If you're an existing sole trader or researching the start of your freelance career, then you might be wondering how to set up a limited company. It costs less to register than you might assume, but it's still important to understand the benefits and downsides.

Becoming a limited company can save you money and limit the financial risk from starting a business. And it also gives you a more professional and protected identity, especially if you plan on expanding in the future.

We provide an overview on getting started as a limited company and how forming on a certain date will not save you money in tax!

A limited company can suit any business type and is very straight forward to set up.

The general rule of thumb is that if you are expecting your annual turnover to exceed £25,000 then a limited company will be more tax efficient for you. You may be just starting up and asking yourself “how do I know if I will reach this limit?”, of course, this is only a recommendation and not a necessity. Should you wish to form a limited company under that threshold there are still many benefits in doing so. More on this later.

There are several ways you can register your limited company. You can do so by directly going to company’s house or through an accountancy firm who can complete all other necessary related tasks for you too, such as VAT registration, setting up a business bank account etc. Let’s start with the pros...

Most commonly when freelancing, many choose to work as a sole trader/self-employed or as a limited company.

As a sole trader, it can be quick and easy to set up, there are low start-up costs involved and less admin to that of a limited company. As a sole trader you are essentially the company. Sadly, the disadvantage also being that you are the sole owner! You have unlimited liability for any issues or debt incurred with the business. In other words, you, personally, are fully liable.

As a limited company you are treated as an employee of the business and therefore, separate to that of the company. This is one of the main reasons over 500,00 limited companies are incorporated each year (according to companies house). The other benefits include:

Now let’s look at the things some people perceive as less advantageous when setting up a limited company:

Whenever you set up a limited company, your accounting year runs over a twelve-month period. The year end is at the end of the month in which the anniversary of when the company was set up falls. The company can therefore be set up at any time during the year, there is no specific month throughout the year that will save you money.

Even though you can set up anytime throughout the year, it is always best to speak to an accountant to help with successful tax planning.

Chat to your accountant in order to determine if you should be a limited company. There are a number of steps you will have to take in order to set up, but GOV.UK has a handy step-by-step guide to help you.

These steps include: 

• Choosing a name - You can see what names are available on the companies house name checker
• Choosing directors and a company secretary
• Deciding who the shareholders or guarantors are and how many shares they will each have
• Identifying people with significant control over your company
• Preparing documents agreeing how to run your company
• Keeping records
• Registering your company

Once your company is formed, you will then receive several documents. You will receive a certificate of incorporation along with Memorandum of Association, Forms 10 and 12 and Articles of Association. These are simply to be kept on behalf of your company should you ever need them.

Of course, once your company is formed, there will still be a number of questions you may have. Some of the more frequently asked questions we get asked include:

In Integro Accounting’s latest survey, over 75% of our clients claimed that better work life/balance and flexibility was the number reason they remained contracting. There are so many advantages to being an independent professional and of course there are benefits and disadvantages to setting up as a limited company versus as a sole trader but hopefully this article has pointed you in the right direction. And remember, setting up a limited company doesn’t need to be complicated. Work with the right accountants, keep on top of your admin and dedicate the time to it that it requires. Simple!

For any further advice on being a sole trader, using an umbrella company or going limited, Integro Accounting can help. We offer a suit of services to suit your needs: Accountancy Packages.