I wanted to write a few articles around becoming an IT/Technology/Digital contractor. These articles will be detailing practical advice YOU can execute with plenty of instructions you can follow word for word. I have written these guides not only as an aide memoire for me, but as the whole sector is a minefield, from IR35 regulations to Tax, Accountancy and business best practice I could find nothing online which was either relevant or not massively complex.
If you have personal questions relating to you, feel free to reach out to me on Twitter (@mariodc) and I’ll be happy to give you any advice.
Registering a UK company – Step by Step
What is the difference between a sole trader and a limited company?
The majority of the UK’s self-employed operate as sole traders; this legal structure is the choice of many because of its simplicity. As it’s easy to set up and brings relatively few legal responsibilities, working as a sole trader suits many aspiring and established businesses.
From the other side, sole traders face unlimited liability, meaning that there’s no legal distinction between them and their business. In other words, should they mount up big business debts they’ll be left personally liable – a worrying prospect for anyone taking substantial financial risks.
Elsewhere, sole traders aren’t always tax efficient and, depending on your circumstances, setting up a limited company could be a better option. What’s more, limited companies also offer limited liability, meaning that there is a legal distinction between you and your business.
Does starting a limited company sound appealing? Well it’s always best to speak to an accountant first, as there are other things to consider before taking the plunge – going limited brings more paperwork for one. Nonetheless, if it still sounds interesting, here’s our guide to setting up a limited company…
Picking the perfect accountant
I’ve written here in the past about the importance of a good accountant. When setting up a new business, it’s crucial to have your expenses in order, so no mistakes can be made. A lot of business owners find themselves asking “are online accountants any good?“, as this seems like the easiest solution.
Choose a name
In contrast to sole traders, no two limited companies are allowed to share the same moniker. So you’ll need to come up with something fresh from the outset. Perhaps take a look at our article about the UK’s best business pun names for some off-the-wall inspiration, but bear in mind that your business’s title will need to meet strict criteria.
Above all else, Companies House won’t allow anything offensive, whilst they also have a long list of ‘sensitive words and phrases’. You can find a handy list of those here, and a guide to naming your company on Gov.uk. Perhaps double-check your name’s availability online too, through a domain checker. What with the increasing opportunities on the web, you’re ideally going to want to choose a domain that shares your company’s name.
Decide on the number of directors
Every limited company requires at least one director, but they can have more if they like. In fact, there’s no official limit on the amount of directors a limited company can appoint.
When setting up a limited company, the director must be 16 or over and their responsibilities will range from legal to financial. As stated on Gov.uk website, as a director you must:
- Try to make the company a success, using your skills, experience and judgment
- Follow the company’s rules, shown in its articles of association
- Make decisions for the benefit of the company, not yourself
- Tell other shareholders if you might personally benefit from a transaction the company makes
- Keep company records and report changes to Companies House and HM Revenue and Customs (HMRC)
- Make sure the company’s accounts are a ‘true and fair view’ of the business’s finances
- File a Company Tax Return and pay Corporation Tax
- Register for Self Assessment and send a personal Self Assessment tax return every year – unless it’s a non-profit organisation (eg a charity) and you didn’t get any pay or benefits, like a company car
Flout these duties – the tax ones in particular – and you could end up facing penalties, so make sure you’re prepared to take them on before you incorporate. A good accountant can help on the tax front, whilst some insurance can keep your limited company protected.
Incorporate your business
Once you’ve settled on your name and decided on your directors, you’ll be in a position to incorporate your new limited company.
You can do this via the Companies House website for £15, or through a variety of competitively priced incorporation websites. Some accountants will even cover the cost for you, as part of their limited company accounting packages.
I use Company Formations 24/7 and did it myself. You’ll receive your memorandum/articles of association & company formation certificate 24 hours later electronically. You’re then registered with companies house (When you set your company up, set up a LTD company, you as a sole proprietor, 1 single a class share to start with). You want to add yourself as a company secretary also.
