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How Much Does It Cost To Set Up A Limited Company In The UK

Starting a new business and curious about how much it will cost you to set up a limited company? The cost of setting up a limited company depends on which route you take to set one up and how complex your business is. Generally speaking, you can choose to do it yourself, or go via an accountant or other third party but most people will end up doing a combination of all three.

The costs that needs to be considered are: 

  • Professional fees if asking someone to assist you with the process (for example an accountant, solicitor or business advisor)
  • Business registration fees – £12 – £40
  • Registering for corporation tax – £12
  • Business bank account fees
  • Legal fees for licences, terms and conditions
  • Insurance premiums
  • Marketing and advertising costs
  • Recruitment and payroll costs in taking on employees

Keep reading for a simple breakdown of the costs associated with setting up a limited company by the three most popular routes. 

Doing It Yourself To Set Up A Limited Company

The costs of doing it yourself to set up a limited company are:

  • Your initial fee for registering your company with Companies House. The electronic service is just £12 and the paper version (which requires you to fill in an application form and submit supplementary documents manually) is £40.
  • £12 payable to HMRC if you want to register for Corporation Tax at the same time. Not only does registering online save you time but it also allows for simultaneous Corporation Tax registration. If not done online, this must be done within three months of beginning operations.
  • Any fees involved in setting up a business bank account — although there are plenty of fee-free options available for businesses.

Pros And Cons Of The DIY Approach

Whilst the DIY approach will always be the cheapest, it also means that you won’t have the value of external expertise checking and regulating the actions taken. Paperwork required like the Articles of Association can take a lot of time, and are very important to get right and will most often require a professional input from a solicitor.

The main pros of the DIY limited company approach are its cost effectiveness, retaining full control over the process, and the learning experience to be had. The downside of this route is that it’s time consuming, leaves room for errors and as the sole person responsible, you will need to stay on top of relevant regulations and filing requirements.

The DIY route is undoubtedly the cheapest but it also comes with a significant time and effort investment with a higher risk of errors being made.

 

Using An Accountant To Set Up A Limited Company

The costs involved in setting up a limited company via an accountant are:

  • The accountant’s fee, plus VAT if applicable. Most will charge a fixed fee for this service which could fall anywhere between £50 and £300 depending on the firm. You may however be able to get this done for free if you sign up for their accountancy service to manage all the accounts for your new business venture.
  • Recharge costs for the Companies House fee & Corporation Tax Registration. Any fees for registering your business will be recharged back to you or added to your accountant’s invoice as disbursements.

Pros And Cons Of The Accountant Approach

Many people choose to work with an accountant to set up their limited company. An accountant has plenty of expertise in this area and can help to avoid the common pitfalls whilst offering advice on the best way to set up and structure your company given your individual circumstances.

The main benefits of accountant support is the expertise, it will be the most tax efficient structure available, you will have proper documentations for your memorandum and articles of association, and ongoing support if needed.

The downside is that you will have to pay for the accountant’s time which can quickly add up. There is the potential for conflict, although this is rare, and you may become dependent on the accountant for ongoing work such as filing your returns and managing day-to-day accounts. Whilst this isn’t the end of the world, it will incur additional costs so you would need to factor these in.

Using A Third Party Formations Agent To Set Up A Limited Company

The costs involved in setting up a limited company via a third-party formation agent will depend on the services they offer.

  • Usually it’s just a one-off, fixed fee ranging from £20 and £200 depending on the services you opt for. But sometimes packages come with more services such as VAT, PAYE or other tax registration services which can make the price higher.
  • You can check out a list of recommended formation agents here.

The Pros and Cons of Using a Formation Agent

A formation agent is an individual or company who specifically works to help other individuals and companies to set up companies. They will take care of all of the paperwork and guide you through the steps involved. They can complete only the basics, or introduce you to further professionals that can assist with accounting, mail forwarding, PAYE setup and legal support too. The fee you pay will be dependent on the level of service you’re asking them to provide.

Using an established third party formation agent to set up your limited company will make the whole process very simple. All necessary paperwork, filings and notices will be managed efficiently and you will be able to access advice and potential cost savings over using an accountant.

Varying costs can be a downside so you must be clear on what you’re paying for when engaging a third party to help you. Don’t pay for things you don’t need and be clear about whether the service is a one off set up, or if you need on-going support as this will all impact the costs involved.

Quite often this route offers standardised packages and processes which may limit the level of personalisation or customisation you want for your business needs.

Whilst a convenient and potentially cost saving route, its important to fully evaluate the value of the solutions presented to ensure you’re only paying for what you need.

Choosing The Right Route For Your Business Set up

Each option has its pros and cons along with its costs. You can compare them based on how much money you have, how much time you have, or whether or not you want peace of mind that comes from using a professional (and paying more).

