Being your boss or owning a company can be fulfilling to build and grow from an idea and grow a successful business. But forming a company can appear difficult, especially for first-time business owners. Likely, getting assistance from an expert accountancy firm like TVR Accountants can alleviate this knowledge and give an illustration of the stages of transforming your business idea into a legal entity.

Why Form a Company?

The UK is known for being business-friendly, and forming a company has several advantages:

• Limited Liability: It shields your assets from being used to meet any business losses.
• Professional Image: Enhances the company’s reliability at the customer base, supplier’s end, and investor’s side.
• Tax Benefits: Gives different types of tax incentives and tax reliefs.
• Investment Opportunities: Easier to raise capital from investors.

Thousands of companies are formed in the UK every year. Recently, 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 in London.

In total, 13,801 new tech companies were incorporated, up 11% year-on-year and the highest figure since 2019. This 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, indicating that Artificial Intelligence has significantly contributed to the increase in tech companies.

Despite some uncertainty around inflation and high borrowing interest rates, it hasn’t negatively affected company formations. As confidence improves and interest rates stabilise, it’s a great time to think about starting a company and becoming your own boss.

Steps to Forming a Company

All good companies start with a great idea. If you are turning a passion into a career or becoming self-employed forming a company can be easy when you know what to do.

At TVR Accountant, we work with many freelancers and contractors who have turned their skills into self-employed limited companies. Our guide to setting up your own company is here:

1. Select the right business structure

Choosing the right structure in operating your business is important as it determines one’s level of responsibility and taxes. The most common structures in the UK are:

• Sole Trader: It is the easiest form of doing business but the owners are not protected from business risks.
• Partnership: Is carried out by two or more people. This may be a general partnership or a limited liability partnership (LLP), company, cooperative or any other legal entity formed by the partners.
• Private Limited Company (Ltd): Assists the shareholders in providing limited liability and is the most preferred by small to medium-sized enterprises.
• Public Limited Company (PLC): Can sell shares to the public and is commonly selected by large organizations or firms. At TVR Accountant, most of our clients choose to operate as limited companies.

Many start-ups select the Private Limited Company (Ltd) given that it has several advantages and does not require much formalization. At the present time there are more than four. 5 million private limited companies operating in the UK, and an additional 500,000 new companies are registered each year. At TVR Accountant, most of our clients choose to operate as limited companies. 

Advantages of Registering a Limited Company over being a Sole Trader

• Increased Tax Efficiency: This structure of operating through an incorporated business limited company would mean you have more options on how you remunerate through a salary and dividend regime and therefore could take home a lot more.
• Claim on Expenses: Corporation tax allows you some benefits since it is possible to claim many expenses towards it, thus increasing your take home pay.
• Protection of Personal Assets: Limited liability safeguards personal wealth from risk in instances where organizations are confronted with financial challenges.
• Better Credibility & Status: It can also help improve your business credibility and stature because of stricter controls and more visibility.

2. Choose a Company Name

Your company name is a vital aspect when it comes to your company’s branding. Ensure it is:

• Unique: Check social media and Google not to be similar to other companies.

Compliant: Companies House guidelines will have to be followed regarding company name (e. g, it cannot be vulgar or misleading, or being associated with the government).

• Available: It should be checked with the help of the Companies House name availability checker.

3. Prepare Your Company Documents

To register your company, the following are necessities,

• Memorandum of Association: A document that is the legal writing at the time of formation of the company signed by all the shareholders.
• Articles of Association: The procedures that define relations between the workers and the rules which impact on the company’s functioning, which might be clear work rules, that are standard or template or they can be created individually depending on the client.

4. Register with Companies House

Formal organisation registration is necessary; this is done through Companies House. It is also done either through online services or by regular mail. The required information includes:

• Company Name
• Registered Office Address
• Directors’ Details
• Shareholders’ Details
• Share Capital

The registration fee is £ 50 for an online application and £ 71 for a postal application. On incorporation, one is issued with the Certificate of Incorporation which is a legal document that will confirm the legally acceptable existence of the company.

5. Set Up a Business Bank Account

Registers need to be opened and having a separate business bank account is the most important for your financial transactions. Here, it must be understood that when you are conducting business through a limited company, you must open a business account.

For instance, at TVR Accountant, we have incorporated with Mettle Business Bank account, which is a free business current account by the NatWest bank specifically for contractors, freelancers & small businesses. It is relatively easy to set up and try and you can link it to other programs such as an accounting program to assist in the books.

6. Register for Taxes

After forming your company, register for the necessary taxes with HM Revenue and Customs (HMRC):

- Corporation Tax: Should be registered within a period not exceeding 3 months from commencement of business activities.

- VAT: Needed if yearly turnover is more than £90,000.

- PAYE: If you plan to hire employees, set up a PAYE scheme for income tax and National Insurance contributions.

7. Be Aware of Legal and Financial Considerations

Maintaining compliance with UK laws and regulations is important. 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.

Effective financial management is vital. TVR Accountant offers key practices for your finances, including accounting software, bookkeeping, and professional advice.

Company Formation and Your Business

Forming a company in the UK involves several steps, but it is incredibly rewarding once you’re working for yourself. Breaking the process down into manageable tasks makes it easier. Taking guidance from TVR Accountant can help you start on the right foot, setting a strong foundation for future growth and success.

If you’re ready to appoint a TVR accountant, send us an enquiry through our website or call us on 07921837296.