Setting Up A Limited Company
When you are thinking about setting up your company, there are two options; 1. Sole Trader 2. Limited Company. Both have advantages and disadvantages however with a limited company it is often perceived that you are more reliable and it will provide more benefits to you, especially if you want to grow your construction business.
1. Choose your Limited Company Name
When setting up your limited company you will need to know what name you want your business to be called! You can use Companies House company search to see if your chosen company name is available. If your company name does not appear at Companies then this means you can proceed to the next step!
2. You will need a Registered Address for your Limited Company
A Limited Company is required to have a registered address which is open for the public to see. This can either be your trading address (your office), or your personal address or you can use your accountants address/virtual office facilities which will keep your personal address hidden.
The Registered Address is mainly used by HMRC/Companies House to send their correspondence to i.e notice to send tax returns/accounts, statements, penalty notices etc. If you are with an accountant they will usually receive a copy of the letter as well but this is not always the case.
3. Forming a Limited Company
A Limited Company can be set up directly with Companies House and they will provide default Articles of Incorporation (which is needed to make the company legally formed). The set up process is relatively simple however if you would like assistance you can speak to your accountant or use a formation agent.
If there is more than one shareholder, it would be advisable to create a Shareholders Agreement for the Company which would set out how profits will be shared, what happens if a Director is unable to work or what would happen to the shares in the event of death or divorce.
4. What Do I Need To Register A Limited Company?
If you choose a Limited Company, you must register with Companies House, and submit the following information:
- Company's name and registered address
- Names and addresses of all directors (must be a minimum of one)
- Details of the company's shares and shareholders (see below - there must be at least one shareholder)
To start the registration process you will need at least 3 pieces of personal information about yourself and your shareholders or guarantors, for example:
- Town of birth
- Mother’s maiden name
- Father’s first name
- Telephone number
- National insurance number
- Passport number
You will also need (however default documents will be provided for you):
- Memorandum of association - signed statement by all the shareholders, agreeing to register a limited company
- Articles of association - Written rules about running the company, agreed upon by the directors and shareholders.
Once Companies House has approved the company it will issue a certificate of incorporation which will state the date of formation and the company registration number (which is unique to your company). Companies House will inform HMRC of your new company and HMRC will issue a 10 digit unique taxpayer reference (UTR) via post to the registered address of the company.
It is highly recommended to set up a Government Gateway Account for your limited company which is shown here.
5. Register For Corporation tax
Once you have set up your limited company, you must inform HMRC within 3 months of the start of your first accounting period that it has become active. This means you have to tell HMRC within 3 months once you start trading by registering for corporation tax.
The deadline for payment of corporation tax to HMRC is 9 months and 1 day after the end of the accounting period (except for large companies i.e where taxable profits exceed £1.5 million)
6. Company Accounts
Accounts must be filed with Companies House within 9 months of the end of your accounting period.
Accounts and a corporation tax return must be filed within HMRC within one year from the end of your accounting period. If the returns are late, penalties will be issued.
Every year accounts need to be produced which means appropriate records must be kept for your business. This will include:
- Money received and spent
- Goods purchased and sold (including who they were bought from and sold to)
- Assets owned
- Debts owed by the company and owed to the company
- Stock owned at the end of the year
- Supporting documents which relate to business transactions
These records would include sales invoices, contracts, sale books, purchase invoices, receipts, petty cash books, orders, delivery notes, bank statements and rental/leasing agreements. Accounting software like Xero will help keep all your records together.
Accounting records must be kept for 6 years after the end of the accounting period in which they relate to. Records may need to be kept longer if:
- the records relate to an asset or loan which is owned or owed for a period greater than 6 years.
- a tax return has been submitted late
- a compliance check by HMRC is being undertaken
Failure to maintain adequate records will result in HMRC issuing a penalty up to £3,000
Setting Up A Limited Company Checklist
- Choose your name for your limited company, and make sure it is available on Companies House plus is the Domain Name available?
- Decide where you want your registered office to be? Do you want your personal address open to the public?
- Register your Company with Companies House
- Do you need a Shareholders Agreement created?
- Make sure your limited company is registered for Corporation Tax (Government Gateway Account) (and PAYE if required)
- Set up a Government Gateway Account
- Check what licenses and insurances you need to start trading
- Set up a bank account for your limited company
- Start recording your income and expenses from start correctly, use a bookkeeping software like Xero
- Ensure you are putting money aside for Corporation Tax, PAYE, CIS and VAT
- Start advertising your construction business, encourage the people around you to share your business and to use your services, set up a website, social media, and put your business in front of the right people.
Frequently asked questions
This article has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
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