There’s no right or wrong answer here — it’s up to you. Choose which route feels right after considering; what’s best for you, your new business, and the time/budget that you have available.

Keep in mind when working with an accountant or formation agent, always check their reviews before signing up.

Don’t forget these other new business costs

One of the most important steps to get right when setting up and running a business is to accurately budget for the costs you need to factor into the initial set up and the on-going running of the business.

Remember to factor in these business costs into your budget:

  • Insurance – buildings, contents, public liability, professional indemnity
  • Marketing & Advertising your products and services – domain names
  • Costs of stock or materials to make the stock you will sell
  • Staffing costs – salaries, pensions and benefits
  • Business bank accounts and credit card processing costs.
  • Overheads – rent, rates, telephone, broadband utilities
  • Software and IT costs – accounting software, cloud storage, CRM systems
  • Accountancy fees – bookkeeping and annual accounts
  • Travel expenses – business trips or travelling to meetings
  • Disbursement costs for postage, stationery, printing etc.
  • Legal advice & fees – for getting your contracts licences and terms and conditions in place
  • Additional professional services – web designers, graphic designers etc.
  • Fees – for bookkeeping payroll or tax advice
  • Research & Development costs

Once you have a clear understanding of all the new business startup costs then you can start planning how best to allocate your funds so your venture is successful.

What Does Incorporation Mean?

Incorporation is the process of setting up and registering a limited company with Companies House. Companies House is the UK register of businesses. When incorporating a business, it means you are setting up a limited company that separates your own personal finances and assets. those of the business. This means that if something doesn’t go well and the business ends up in debt or needing to sell its assets, your own finances are not affected.

Once you incorporate a company, it becomes its own legal entity and you only have to cover any losses up to the amount you invested in your own company. Your own personal finances won’t be affected by any borrowed funds, share capital or profits gained by your business.

To create a limited company, it must be registered with Companies House. You’ll also need to submit vital documents such as the Memorandum and Articles of Association. The entire procedure only takes around 24 hours to complete online. If you wish, you can pay someone else like an agent or accountant to get it done for you and the registration process will allow you to start working as a limited company once approved.

What Is A Memorandum And Articles Of Association?

The memorandum and articles of association are key documents that all limited companies must have. They are essentially the rulebook for the running of the company and the overview of how the company is structured.

Both documents help to define the company’s scope of operations, its management structure and the rights of its shareholders and directors. Every company must submit these documents to Company’s Hose and they need to be accurate and up-to-date at all times. Companies are advised to seek professional advice when setting up and amending these important documents.

The articles of association covers the regulations and rules for the internal management of the company. This means it sets out how it’s run, governed and owned including the breakdown of directors, shareholders and the board. It all details key provisions around the management of company accounts, dividends, meetings and more.

Memorandum of Association is a legal document that sets out the company’s constitution and defines the relationship with its shareholders. The information within it confirms the company name, registered office and the purpose for it being created. It’s essentially a contract between the company and its shareholders setting out the rights and obligations of each party.

Additional Costs and Considerations

Employee costs can be significant, so if you plan on taking on workers to help run your business, you need to factor in:

  • National Insurance contributions – You’ll have to pay Employer’s National Insurance on top of what you already pay your employees. The rate is 13.8% for earnings over £170 a week.
  • Pensions auto-enrolment – You’re legally required to enrol eligible employees into a workplace pension scheme and make contributions. Currently, minimum employer contributions are 3% of an employee’s qualifying earnings.
  • Training and development – Investing in your staff can increase motivation and job performance, which could be worth more than it costs. Make sure to budget for internal or external training courses and professional development.
  • Recruitment fees – If you use a recruitment agency to find workers, expect to cough up 15-20% of the person’s first year salary on average.
  • Uniforms/company clothing – Proper gear is essential to an employee looking professional and promoting brand identity.

You should always save up a contingency reserve for sudden costs when you budget. This cushion will help you if anything unexpected happens. Aim to slowly but surely build up a reserve that matches 3-6 months of operating expenses. It’ll allow you to pay bills comfortably during tough times.

As you can see, cash flow is key for every business. Being able to keep on top of what is coming in and out of the business will help you greatly in terms of creating a sustainable business that can go from strength to strength.

Final Thoughts

There are plenty of considerations to factor in when trying to decipher the costs involved in setting up a limited company. The short answer is that it depends on the complexity of your business and how much time and effort you want to put into the process yourself vs hiring professionals to manage the steps on your behalf.

The set costs for registering the business with Companies House are fairly low, coming in at under £60, but when adding in the fees for professional advice from formation companies and solicitors, plus insurance premiums, and initial running costs, it all adds up.

The best thing any new business can do is to create a budget and itemise all the expected costs. This way it will become clear where you may be able to make cost savings if needed.

 

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