benefits.

If you are searching for a partner who can help take your business to the next level, contact TW Taxation today.

 

 

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