Setting up as a Limited Company
Setting up as a Limited Company comes with some legal responsibilities; before making any decisions we strongly recommend that you take advice from a specialist contractor accountant.
The first thing to do is choose a company name. You will need to check the Companies House register to make sure your chosen name is not the same as (or even similar to) another registered company name. You then need to choose a registered address where HMRC will send all your official paperwork. It must be a physical UK address. Most people use their home address.
Any limited company has to have at least one director, and this will be you. You’ll also be the only shareholder and will own 100% of the company. The named director is responsible for running the company in accordance with all relevant legal requirements.
For example, when you register a new limited company you need a ‘memorandum of association’ which is a legal document signed by all initial shareholders, and ‘articles of association’ which are written rules about running the company.
Once you’ve done all of this, or asked your accountant to do it, you can then register your company online. It will usually be set up within a few hours. The last step is to set up a business bank account, which is a legal requirement so that all business funds are traceable.
Registering for VAT
Legally, you have to register for VAT if you expect to earn more than the current VAT threshold (£85,000 as of FY2017/18) in any given tax year. Many contractors choose to register anyway, even if it’s not legally necessary, as it can help you to appear more professional. Once you do this, you need to keep your VAT receipts and complete a detailed VAT return each quarter.
You could choose to register for the Flat Rate VAT Scheme instead, as it is easier to administrate. Remember also that if you’re earning less than £85,000 a year from your contract, and have no other income, you do not need to register at all.
HMRC defines an expense as something which is made ‘wholly and exclusively for the purposes of your business’. It is important to keep track of all your business expenses, as these can be offset against income and so will help to reduce your tax bill. You need to keep your receipts for at least six years so that you can prove the purchase was made, to cover you in the unlikely event of a tax inspection.