If you are a contractor in Bristol looking to set up as a limited company there are some important actions and processes you will need to undertake to enable you to start trading as a business.
Elite Financial Accounting can guide you through many of these tasks. Based on Fishponds Road in Bristol we welcome our clients to visit us for an informal chat to talk through all your options and answer any initial questions you may have.
We have detailed some of the key areas contractors looking to set up as a limited company need to consider.
1. Register as a Limited Company
All limited companies must be registered ("incorporated") with Companies House. In order to this you will need to do the following:
Pick a Company Name
You need to make sure you don't use the same name as another registered company. If you have some name ideas and would like to check its availability, take a look at the .Gov's Companies House Register to see if your name is already in use.
When picking a name for your limited company you also need to make sure it isn't too similar to another registered name. If you are unsure about this, one of our qualified accountants will be happy to advise you.
Register Your Address
Your limited company's office address is where official communications will be sent, for example, letters from Companies House and HM Revenue and Customs (HMRC). The address you use must be a physical address located in the same country that you are trading in. So if you are trading from England your company's physical address will also need to be located somewhere in England.
Register at least one company director
Your company must have a minimum of one registered director who is at least 16 years old. The director is legally responsible for running the company and making sure company accounts and reports are completed with competence and accuracy. This also includes keeping satisfactory company records whilst reporting any significant changes to Companies House and HM Revenue and Customs (HMRC). The director will also need to complete a personal Self Assessment Tax Return every year. You can appoint someone to register and send your tax return for you and Elite Financial Accounting have extension knowledge and experience in this field.
Have at least one shareholder
Your new company will be limited by shares so you must have at least one registered shareholder. This can be a director and there is no maximum on how many shareholders your company has. However, shareholders are owners of the company and directors may need to offer shareholders the opportunity to vote and agree on any changes made to the company. When issuing your initial shares you'll need to make a 'statement of capital'. This total value of a share is also known as the companies 'share capital'.
For example, a company that issues 1000 shares to a shareholder at £1 each is issuing a share capital of £1000. This share capital will also contain something known as 'prescribed particulars'. Your prescribed particulars say what rights each type (known as 'class') of share gives the shareholder, and must include what share of dividends they get. This includes whether they can exchange their shares for money, whether they can vote on certain company matters and how many votes they get.
When you register your company you must get the agreement of all the initial shareholders and have rules about how the company will be run. This is known as a 'memorandum of association' - a legal statement signed by all initial shareholders confirming they agree to form the company.
You also need to confirm written rules on the running of the company that shareholders and 'officers' (directors or company secretary) have to agree on. These include rules about how to make decisions that affect the company and whether the shareholders will be involved in those decisions.
2. Open a bank account
Once you have registered your limited company following the steps above you will need to set up a business bank account.
Which bank and why?
You don't necessarily have to open a business account with your personal bank. This is often the easiest option but not always the most beneficial. You need to investigate what ongoing transaction costs you will have to pay, and compare the interest rates with other banks.
There are lots of initial free banking deals offered to start-up businesses, but the incentives to sign-up can often be less attractive. This is a 'horses for courses' process and your business will be unique in what business bank account it is best suited to. We have extensive knowledge in the current rates and deals most major banks offer and can advise on the best option tailored to you and your business. Some of the things to consider are interest rates, customer service, payment merchant facilities and transaction charges.
3. Authorising your agent (64-8)
The vast majority of contractors who set up as a limited company appoint an accountant to look after their affairs. If you hire Elite Financial Accounting to speak to HMRC on your behalf, you'll need to complete a very simple 'Authorising Your Agent' form (also known as a 64-8) and we can assist you in completing this task. HMRC post you the form shortly after your company is formed however you can download a blank 64-8 form from HMRC's website if required. HMRC will continue to send correspondence to your registered address, but by completing this form we can deal with them directly on your behalf.
4. VAT registration
When your company turnover reaches the "VAT threshold" (currently £81,000) in a twelve month period, you must register for VAT. Even if you don't, there may be professional reasons why you would want to register anyway. The amount you have to give to HMRC is the VAT you've collected (often called "Output VAT") minus the VAT you've paid out ("Input VAT"). When you buy items from another VAT registered business - they have to charge you VAT but if you are VAT registered you can claim this back!
Contractors who work through their own limited company can potentially save a significant amount of money by becoming VAT registered. Imagine how much VAT can be saved when you add on the cost of VAT paid on of all of your company purchases, including office supplies and equipment - it can add up to a considerable saving and Elite Finical Accounting will work with you closely to maximize this return
Flat Rate Scheme (FRS)
Here at Elite Financial Accounting we believe most Contractors will benefit from the VAT Flat Rate Scheme (FRS). The FRS differs from standard VAT accounting as you pay a percentage of turnover rather than paying VAT on the difference between sales and purchases. So, while you continue to charge clients a 20% VAT rate, you can potentially give a smaller percentage to the taxman. The Appropriate percentage will differ and depends on what trade category you fall under. For example, Labour-only building or construction services pay 14.5% on a VAT Flat Rate Scheme. The below graphic demonstrates possible savings for someone working within this industry.
Standard Vat Calculation v Flat Rate Scheme Calculation
Stanard VAT calculation
Total billings - £50,000
Output VAT @ 20% - £10,000
Total invoiced - £60,000
VAT reclaimed through purchases - £750
£10,000 - £750 = £9,250
Total payable to HMRC: £9,250
Flat rate scheme calculation
Total billings - £50,000
Output VAT @ 20% - £10,000
Total invoiced - £60,000
Total payable to HMRC is 14.5% of £60,000
14.5% of £60,000 = £8,700
Total payable to HMRC: £8,700
5. Register for Corporation Tax
Corporation Tax is based only on the profits your business makes and the rate depends on how much profit is generated. You should automatically receive a Corporation Tax 'welcome pack' from HMRC after setting up a new company. The payment deadline for corporation tax is different from other major taxes, such as income tax and VAT, and you have to pay it before you file your company tax return. Please see this .GOV video guide on "what is corporation tax" to learn more
Elite Financial Accounting will work with you to determine the most tax effective structure for your business and take full advantage of corporation tax opportunities and reliefs. We will do our upmost to achieve the optimum capital/revenue tax treatment and reduce tax on disposals whilst maximising relief on acquisitions.
6. Set up your company payroll
Start thinking of your new company as an 'employer' and what that entails. The first step in registering as an employer is through HM Revenue & Customs (HMRC) and by registering for PAYE Online.
Once completed you will be able to run a company payroll and deduct PAYE and national insurance contributions from all 'employees', including the director(s).
We find that most contractors often have small PAYE and NIC liabilities, and you will only need to make payments on a quarterly basis - although you may decide to pay yourself a salary which is below both PAYE and NIC thresholds.