⚡ Quick Answer
Incorporate at Companies House via gov.uk/limited-company-formation for £50 (online, typically processed within 24 hours). You need: a unique company name, a UK registered address, at least one director, shareholders and their share allocations, and a Memorandum and Articles of Association (standard templates available free). After incorporation, register for Corporation Tax within 3 months of starting business, open a business bank account, and set up payroll if paying a salary. Ongoing: annual accounts, Confirmation Statement, Corporation Tax return.
Setting up a limited company in the UK is one of the more consequential business decisions you can make. The legal separation it creates — between you personally and the company — changes your liability exposure, your tax position, and your administrative obligations. The registration process itself is simple. Understanding what you’re signing up for is the part that deserves serious thought.
Limited Company vs Sole Trader: The Core Difference
The fundamental distinction is legal separation. As a sole trader, you and the business are legally the same entity — your personal assets are at risk if the business incurs debts it cannot pay. As a limited company director, the company is a separate legal entity with its own assets, liabilities, and legal obligations. Your personal exposure is generally limited to the capital you’ve invested in the company.
Tax efficiency is often the secondary driver. Company profits are subject to Corporation Tax (19% on profits below £50,000; 25% above £250,000 with marginal relief between). Directors typically draw a mix of small salary and dividends, which — at sufficient profit levels — is often more tax-efficient than equivalent sole trader income.
When Does Incorporating Make Sense?
The tax efficiency of a limited company typically becomes meaningful when profits exceed approximately £25,000-£30,000. Below this level, the additional administrative cost and complexity usually outweigh the tax saving. Above £40,000+ annual profit, the saving is generally substantial.
Other reasons to incorporate: wanting genuine limited liability protection for a business with meaningful financial risk, needing to raise investment or have multiple shareholders, or client requirements for working with a registered company rather than a sole trader.
The Incorporation Process
- Choose a company name — check availability at the Companies House register; must end in “Limited” or “Ltd”
- Prepare a Memorandum and Articles of Association — standard model articles are available free and sufficient for most simple companies
- Appoint at least one director (must be over 16 and not disqualified from acting as a director)
- Decide on share structure and allocate shares to shareholders
- Register at gov.uk/limited-company-formation — £50 online, typically processed within 24 hours
- Receive Certificate of Incorporation confirming the company’s existence and Companies House number
- Register for Corporation Tax with HMRC within 3 months of starting to trade
- Open a business bank account — a legal necessity; company finances must be separate from personal
Ongoing Obligations
Running a limited company involves significantly more administration than sole trading:
- Annual Confirmation Statement: filed with Companies House annually (£34 online)
- Annual accounts: prepared and filed within 9 months of year-end
- Company Tax Return (CT600): filed with HMRC within 12 months of year-end
- Corporation Tax payment: due within 9 months and 1 day of year-end
- Payroll (PAYE): if paying a salary, Real Time Information submissions to HMRC required
- VAT registration if turnover exceeds £90,000
Most company directors use an accountant to manage compliance obligations. The cost is tax-deductible and generally well worth the time saved and errors avoided.
For the best business banking options once incorporated, see our guide on the best business bank accounts for UK sole traders and SMEs.
Frequently Asked Questions
What is IR35?
IR35 rules prevent “disguised employment” — working effectively as an employee through a limited company to avoid employment taxes. If you’re caught by IR35, your company income is taxed like employment income, removing the tax advantage of the company structure. Whether IR35 applies depends on the nature and pattern of your working arrangements.
Can I convert from sole trader to limited company?
Yes. Incorporate the company, transfer the trade to it, and close the sole trader business. Contracts, bank accounts, and any business name need to be formally transferred. An accountant is recommended to manage the transition cleanly.
Incorporate at Companies House online service.
