Starting a Limited Company

A limited company is a company that has legal protection known as ‘limited liability’, so if you set up a limited company and it has to close down with debts the company assets are at risk. Your own assets wouldn’t be affected. This offers you personal protection compared with setting up as a sole trader, where if your business collapses with debts, you run the risk of becoming bankrupt, with your personal assets on the line.

What’s more, a limited company could also leave you feeling better off through tax advantages. No wonder many people are more than happy to go through the extra paperwork involved with setting up and running a limited company.

You’llfirst need to register as a limited company with Companies House,a process known as ‘incorporation’. You can do this online, by completing an IN01 form and posting it, or by using a company that specialises in setting up limited companies for a fee. Once your company becomes registered, you’ll receive a ‘Certificate of Incorporation’, complete with a Companies House Registration Number (CRN) that you’ll need whenever you contact Companies House.

Apart from gaining protection against becoming bankrupt, you may also enjoy tax advantages that aren’t available to sole traders. In fact, you could pay less tax overall on the money your business, but this is a complex area that’s often open to interpretation, so it’s best to seek expert help from a tax specialist on this.

It’s also a good idea to have an accountant help you with your annual self-assessment tax return, your company’s annual accounts, annual return and corporation tax return. Yes, that’s an awful lot of paperwork, but thousands of people find it worthwhile. At least organising insurance is relatively straight forward.

There are many types of business insurance that you can take out to protect your business – some will be more relevant to you than others, but all are easy to set up:

• Public liability – covers injury or death for anyone on your business property or injury and death caused by your company
  
• Employer’s liability – insures the company for employee accident claims
  
• Legal expenses – pays the cost of legal representation needed to defend your company or to pursue individuals or companies
  
• Tax investigation – covers the costs of hiring an accountant to defend your company’s tax affairs
  
• Professional indemnity – protects your business if a client suffers a financial loss due to work you’ve completed for them
  
• Business disruption – designed to compensate you if your business loses money due to a disaster at your premises that prevents you from carrying out your business as normal

With so many types of insurance that you could take out, it’s fortunate that you claim back the cost of the policies if they benefit the business. So for example, the cost of motor insurance for a company van can be claimed against your company’s profits, but cover for a car that you use for leisure has to be paid out of your salary.

To help ensure that your business runs as smoothly as possible, you need to keep a close eye on how it’s performing financially and maintain up-to-date and accurate accounting records. Analysing all your financial data can be time-consuming, but there are software packages out there that can make life a lot easier. Most accounting software helps you to track your business account balances and keep track of accounts payable and receivable.

If you’re not confident about keeping on top of your finances even with the aid of software, you could hire a chartered account to help you complete your annual accounts. This won’t be cheap, but it may be invaluable.

A highly cost-effective way to record your business transactions is to monitor your business bank account online whenever it suits you and your business, 24/7. It’s also critical to review your business expenses and make sure they don’t get out of control. One simple solution is to use prepaid business expense cards. These can enable you to review spend by card and block certain types of spending, such as on jewellery.

Setting up and running a limited company can give you valuable peace of mind in case your company fails, but by paying a lot of attention to your business finances, you could massively increase your chances of running a successful business.