An alternative way to trade is to form a Limited Company. The position is quite different from being a sole trader or partnership. The Company exists separate from you, has its own bank accounts and other assets, and keeps its profits. (The money earned is then distributed to the owners as described below).
To set up a private limited company you need to register with Companies House. You’ll need:
- a company name. This must be unique, and cannot contain certain words without special permission (such as ‘Royal’.)
- an address for the company. It must be in the UK, and in the appropriate country for where you registered the Company. You can use a PO box.
- at least one director. Directors must be 16 or over. They do not have to live in the UK.
- at least one shareholder. The shares issued to each shareholder determine what dividends they may be entitled to, what voting rights they have, etc.
- an SIC code that describes what your company does
- rules (known as ‘the memorandum and articles of association’) Most ‘basic’ companies adopt a standard set of rules.
- details of people with significant control over your company, for example anyone with more than 25% shares or voting rights
You may be able to trade in a different, or several, trading names which are not the actual name of the company; but the actual Company name must be on your letter headings.
You’ll also need to register for Corporation Tax within 3 months of starting to do business. In reality HMRC issue a UTR to the Company automatically, and quite quickly.
Corporation tax is payable 9 months after the year end. There are changes proposed for Limited Companies to make quarterly reports, which at the moment appear to be coming in from 1st April 2020.
The very basic outline for the interaction between the Limited Company and its owner/managers is that a basic salary is paid to the director(s), mainly to cover the position of pension and benefit rights, and the balance by way of dividend. There are many individual factors to be dealt with at this point for every Company.
We deal with all these requirements, and several areas of advice, if we are acting for you.