Incorporating your new or existing business as a UK private limited company (LTD) is an incredibly effective way to boost your professional profile and establish a presence in the United Kingdom. Not to be confused with the LLC structure, a UK limited company resembles the legal framework of a US corporation (Inc.) that you would register through application to the secretary of state. As such, you will need to appoint at least one director and one shareholder, you will enjoy reduced financial liability for company debts, you can sell shares to outside investors as a way to raise capital, and the company can exist beyond the ownership of its original founders.
To register a UK limited company, you must make an application to Companies House, the Registrar of Companies in the United Kingdom. You will be given the choice of incorporating your company in England and Wales, Scotland, or Northern Ireland. Regardless of which jurisdiction you choose, you can base your operations anywhere in the world. Likewise, you can trade in any country you wish, but your company must always maintain its registered office address (official contact address) in the jurisdiction of incorporation. This is the address where legal correspondence will be delivered.
Advantages of a UK limited company
The benefits of a limited company structure can be enjoyed by first-time entrepreneurs, sole proprietors or existing company owners who want to establish a business entity in the UK.
1. Limited liability
The company itself is liable its own debts. The owners are only liable up to the nominal value of their shares and any personal guarantees put in place, so your personal assets cannot be seized to pay for business debts or settle any legal claims brought against the company.
2. Professional image
There is a certain status that comes from operating through a limited company. To set up and maintain this type of legal structure, one must adhere to strict reporting and filing requirements; disclose detailed information on pubic record about the business, it’s finances and the people who own and manage the company; and all business activities are closely monitored by Companies House and Her Majesty’s Revenue and Customs (HMRC). As a result, limited companies are perceived as more trustworthy, established and reliable than unincorporated structures.
Limited companies in the UK are subject to 20% Corporation Tax on annual profits up to £300,000 (approx. $435,000). As a director and shareholder of a UK company, you can save money on your personal remuneration by paying yourself a small salary and regular dividends. You can also keep surplus income in the company to remove in a future tax year if it’s more advantageous to do so. If you were to set up a business in the UK as a sole proprietor instead, you would be subject to higher personal tax contributions and there would be no option to keep money in the business without paying tax in the current tax year.
4. Perpetual existence
Unlike other legal structures in which the business and owner are one and the same, a UK limited company can exist beyond the life of the original owners or after the sale of their shares. This is because the company is a legal ‘person’ in its own right. It a shareholder dies or wants to sell his/her shares and leave the company, the business will continue to exist unaffected after their departure.
5. UK presence
A limited company will enable you to establish a UK presence for a new or existing business, which is an effective way to test out a new market, grow your organisation internationally and increase sales. If you have an existing business in the US or elsewhere, you can incorporate it as a limited company in the UK under the same name to reinforce your brand image.
Disadvantages of a UK limited company
There are certain disadvantages to incorporating a limited company in the UK, but they are minimal in comparison to the potential advantages you can enjoy.
You will be required to submit regular reports to Companies House and HMRC to maintain your company’s registration in accordance with UK company law. This includes:
- Maintaining statutory registers and a record of all income, expenditure and accounting.
- Filing an annual confirmation statement (formally known as an ‘annual return’) to verify the corporate details registered at Companies House.
- Filing annual accounts at Companies House and HMRC to report your company’s financial activity.
- Submitting an annual Company Tax Return to HMRC to report the amount of Corporation Tax owed from the previous year’s trading profits.
- Informing Companies House if there are any changes to directors’ details, the company name, the registered office address or the nature of trading activities.
- Operating payroll and submitting regular reports if you employ people through the company.
- Registering for Self-Assessment and filing personal tax returns to report your salary and dividend income.
2. Address requirements
UK limited companies must maintain a registered office address in the jurisdiction in which they are incorporated. For example, if you register with Companies House in England and Wales, you must maintain an official company address in either England or Wales. You don’t need to trade from this address, it is simply the location where you choose to receive your official mail from HMRC and Companies House. Most people set up a professional registered office service with a third-party address provider and have their mail forwarded to their home or office.
All company directors are required to maintain a service address to receive official correspondence relating to their role in the company, but it does not have to be in the UK. You can use your home or business address in the US if you wish.
All company details, including the registered office address, directors names and service addresses, accounts and all company filings are made available to the public on the official companies register, which is maintained by Companies House. The public also has the right to inspect company records at the registered office address.
4. Late filing penalties
It is important to stay on top of your filing and reporting requirements and pay all taxes by the given deadlines, otherwise you and/or your company could be subject to significant financial penalties and legal proceedings. You should hire the expertise of limited company accountants practising in the UK to stay compliant without worrying about deadlines, complex accounting and tax legislations. Hiring a UK accounting firm would also help you claim tax reliefs for better cash flow control, as businesses often struggle with claiming tax reliefs without the right guidance.
5. How to register a UK limited company
Whilst the increased administrative requirements and complex accounting may seem daunting, it’s easy to stay on top of your obligations if you arm yourself with the relevant information prior to setting up a company. For the majority of business owners, the potential benefits of company far outweigh these small inconveniences, but please consult an accountant for professional advice before making any decisions.
If you decide to set up a limited company in the UK, you will have to complete application form for Companies House. You will be asked to provide a unique company name and registered office address, appoint at least one director and shareholder (can be the same person), and issue a minimum of one share per shareholder.
You can complete and submit an application online, either directly through Companies House Web Incorporation Service or via a company formation agent. There is no requirement to visit the UK to sign any documents or present ID, so most incorporations are completed on the same day. If your application is successful, your company will be ready to start trading immediately.