Setting up a business can seem like a daunting task, but it really shouldn’t be. If you and your accountant work together to set-up the business correctly from the start, then moving forward your company should run smoothly and in a way that works best for you.
The following is a summary of the key tasks and considerations when setting up your new limited company
1. Limited company formation
Setting up a limited company is relatively straightforward and can be done on the Companies House website, although this is a service your accountant can also provide for you. You will need to choose your company name, ensuring this has not already been taken by another business. You will also need to consider who the initial Directors and Shareholders of the business will be (see point 4 below). Company formations are usually approved within 24 hours, at which point you can start trading through the business.
2. Open a business bank account
A limited company needs its own bank account, where the business receipts and payments should be made from – it is important to keep the funds of the business separate from the Directors. The high street banks all offer business bank accounts, most of which have a small monthly charge for transactions passing through the account, although you may get an initial period of free banking.
3. Consider VAT registration
Current legislation requires a business to become VAT registered if its turnover exceeds £85,000 in a cumulative 12 month period. If you expect your business to exceed this amount within the first year of trade then it might be worth registering for VAT from the outset, saving time later on. Whilst customers will have to be charged VAT, typically at 20%, the business can then recover VAT on the relevant expenses it incurs. Contractors or low-cost businesses may benefit from the simplified Flat Rate VAT scheme, something your accountant can advise on in more detail.
4. Remunerating yourself
This is naturally an important point and needs consideration when setting up the business. The two ways for owners of a limited company to pay themselves is through salary and/or dividends, the mix of which will depend on their personal circumstances. Salary payments are usually an allowable expense of the business against corporation tax and are important if the Director wants to maintain their national insurance record. Dividends are not allowable against corporation tax but are taxed at a lower rate of income tax when drawn by the shareholder(s). Choosing the shareholders of the business correctly on formation is important, as dividends have to be paid in proportion to the percentage of shares held.
5. Bookkeeping requirements
Now your business is up and running you will need to consider how to maintain your accounting records. From 1st April 2019 VAT registered businesses need to keep their accounting records on cloud accounting software (such as KashFlow, Xero, QuickBooks Online). Non VAT registered businesses can still benefit from using online accounting software but can choose to keep records on Excel or paper-based records if they prefer.
Bernard Rogers & Co have been assisting clients with the formation of limited companies for over 25 years, so please do get in touch on 01926 851516 if you have any questions, we are happy to talk you through the process in more detail.