How do I form a Limited Company?

As covered in our Setting up your company - Limited, Umbrella or PAYE?' guide, limited company is the most tax efficient way for a contractor to operate.

There are instances when an Umbrella Company will prove the best option for you however.

Umbrella Companies remove the responsibility and paperwork of running your own company; they are a useful way to dip your toe in the contracting waters while you consider setting up a limited, and a simple means of contracting for short periods (less than, say, 9 months).

Although there are legal obligations and paperwork to be kept on top of, a good Contractor Accountant will help minimise the time you need to spend running this element of a limited company; for many contractors the tax efficiency of this route far outweigh that necessity. The other benefit is that limited companies are a separate, legal entity from yourself and, as a shareholder in a limited liability company, you are not liable for company debts and are therefore protected if the company fails.

If you choose to form your own limited company this can be done in a matter of minutes online on CUK. You simply check the availability of your chose name, nominate your officer(s) and issue shares - our form your own limited company notes give you detail on the ID you'll need to hand).

All incorporations are done through Companies House. Limited companies must appoint at least one director but recent changes to The Companies Act mean you no longer need to appoint a secretary. (If you nominate two directors one can be another company, but one director must always be an individual.) CUK's company formation service enables you to appoint director(s) and issue shares online during the formation process.

Your registered address can be any 'physical address', i.e. your trading address or accountant's, so long as it's practical for receiving official correspondence.

Once you have formed your company (if approved, your company can be formed within a matter of working hours) you are required by law to file your annual accounts and an annual return (notifies Companies House of changes to your company) with Companies House each year.

From 6 April 2008 a private limited company does not have to have a company secretary.

Further Reading: How to choose an IT contractor accountant