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Starting your own company can be a rewarding venture, offering opportunities for growth and success that all stems from an idea and a passion. The process of company formation can seem daunting, especially for first-time entrepreneurs. Looking for advice from an expert accountancy firm like Gorilla Accounting can help to demystify the process, providing you with a clear, step-by-step approach to turning your business idea into a legal entity.
Why Form a Company?
The UK is known for its business-friendly environment and forming a company offers several advantages:
– Limited Liability: Protects personal assets from business liabilities.
– Professional Image: Enhances credibility with customers, suppliers, and investors.
– Tax Benefits: Offers various tax incentives and reliefs.
– Investment Opportunities: Easier to raise capital from investors.
Thousands of companies are formed in the UK each year, and recently it’s been revealed that the number of new UK tech company formations has hit a five-year high, which is great news for the economy. More than half of the new incorporations were for companies based in London.
In total, 13,801 new tech companies were incorporated, up 11% year-on-year and the highest figure since 2019. That included 7,253 in London, up 16%.
In January, it was revealed that more than 500 new companies with “AI” in their name were registered in the UK at the end of 2023, meaning Artificial intelligence has likely played a large part in the increase of tech companies.
Whilst there is still a little uncertainty around inflation and high interest rates of borrowing, it doesn’t seem to be having a detrimental effect on businesses forming. As confidence improves further and interest rates stabilise, it’s a great time to start thinking about company formation and finally becoming your own boss.
Steps to Forming a Company
All good companies start with a really great idea. Whether you have a passion that you’re turning into a career or you’re taking your job role to new heights by going self-employed, forming a company can be easy when you know exactly what you need to do.
At Gorilla Accounting, we work with hundreds of freelancers and contractors who have turned their skills into self-employed limited companies. Here’s our guide to setting up your own company:
1. Choose the Right Business Structure
Selecting the appropriate business structure is crucial as it impacts your liability and tax obligations. The most common structures in the UK are:
- Sole Trader: The simplest business structure is a sole trader, but it offers no liability protection.
- Partnership: Involves two or more people. This can be a general partnership or a limited liability partnership (LLP).
- Private Limited Company (Ltd): Offers limited liability to its shareholders and is the most popular choice for small to medium-sized businesses.
- Public Limited Company (PLC): Can sell shares to the public and is typically chosen by larger businesses.
Most entrepreneurs opt for a Private Limited Company (Ltd) due to its balance of benefits and relatively straightforward setup process.
There are currently over 4.5 million private limited companies registered in the UK, and a further 500,000 are incorporated annually. At Gorilla Accounting, the vast majority of our clients choose to operate as limited companies.
When you operate as a sole trader, you’re registered as self-employed. You work, submit your self-assessment and pay your taxes. But if you incorporate you can still achieve a great work life balance and enjoy the many benefits of operating as a limited company.
There are many benefits of a limited company setup over being a sole trader.
Increased Tax-Efficiency
Operating through your own limited company means you get increased flexibility in terms of how you pay yourself through a combination of salary and dividends. In turn, this means your take home pay can be significantly higher than if you were a sole trader.
Gorilla Accounting are experts in tax planning and we ensure that your remuneration is structured in the most tax-efficient way.
Claim On Expenses
You have the ability to claim a wide range of expenses which can be used for corporation tax, resulting in more take home pay for you.
Protection Of Your Personal Assets
Should your company run into financial difficulties or becomes insolvent, limited liability means your personal assets, such as your home, car and investments, should be protected. You are not personally liable for the debt of the company due to it being treated as a completely separate legal entity from directors and owners. This significantly reduces financial risk and gives greater peace of mind.
Better Credibility & Status
Once you incorporate, the perception of your business often becomes more favourable than if you operated as a sole trader. Limited companies are held in high regard due to tighter regulation and monitoring of limited companies and increased transparency due to accounts being available via Companies House.
2. Choose a Company Name
Your company name is a crucial part of your brand identity. When choosing a name, ensure it is:
- Unique: If your name is similar to another existing company, you’ll be hard to find online and it’s easy to get you mixed up with someone else. Search the potential name on social media and Google to make sure you’re unique.
- Compliant: Make sure you adhere to Companies House naming rules (e.g., not offensive or suggesting a connection with the government).
- Available: Check its availability using the Companies House name availability checker.
3. Prepare Your Company Documents
To register your company, you’ll need to prepare the following documents:
- Memorandum of Association: A legal statement signed by all initial shareholders or guarantors agreeing to form the company.
- Articles of Association: The rules governing the company’s operations, which can be standard (model articles) or tailored to your needs.
4. Register with Companies House
Registering your company with Companies House is a critical step. You can do this online or by post. The information required includes:
- Company Name
- Registered Office Address: Must be in the UK and will be publicly available.
- Directors’ Details: At least one director who is at least 16 years old.
- Shareholders’ Details: Information about the initial shareholders and their shareholdings.
- Share Capital: The total value of shares and their distribution among shareholders.
The registration fee is £50 for online applications and £71 for postal applications. Once registered, you’ll receive a Certificate of Incorporation, confirming the company’s legal existence.
5. Set Up a Business Bank Account
Opening a separate business bank account is essential for managing your finances and maintaining clear records. When you start out as a contractor operating through a limited company, you’re legally required to open a business bank account as it is a separate legal entity from you and your business bank account must be separate from your personal bank account.
Here at Gorilla Accounting, we have partnered with Mettle. Mettle is the free business bank account by NatWest that gives people the financial confidence to create a business. It’s built for contractors, freelancers and small businesses.
You can apply for an account in minutes and connect to accounting software to help keep track of your books. The account comes with a UK account number and sort code and funds up to £85,000 are protected by the FSCS.
6. Register for Taxes
After forming your company, you must register for the necessary taxes with HM Revenue and Customs (HMRC):
- Corporation Tax: Must be registered within three months of starting business activities.
- VAT (Value Added Tax): Required if your annual turnover exceeds £90,000.
- PAYE (Pay As You Earn): If you plan to hire employees, you’ll need to set up a PAYE scheme to handle income tax and National Insurance contributions.
7. Be Wary of Legal and Financial Considerations
Maintaining compliance with UK laws and regulations is crucial for your company’s continued success. Key requirements include:
- Annual Accounts: Submit annual financial statements to Companies House.
- Confirmation Statement: Filed annually to confirm company information.
- Corporation Tax Return: Submitted annually to HMRC.
To keep organised and able to submit these, effective financial management is vital. With an accountancy package from Gorilla, we offer the key practices that are vital for your finances including:
Accounting Software: We partner with FreeAgent to offer fully inclusive access to accountancy software, perfect for small businesses. This streamlines financial management to make everything easy and accessible to you and your accountant.
Bookkeeping: Maintaining accurate records of all financial transactions is vital when it comes to submitting your tax return. With FreeAgent, we can track all your incomings and expenses to ensure nothing is missed.
Professional Advice: Our team of expert accountants continually keep on top of the latest news and tax laws to offer you the guidance you need, ensuring compliance across the board.
Company Formation and Your Business
Forming a company in the UK involves several steps, from choosing the right structure and registering with Companies House to managing legal and financial obligations, but is incredibly rewarding once everything is set up and you’re working for yourself.
While the process may seem complex, breaking it down into manageable tasks can make it easier. Seeking guidance from us will also help you get off on the right foot, meaning you’ll be well on your way to establishing a successful company, laying a strong foundation for future growth and success.
If you’re ready to appoint a Gorilla accountant, you can send us an enquiry through our website or call us on 0330 024 0406.
