Contractors' Questions: How much does it cost to set up a limited company?

Contractor’s Question: There’s quite a difference in opinion between my colleagues, an accountant I know and some company formation website that’s emailed me, so can an expert I don’t know please clear it up – how much does it cost to set up a limited company?

Expert’s Answer: Setting up your own limited company can cost as little as £12 online or £40 when going the traditional route via the post with Companies House. Sometimes it can cost you £100-plus with some accountancy practices, whereas some will offer this service for less money, or even for ‘free’ -- when signing up for their services.

So which option should you take? Should you ‘go it alone’ or with a professional to form your company?

Looks can be deceiving

While a lot of the information can be self-explanatory at the start (director name; address, date or birth, nationality), the benefit of having professional help is getting everything correctly set up from the get-go. You’ve also got someone else to blame if it does go awry!

Something as simple-sounding as your ‘registered office’ and ‘service address,’ for example, can trip people up.

When registering a limited company, many individuals use their home address details without fully appreciating that their own details will be thereafter be held, and be available on public record! Using a professional accountant offers the option of using the accountant company’s office address. Not only does this remove your home address from public records (lessening the burden of sales material), but it also guarantees that all HMRC and Companies House documentation is sent directly to source. So no endlessly shuffling documents around to get them to your accountant.

Structure is another slip-up, potentially

Just one other big point to consider before you decide who you’re going to pay.

Using a professional should also mean less stress and burden in trying to understand areas such as applying for VAT, setting up a business bank account or opening a payroll scheme for your newly formed company. However we think the big benefit gained from speaking to a reputable and established tax adviser is ensuring that the share structure of your company is correct from the start. Doing this correctly can literally pay dividends further down the road!

Specifically, your company shares ultimately determine who has control over the business. These can be split 50/50, 60/40, 70/30 etc, or kept solely to the company director. If you are going to be a one-person limited company, you could decide to retain 100% of the shares, meaning you are entitled to all of the available profits your business generates.

What about sharing with your spouse?

However, some questions early on may be:

• How many shares do I create?
• Do I declare all the shares to myself?
• Should I split the shares with my spouse?
• What are the advantages of splitting?

You may also wish to issue more shares to yourself than to other people. Whatever is echoed in your company share structure, must reflect what payments are made through dividends. For example, a company with 100 ordinary shares split 60/40 between a husband and wife would mean that for every £600 paid in dividends to one, £400 is paid to the other!

There is also the consideration of the ‘type’ of company shares available. But again, this and any of the points above you are unsure of are always best discussed with a professional, fully qualified accountant.

Final thought

As some of those people who you are talking to will hopefully tell you, starting off on the right foot is about the best move you can make if all this is new to you, and getting that right foot secured and supported with correct, tailored advice will guarantee this.  

The expert was Christian Hickmott, chief executive of contractor accountancy firm Integro Accounting.