Setting up a limited company in the UK is genuinely quick. You could have one registered before your lunch break. The bit that takes more thought is understanding what comes after: your obligations as a director, the tax implications, and the ongoing admin. Here’s the full picture, from choosing a name to filing your first accounts.
Why Go Limited?
The main reasons people form a limited company:
- Limited liability: Your personal assets are protected. If the company goes under, creditors generally can’t come after your house or savings (unless you’ve given personal guarantees or done something fraudulent).
- Tax efficiency: Corporation Tax is 25% (or 19% for profits under £50,000). Extract profits as a mix of salary and dividends, and you often pay less than a sole trader on the same income.
- Credibility: Some clients and agencies require it. Having “Ltd” after your name suggests permanence.
- Pension contributions: The company can make employer contributions that are deductible for Corp Tax with no NI. Very efficient.
Step 1: Pick a Name
It must be unique and not “too similar” to an existing company. Must end with “Limited” or “Ltd”. Certain words (“Royal”, “British”, “Bank”, “Authority”) need special permission. Check availability for free at beta.companieshouse.gov.uk.
Step 2: Register with Companies House
Do it online at gov.uk/set-up-limited-company. Costs £12 and is usually done within 24 hours (often a few hours). You’ll need:
- A registered office address in the UK
- At least one director (can also be the shareholder)
- At least one shareholder (can be the same person)
- Share structure details (most small companies just issue 1 ordinary share at £1)
- A SIC code describing your business activity
The model articles of association from Companies House work fine for most small businesses. Don’t overthink this.
Step 3: Register for Corporation Tax
Separate from Companies House registration. You must do this with HMRC within 3 months of starting to trade. Register online and you’ll get a UTR number for the company.
Step 4: Set Up PAYE
If you’re paying yourself a salary (and you should — at least £12,570 to use your Personal Allowance), register as an employer with HMRC. You can do this up to 2 months before your first payday. Then run payroll, submit RTI reports each time you pay yourself, and pay any PAYE/NI by the 22nd of the following month.
Step 5: Open a Business Bank Account
A limited company must have its own bank account — you can’t mix personal and company money. Starling, Tide, and Mettle offer free business accounts with quick online setup. Traditional banks work too but expect a longer application process. You’ll need your company registration number and ID.
Ongoing Obligations
- Annual accounts: File with Companies House within 9 months of your year-end. Small companies can file simplified micro-entity accounts.
- Corporation Tax return (CT600): File with HMRC within 12 months. Tax must be paid within 9 months and 1 day of year-end.
- Confirmation statement: Annual filing with Companies House confirming your details. £13 online.
- Payroll: Monthly RTI submissions.
- VAT returns: Quarterly, if registered (mandatory above £90,000 turnover).
What It Costs to Run
- Accountant: £800–£2,000/year for accounts, Corp Tax return, and payroll
- Companies House: £13/year confirmation statement
- Registered office service (if not using your home): £50–£200/year
- Business bank account: free to £15/month
- Professional indemnity insurance: £200–£600/year depending on trade
When Does Limited Beat Sole Trader?
The crossover point is usually £30,000–£40,000 profit. Below that, the extra accounting and admin costs tend to eat the tax savings. Above it, the gap widens every year. Use our free comparison calculator to run the numbers for your income level.