Operating through a limited company is a smart way for contractors to structure their earnings and can be more tax-efficient than self-employment. There are many advantages to forming a limited company, but the process can be tricky. We’ve put together a quick guide to get you started.
The first steps
Your limited company name must end with the words “limited” or “Ltd”. The name cannot be the same as any other company registered on the Companies House name index or suggest a connection with government or local authorities.
Once you have decided on a name, you need to register your company with Companies House. You can do this online or by posting the necessary forms.
Insurance for limited companies
It’s a good idea to insure your limited company in case something happens to you, your staff, or a third party that you interact with. There are three main types of insurance you should consider getting to cover your company. They are:
- Professional Indemnity Insurance
- Employers liability insurance
- Public liability insurance
Every limited company will automatically be registered for corporation tax, which is applicable to any profits that the limited company makes. One the registration has taken place, you will receive a confirmation document from HMRC showing your registration details as well as your corporation tax reference number.
With a limited company, you can claim and deduct any expenses that are relevant to the business activities. These might include home office expenses, mobile phones, office equipment, and travelling to and from clients. The ability to deduct these expenses helps to save on corporation tax, as it reduces the amount of profit in the business.
It is important to stay up to date with all your limited company accounting requirements. You will need to ensure that your statutory accounts are completed and filed at the end of each financial year. Your statutory accounts must be sent to shareholders (if relevant), HMRC and Companies House.
Your accounts need to include:
- A balance sheet
- Profit and loss account
- Disclosure notes
- A director’s report
Your accounts must meet the International Financial Reporting Standards and the UK Generally Accepted Accounting Practices.