How to Set Up a Limited Company in the UK

Should you form a limited company?

A limited company is not the right structure for everyone. Before registering, consider whether the benefits outweigh the additional admin:

• Tax efficiency — at higher income levels, extracting profits as dividends rather than salary can reduce your overall tax and NI bill
• Limited liability — your personal assets are protected if the company faces financial difficulty (unless you have given personal guarantees)
• Credibility — some clients and agencies prefer or require working with a limited company
• IR35 requirements — some contracts outside IR35 require a limited company structure to operate compliantly

Below around £30,000–£35,000 profit, a sole trader structure is often simpler and equally tax-efficient once you account for accountant fees and company admin costs.

What you need to form a limited company

Company name

Your company name must be unique — not identical or too similar to an existing registered company. It must end in “Limited” or “Ltd” (or the Welsh equivalent). Check availability at gov.uk/limited-company-formation before applying.

You can trade under a different name (a “trading as” or T/A name) without registering it separately, as long as it is not offensive or too similar to another business.

Registered office address

Every company needs a registered office address in the UK — England and Wales, Scotland, or Northern Ireland. This address appears on the public Companies House register and is where official correspondence is sent.

You can use your home address, but it will be publicly visible. Registered address services (£50–£100 per year) provide a professional address and keep your home address private.

Directors

Every company needs at least one director. Directors must be aged 16 or over and are legally responsible for running the company and filing accounts and returns on time. A sole director who is also the sole shareholder is the most common structure for contractors and freelancers.

Shareholders

Every company needs at least one shareholder — the owner of the company. For a single contractor, holding 100% of shares is standard. Shareholders can also be directors, and in most small companies they are the same person.

How to register — step by step

Step 1 — Register online at Companies House

Register at gov.uk/register-your-company. The online fee is £50 and applications are typically approved within 24 hours. You will need your company name, registered office address, director details, shareholder details and a statement of capital (share structure).

Step 2 — Articles of association

Articles of association are the company's internal rulebook — covering how decisions are made, how shares are managed and director powers. Most small companies use HMRC's model articles, which are sufficient for a simple single-director company and require no custom drafting.

Step 3 — Register with HMRC for Corporation Tax

Within 3 months of starting to trade, register your company for Corporation Tax at HMRC. You will need your company registration number, the date you started trading and your company's UTR (sent by HMRC after Companies House registration). Register through your Government Gateway account.

Step 4 — Register as an employer

If you plan to pay yourself a salary through the company, register as an employer with HMRC. This enables you to run payroll and submit Real Time Information (RTI) submissions each pay period. Register before your first payday.

Step 5 — Open a business bank account

A limited company must have a separate business bank account — company money and personal money must not be mixed. Digital business accounts from Starling, Tide and Monzo Business are popular with freelancers and typically open within a few days. Allow 1–2 weeks for the account to be fully active.

Step 6 — Get accounting software

From day one, keep digital records of all income and expenses. Cloud accounting software such as FreeAgent, Xero or QuickBooks integrates with your bank account and prepares you for Making Tax Digital requirements. Most accountant-recommended packages cost £10–£30 per month.

Costs of setting up a limited company

Item	Typical cost
Companies House registration (online)	£50 (one-off)
Registered address service (optional)	£50–£100 per year
Business bank account	Free–£15 per month
Accounting software	£10–£30 per month
Accountant fees	£800–£2,000 per year
Confirmation statement (annual)	£34 per year

Ongoing obligations after formation

Forming a company is just the start. As a director, you have ongoing legal and tax obligations:

• Annual accounts — filed at Companies House within 9 months of your year end
• Confirmation statement — filed annually at Companies House (£34 fee) confirming company details are up to date
• CT600 corporation tax return — filed within 12 months of your year end
• Corporation tax payment — due 9 months and 1 day after your year end
• Payroll and RTI — if paying salary, run payroll and submit RTI each pay period
• Self Assessment — declare salary and dividends on your personal tax return by 31 January
• VAT registration — required if turnover exceeds £90,000 in any rolling 12-month period

Paying yourself from a limited company

Most directors use a combination of salary and dividends. The typical approach for 2026/27 is a salary of £5,000 (at the employer NI secondary threshold, avoiding both employee and employer NI) plus dividends from retained post-tax profits.

Dividends are not subject to National Insurance and are taxed at lower rates than salary — 8.75% basic rate, 33.75% higher rate — making them the primary profit extraction method for most directors.

IR35 considerations

If you work as a contractor, IR35 determines whether your company's income from a contract is treated as employment income (inside IR35) or genuine business income (outside IR35). Inside IR35, most of the contract income is processed with PAYE-like deductions before it reaches your company's profit pool — significantly reducing the tax efficiency of the limited company structure.

Before forming a company for contracting work, understand the IR35 status of your contracts. Operating outside IR35 is a prerequisite for the salary-plus-dividend tax strategy to work effectively.

Frequently asked questions

How much does it cost to set up a limited company?

The Companies House registration fee is £50 online. Ongoing costs include accountant fees (£800–£2,000/year), business bank account and accounting software.

How long does it take to set up a limited company?

The online registration takes around 30 minutes and is typically approved within 24 hours. Allow 1–2 weeks to open a business bank account and complete HMRC registrations.

Do I need an accountant to run a limited company?

Not legally, but most directors do. Annual accounts and corporation tax returns are complex. A good accountant typically saves more than their fee in tax efficiency.

Can I use my home address as my registered office?

Yes. Using your home address means it appears on the public Companies House register. Registered address services are available for £50–£100 per year to keep it private.

Can I have a limited company and also be employed?

Yes. There is no restriction on being a company director and an employee simultaneously. You declare both income sources on your annual Self Assessment return.