If you’ve decided to take the plunge into the contract world you’ll have an important decision to make. Will you use an umbrella company or set up your own limited company? Although going with an umbrella can make your life simpler, there are lots of benefits to setting up your own limited company.
Having your own limited company can give you control of your employment, holidays and pay and if managed well you could find yourself living a more flexible lifestyle whilst your earnings increase. But where to start? It may seem like a daunting task but with our simple steps, it can be more straightforward than you think.
Remember, you have two options with this process – you can go online and complete the paperwork yourself or you can seek the help of a company to do this for you. For a small fee, they can save you time and ensure everything is submitted correctly. A few companies that provide this service are:
If you decide to do it yourself then follow these five simple steps to guide you through the process:
- What’s in a name?
Firstly you need to make that all important decision- what will be your company name? This can be a creative exercise but you may want to consider a few different factors- perhaps most importantly, is the name still available? You can check this on Companies House.
If you intend to have a website, this is a good time to check if the URL is also available. This can be done through a number of different sites online for example 123-reg. It is worth noting that the more obvious URLs were snapped up years ago and the competition for interesting URLs is high. You can sidestep this issue by having a URL with a less common suffix (eg. .io or .net).
However, should you want to stay retro with .com or.co.uk, your other option is to adjust your chosen name, for example if you want to call yourself “Joe Bloggs”, but the URL is gone, consider “Joe Bloggs Development” or “Joe Bloggs IT”.
- Who’s in charge?
You need to name the director (most likely to be you), and if you want, you can also name a company secretary. For each person, you will provide their basic details, such as name, address, occupation etc. You will need to give two types of address during this process:
- The residential addresses of each member of the company. (Don’t worry; you’re not giving the world your personal details as this isn’t displayed publicly).
- The company’s registered address – this is displayed publicly on Companies House. You can use your residential address here but may choose not to due to the privacy issue. Other options may be to use your accountants address or gain a “virtual” address from a company.
Going “virtual” gives you an address (but not a property) in the area of your choice– obviously it is a good idea to select an address from the area you intend to work in (so if you want work in London, selecting a Manchester address might not be too beneficial).
Whilst deciding who’s who, you also need to name your shareholders and specify how the shares will be distributed. A limited company is managed by its directors and owned by the shareholders. You can name yourself as the only shareholder as well as a director so you don’t have to hand over control of your company to anyone else.
- Paperwork (the boring bit)
In order to register your new limited company you will need to send in the relevant documents to Companies House, such as:
- Memorandum of Association
- Articles of Association
- Completed IN10 Form
(More information on the specific paperwork that you will be required to submit can be found at Companies House).
If you’re not the paperwork type – don’t panic, if you've appointed a good accountant often they will help you with this part for free.
- Get your wallet out
Once these documents have been completed and submitted to Companies House, it’s time to take out your wallet and pay the incorporation fees. Once paid, the process is complete. Congratulations! Your limited company is now active. Companies House will send you confirmation of this and then you’re ready to go.
- Organisation is the key
Finally, you’ll need to get yourself organised and develop a filing system to keep documents in order. Having a safe place for receipts is much more helpful than keeping them stuffed in your wallet and this will prevent headaches down the line when you need to update information or file your annual return.
It’s an exciting prospect to have so much more control over your destiny (and your rate of pay). As long as you maintain a good level of organisation, setting up your own limited company could be your ticket to success.
If you are still having trouble deciding between an umbrella company or your own limited company then have a look at our article here which looks at the real pros and cons.
For more information on the benefits of setting up your own limited company go to: Could you boost your earnings if you set up a limited company?
For a real life example of life as a contractor have a look this article: here
Have you recently registered as a limited company? We would love to hear about how you found the process (and any recommendations for companies that helped you).