When incorporating you’ll need to provide Companies House with the residential address of each director, or a ‘service address’ if you’re keen to keep your details off the public register. Elsewhere, you’ll need to provide a registered company address and a statement of capital – essentially an indication of the share structure of your new limited company.
All in all the process of setting up a limited company can be done pretty quickly. Do bear in mind your extra responsibilities though, and speak to an accountant if you’ve got any questions. Their expertise can be invaluable in guiding you as to whether starting a limited company is right for you.
Access to HMRC
Set up a Government gateway, assign Self-assessment to get your Unique Tax Payers Reference (UTR) & VAT returns services to your gateway ID and register for VAT. You’ll receive your VAT certificate in about 5-7 working days. Ensure you enrol for two step verification on the government portal. Make sure you KEEP the mobile phone you register with.
At this point, call HMRC yourself and advise them of your status change, you’re newly set up company and ensure they have your last P45 (this is a detail but really helps). The HMRC will update your account with the information you give them, and you can help them help you by periodically giving them a call and ensuring all your details are correct.
Purchase up to £5m of Professional indemnity insurance from either Direct Line or Axa (they are very good) & keep those certificates with your company details as you’ll need all this every time you apply for a contract of course or present yourself to a client.
Register with an accountant to provide you with book keeping, end of year accounts, VAT filing and summary accounts annual preparation along with monthly payroll services. Read this post here about selecting an accountant.
Learn about you will pay yourself. Typically, you’ll pay yourself a small annual salary of the current 2016/2017 threshold which is about £8,500 I think and then the rest as monthly dividend payments. You’ll need to submit one of these each month (this being a meeting memo to say you’ve discussed and rewarded all shareholders with an XX payment), (or your accountant will) and you’ll need to keep these. You will be an employee for your own company. Use your own car, and charge back your mileage to client sites (never use a company car, it’s tax disadvantageous and complicated I think, but that’s for another post) and your accountant should ensure you’re ‘tax efficient’ – you can of course claim back all your tools and valid business expenses also.
You submit your VAT monthly or quarterly, summary accounts and confirmation statement once yearly (to basically say nothing’s changed) and you self-assess on your own tax affairs 31st Jan each year is the deadline. Your accountant will advise on this. If you claim child benefit or other government benefits & yet earn over the £50k threshold, expect to pay some of this back too!
Learn about IR35 and ensure you’re within it, taking on IR35 friendly contracts or IR35 compliant contracts. Pay for a solicitor to check each contract, it’ll be about £400+VAT but well worth it. If you are audited, and fall foul of IR35, you’ll be lumbered with bills and fee’s in excess of £5k! Fck me dead! I use Fraser Brown.
The following I recommend and more important than you think and looks more pro anyway.
Set up a website with your company name, add your company information, and set up a professional business email (if you’re ever audited by HMRC, this helps with proving you’re a ‘proper’ business and not conducting disguised employment), so you can’t use email@example.com anymore I’m afraid either. Need a website? Get in touch with me via www.creativepixel.me.uk
I went to Apple lease, and leased computer equipment and software.
Your accountant will ensure this is all tax efficient – I never gamble on the client providing equipment as sometimes they don’t. So I pay about £200 a month for a Mac Book Pro, Office Cloud, Microsoft Project, an iPad, iPhone7 etc, there’s some really good deals if you don’t have the kit already.
Join contractorsUK forum, there’s lots of help and advice on there
Get income protection insurance, life insurance, and also HMRC investigation insurance (the latter I think comes included when you join the Fed. of Small Businesses)
Ensure you’re a member of the Institute of Directors for all kinds of perks & benefits.
If you’re interested in learning more about running your own business, there’s plenty of help & support out there. Become a member of the IOD (Institute of Directors) and reach out to HMRC who will give plenty of support. Any questions, drop me a line on Twitter (@mariodc)