How Do I Get Started as a Contractor Through a Limited Company?

When you get started as a contractor, one of the first decisions you’ll need to make is how to structure your business. Some contractors are best suited to working through an umbrella company or as a sole trader, while others choose to run their business through a limited company.

The right option depends entirely on your circumstances, your contracts, and the level of responsibility you’re comfortable taking on. Consider the pros and cons of contracting through a limited company, to help you make an informed decision.

If you do decide that setting up a limited company is the right path for you, there are a few key steps you’ll need to follow to get up and running smoothly.

In this guide, we’ll walk through what’s involved in forming your company, registering for taxes, understanding your role as a director, and how the right accountant can support you from day one.

Key Takeaways

• Using a limited company as a contractor offers potential tax benefits, but comes with more responsibilities
• Decide on a company name, share structure and registered office address before incorporating
• Get organised from day one with accounting software and good record keeping habits to stay compliant
• Appoint a specialist accountant to help guide you through the process and deal with HMRC on your behalf

• It must include the word ‘limited’ or ‘ltd’
• It can’t be the same as, or too similar to, an existing company’s name. This can be checked on the Companies House website
• It can’t be offensive
• It can’t include ‘sensitive’ words without prior approval

If you want your clients to know you by a name other than your registered business name, you can opt to use a trading name. This can be completely different from your registered name, but it must comply with the following:

• It can’t include the words ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘llp’, ‘public limited company’, or ‘plc’
• It can’t be the same as an existing trademark
• It can’t be offensive
• It can’t include ‘sensitive’ words without prior approval

On official company documents such as invoices or contracts, both your trading name and registered name must be included. For example:

‘E.G. Business Consulting’ is a trading name of ‘Example Business Consulting Services Limited’

Once you’ve decided on your company name, you’ll need to think about how you want to set up your share structure. Usually, contractors will appoint themselves as the sole director and shareholder of the company. However, there are also other options such as issuing shares to your spouse as well as yourself.

HMRC have strict rules when it comes to appointing directors and issuing shares, so we recommend speaking with a specialist accountant before taking action.

Before incorporating your company, you’ll need to decide on your registered office address. This will be the address that will be displayed on Companies House’s public records and where HMRC will send official mail to.

Understandably, many contractors prefer not to use their home address as their registered office for privacy reasons. Instead, you can use a formation agent’s address, virtual office service, or your accountant’s address (if they offer that service) as your registered office. At SG, we include the use of our address as your registered office in our limited company package.

Whichever option you choose, the address must be a physical location in the UK. Keep in mind that all legal correspondence and important notices from HMRC will be sent to this address, so make sure this location is checked regularly.

All directors need to have an address associated with them when they are appointed, called a service address. This will be used to send correspondence to them as individuals.

Like with the registered office, you can use either a home address or one of the alternatives for more privacy. Directors often use the business’ registered office address as their service address to keep things simple.

The next step is to officially register (incorporate) your limited company with Companies House. There are several ways to do this:

• Directly with Companies House – this costs £100 and can be done online
• Through a company formation agent – this is more expensive but often comes with other benefits such as a provided registered office address
• Via your accountant – many specialist accountants can set up your company on your behalf.

When incorporating, you also need to provide these documents:

This is a legal statement signed by initial shareholders (referred to as subscribers in the document) agreeing to form the company.

These are the rules about how your company is run. This includes everything from how the decision-making process will work, what directors can and can’t do, and how dividends will be distributed.

HMRC has standard ‘models’ for these documents which are ready to use, but you can also amend these if your needs differ.

Once Companies House has approved everything, they will issue you a Certificate of Incorporation. This is confirmation that your company is now a legal entity and shows your company number and date of formation. Keep this certificate safe as you’ll need it regularly such as for opening a business bank account or registering for taxes.

With your company incorporated, next you need to register for the correct taxes with HMRC. Ensuring your business is compliant from the start will help you avoid any legal problems or surprise tax bills in the long run.

Here’s what you’ll need to consider:

Every limited company must register for Corporation Tax. After you incorporate, HMRC will send a letter to your registered office address with your UTR (Unique Taxpayer Reference) and details on how to register.

The deadline to register is three months after starting business activities.

Even if you’re the only employee, you’ll need to set up a PAYE scheme to pay yourself a salary through your company. This allows your company to deduct Income Tax and National Insurance contributions and report them to HMRC.

To do this you will need to register as an employer.

As an employer, you also have the legal obligation to take part in automatic pension enrolment, although you can apply for an exemption if you are the company’s only employee.

Unlike Corporation Tax, VAT is not a mandatory tax for all limited companies straight away. Only businesses with a turnover of over £90,000 in the last 12 months need to register. As soon as you know that you will go over that threshold, you have 30 days to register for VAT.

