July 20th, 2018
If you’re thinking of becoming a contractor, one of the first things you will need to do is to set up your own company to trade under. Although this process may seem daunting to the uninitiated, it is a fairly simple process in reality, and professional help is widely available. Here are some things to bear in mind before you set up a company.
Why go limited?
As a contractor, you can only operate via an intermediary (which exists between you and the client) – in the form of a limited or umbrella company. The limited company model offers a number of benefits, including limited liability for directors should something go wrong, a professional image, and it is the most tax efficient way to operate in most cases.
Different ways to form a company
You can form a company yourself via the Companies House website for just £12, or you may prefer to use a formations agent to do this on your behalf. Most contractor accountants also offer incorporation (often for free) if you sign up to use their ongoing services. In all cases, the same information is sent to Companies House (the registrar of all UK companies), but if you’re new to contracting, you may prefer to let an expert help you through the formations process.
Choose a good name
Your proposed company name can be anything you like, as long as it’s not similar to that of an existing company, and it mustn’t contain any terms which are deemed to be ‘sensitive’ by Companies House. Bear in mind that it will appear on your contracts and related paperwork, so it is always best to choose a professional-sounding name.
Your new company will be run by one or more directors, who must abide by various rules and regulations, as prescribed by the registrar of companies. The directors are ultimately responsible for decisions made by the company, and accounts and other paperwork which is submitted to HMRC and the registrar itself. Many contractors are sole-directors, but you may decide to set up the company with other contractors, or your spouse, for example. A company secretary can also be appointed, but this is not mandatory.
Shares and Shareholders
Before your form your company, you should carefully consider how it is going to be owned – who the shareholders will be. If you’re a one-man band, then you will most likely own 100% of the shares, but if you’re going into business with other people, you need to decide what the share structure will be. You can even create several types of share class if needs be. This is something a specialist accountant will be able to advise you on.
Articles and Memorandum of Association
When you incorporate a company, you will typically elect to use ‘model’ Articles of Association – which act as a rule book for how the company will be run, and how decisions are to be made. You may also decide to create your own Articles. The Memorandum contains the names of initial subscribers to show their intention to form a new company.
Company and Officers’ addresses
Every company must have a physical address where official paperwork can be sent. This can be your home address or one provided by a third party such as your accountant. The addresses of all company officers must also be sent to Companies House, however, you can provide a ‘service address’ (perhaps provided by a third party) instead of your residential address if you are concerned about your private details appearing on the public record.
Choosing an Accountant
Almost all limited company contractors hire specialist accountants to look after their accounting and tax affairs. Although the company formation process isn’t particularly complicated, you may feel more secure by handing over the whole incorporation process to a contractor accountant. Alongside formation itself, your accountant will also set your company up for a wide range of taxes, including VAT, Corporation Tax, and as an ’employer’ (for payroll purposes).
Setting up a Bank Account
A limited company and its shareholders are distinct legal entities. For this reason, you must open a dedicated bank account for your business. Many banks offer free banking periods of up to two years, or even more. In all cases, make sure you find out what the ongoing monthly charges and transaction fees will be once any promotional period expires.
Your ongoing responsibilities
Once you have become a company director, make sure you keep up with your statutory responsibilities. You must let the registrar know if there have been any changes to the company’s name, address, share structure, or officials’ details. Keep your company’s confirmation statement and PSC register up-to-date and submit a copy of your Annual Accounts to Companies House and HMRC each year. Your accountant is likely to look after these ongoing tasks on your behalf, but the directors are ultimately responsible.
These tips were written by James Leckie, who has provided online contracting advice for almost 20 years. You can read more at LimitedCompanyHelp.