Read on for a simple breakdown of the types of costs associated with setting up a limited company by the three most popular routes.
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The Do-It-Yourself Approach To Setting Up A Limited Company
The costs involved in setting up a limited company yourself are:
- The 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 the 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 set up online, you will need to complete this step manually within three months of beginning operations.
- Any fees involved in setting up a business bank account – although there are plenty of fee-free options to choose from.
Pros And Cons Of The DIY Approach
Going solo when setting up a limited company is the cheapest route, but it means that you will be responsible for completing all of the necessary paperwork. This includes filing your Memorandum and Articles of Association, which can be time-consuming and usually requires professional advice.
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
Working with an accountant to set up your limited company allows you to take advantage of their experience and expertise, avoiding any potential pitfalls and mistakes. With the accountant’s help, you can structure your company’s share capital in a way that is most tax-efficient and beneficial. Additionally, they will guide you to appoint directors (and potentially even a company secretary) to ensure that all of your business dealings are properly managed.
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 a one-off, fixed fee is charged. This can range between £20 and £200 depending on the services you opt for. The more comprehensive packages that include registered office address and mail forwarding, as well as VAT, PAYE and other tax registration services could be pricier.
- You can view a list of recommended formation agents here.
Pros And Cons Of The Formation Agent Approach
The process is a lot simpler when working with an established third party as they will take care of all the necessary paperwork, filing and notifications so you can get your company off the ground quickly. Additionally, they also provide helpful guidance and advice on how to set up and manage your new business venture.
However, one downside is that you could be paying for services that you don’t need. It is important to do your research and make sure that the formation agent offers a package well-suited to your needs, without any additional or unnecessary extras costing you more than necessary.
Choosing The Right Route
As you can see, each option has its pros and cons to consider alongside its costs. You may make your decision based on how much cash you have available, whether you have enough time to manage the paperwork yourself, or whether you want the peace of mind that comes with paying a professional. Ultimately, there is no right or wrong route and it’s up to you to decide which route is best for you, your new business, and the time or budget that you have available.
Remember, if you do choose to work with an accountant or formation agent, always be sure the check their reviews before you sign up and ensure that you know exactly what is covered in the costs quoted.
Don’t Forget These Other New Business Costs
Accurate budgeting is one of the most important steps to get right when setting up and running a business. Now that you have an idea of how much the actual setup will set you back, you need to make sure that you have a solid grasp on other new business costs too.
Remember to factor in these business costs to 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, you can begin to plan how best to allocate your funds to ensure your venture is successful.
What Does Incorporation Mean?
Incorporation is the process of setting up a limited company with Companies House. It is used to separate the business and its finances from your own personal assets, meaning that you are protected if things don’t go as planned for your venture.
When you incorporate a company, it becomes an entirely separate legal entity from yourself and you are only liable for any financial losses up to the amount of money you have invested in your company. Any borrowed funds, share capital or profits earned by your business will remain separate from your own personal finances.
To incorporate a limited company, you must register it with Companies House and submit all necessary documents such as the Memorandum and Articles of Association. The process is relatively straightforward and takes around 24 hours to complete when done online, though you may wish to pay a formation agent or accountant to set up your company for you. Once the registration is approved, you can begin trading as a limited company.
What Is A Memorandum And Articles Of Association?
When incorporating a limited company, you must submit a Memorandum and Articles of Association to Companies House. This document outlines the rules and regulations that the company’s directors must adhere to when managing the business.
The Memorandum is essentially a contract between the shareholders (owners) and the company itself, outlining their roles and responsibilities. It also states the company’s name, its registered office address and the share capital (the total amount of money used to set up the company).
The Articles of Association provide greater detail by outlining how shareholders can make decisions regarding the business, such as appointing directors, issuing shares, transferring shares etc. This document sets out how shareholders can make decisions and how the business will be run.
Setting up a limited company involves various costs that depend on the structure, size, and scope of the business, and how you choose to register it. You can do this yourself, via an accountant, or via a 3rd party formation agent.
Once the initial incorporation costs are dealt with, there are plenty of further costs to be aware of including, accountancy fees for help with filing taxes, formation and management of accounts, legal fees for assistance in drafting contracts and Memoranda of Association, web hosting fees to set up a website and other costs including office rental fees and employee salaries.
In addition to initial setup costs, there are ongoing expenses such as business insurance premiums and bookkeeping services which are required to ensure compliance with statutory regulations. Additionally, companies may choose to invest in marketing and advertising their services or products to increase sales.
All in all, setting up a limited company involves comprehensive planning and cost considerations that should be taken into account before beginning operations.