There are several VAT schemes available, with one of the most common being the Flat Rate Scheme (FRS). Rather than calculating VAT for individual purchases as you would on the standard scheme, you instead pay a fixed percentage of your gross turnover to HMRC.

This is much simpler and can work well for limited company contractors, but we recommend comparing the VAT schemes and talking to a specialist accountant so you can make an informed decision.

As a director, you’ll also need to file an annual Self-Assessment tax return in addition to your company’s Corporation Tax return. This covers dividends, and any other personal income you receive.

Opening a business bank account isn’t just best practice, it’s a legal requirement. Your newly formed limited company is a separate legal entity to you, meaning you need to keep your personal and business finances separate. This also has the benefit of making it much easier to track your business income and expenses.

Most banks, including your high street banks, can set up a business bank account for you. However, these traditional banks often take a long time to do this.

That’s why we researched a number of banks that specialise in small businesses. We have working relationships with Tide & Zempler, but there are many options out there. Here’s what you should be looking for in a business bank:

• Low fees (some even have no monthly or annual fees at all)
• Quality of online services / app
• Speed of setup
• Integration with accounting software

If you need more information on business bank accounts, you can read more here or view our FAQs page.

As a limited company director, you’re legally responsible for accurate record-keeping. But with the right software and processes in place, you can set yourself up for success.

There are many options available – FreeAgent, Xero, and QuickBooks. Here’s what to look for when picking the best software for you:

• Integration with your business bank account
• Invoicing features
• Expense tracking & digital receipt storage
• Features for Making Tax Digital compliance

Some banks and accountants include software as part of their package, so check before you sign up separately. We include FreeAgent, at no extra cost in our limited company package.

Accounting software is only as useful as your accounting habits allow it to be. To stay organised, get into the routine of:

• Recording expenses regularly rather than leaving it until year-end
• Raising invoices promptly and chasing overdue payment
• Reviewing your business bank account weekly or monthly to make sure your records are accurate
• Putting aside money into a separate savings pot for Corporation Tax, VAT, and personal tax bills

Even with the best tools, most contractors will benefit from appointing a specialist accountant. They can help you choose the right software, provide expert advice and can handle a lot of your accounting tasks for you, giving you more time to focus on running your limited company.

By becoming the director of your limited company, you also agree to the legal responsibilities that come with the role. Understanding these from the start will keep you compliant and help you avoid penalties.

Every limited company must file:

• Annual accounts – A record of your company’s financial activity (submitted to Companies House)
• Corporation Tax return – Shows your profits and how much tax you owe (submitted to HMRC)
• Confirmation Statement – A yearly update for confirming your company details are correct (submitted to Companies House)

You’re legally required to keep accurate company records, including:

• Details of directors, shareholders, and company decisions
• Financial records such as invoices, receipts and company expenses
• Copies of contracts with clients

Most records must be kept for at least six years, so make sure you have a system in place to back these up securely online.

If the personal details of any directors or people with significant control (PSCs) change, you are responsible for letting Companies House know.

One of the main responsibilities for contractors running a limited company is managing IR35 status. For contracts with medium/large companies or companies in the public sector, the client is responsible for determining your IR35 status. However, for contracts with small companies, it’s you, the contractor, that is responsible for determining your IR35 status. To stay compliant, it’s always best to:

• Carefully review every contract you take on
• Keep evidence of working practices that show you operate independently
• Seek professional IR35 assessments if you’re unsure

While it’s technically possible to run a limited company on your own, having an accountant by your side will make things much easier. From incorporation through to day-to-day bookkeeping and annual filings, the right accountant will save you a lot of time and give you peace of mind.

A specialist contractor accountant understands the nuances of working as a contractor, including:

• IR35 legislation – how it affects your contracts and the tax implications
• Salary and dividend structures
• VAT registration and which scheme is best for you
• What you can and can’t claim as a business expense

A good accountant should offer more than just filing your annual return. Look for one that provides:

• Company formation support
• Use of their office as a registered office address
• Accounting software integration and
• Unlimited expert advice

Once you’ve chosen your accountant, you can then authorise them as your agent with HMRC. This allows your accountant to deal with HMRC on your behalf for tasks such as filing returns and handling queries.

To set this up, your accountant will first request authorisation through HMRC’s online system. Then simply provide your accountant with the code that HMRC will send via post to your registered office address.

If you’re brand new to contracting, getting started can seem like an overwhelming task. Thankfully, you don’t have to do it alone. With help from a specialist accountant like SG, you can be certain that you’re being both compliant and tax efficient.

If you are unsure about anything in this guide or want to get started on setting up your company, get in touch and our team of experts will be happy to help you.