A guide to UK company formation

Introduction to company formation in the UK 

The latest official figures show there are 5.5 million private sector businesses in the UK. Of those there are:

• 3.1 million are sole traders,
• 2.1 million are actively trading companies,
• 353,000 ordinary partnerships. 

What is a UK company? 

A company is a separate legal entity registered at Companies House, independent from its owners.  

People often use the terms 'company' and 'business' as meaning the same thing, despite the official definitions. 

Steps to form a company in the UK 

Choosing a company name 

The name you choose for your company is not just a label. It is also a brand, a commitment, and a narrative. 

If you are a sole trader, you can trade under your own name, or choose another name. Using a registered trade mark without permission could lead to legal trouble.

‘Sensitive’ words or those that suggest a connection with government or local authorities need permission.  

The rules are similar for business partnerships and there are more rules for limited company names.  

A company name must end with 'Limited' or 'Ltd' or 'Cyfyngedig' and 'Cyf' if registered in Wales. 

A limited company name cannot be the same as another registered company’s name. You can determine if a company name is available using the checker on Companies House's website.

Determining the type of business

Before beginning your business journey, you need to decide which business or company structure is most appropriate for you.  

Sole trader 

A sole trader is the simplest business structure. It involves limited administration and does not require registering with Companies House.  

A sole trader is personally responsible for debts and legal action taken against them. They do not classify as a separate legal entity. 

Partnership 

A partnership is a business run by two or more people who share ownership and responsibilities. 

There are three types of partnerships: 

Ordinary partnerships 

This is the simplest form of partnership. Like sole traders, an ordinary partnership is not a separate legal entity. It is a group of two or more people running a business together who share equal responsibility.

Limited partnerships 

A limited partnership is also not a separate legal entity. It must have at least one general partner and one limited partner.

General partners have unlimited liability with full responsibility for the day-to-day running of the business and its debts. Limited partners have limited liability to the amount of money they have invested in the business.  

Limited liability partnerships (LLP)

An LLP is a separate legal entity, so partners are not personally responsible for debts the partnership can't pay.   

An LLP needs at least two members in charge of legal obligations, like submitting yearly accounts to Companies House. 

Limited company 

A limited company is separate from its owners, the directors and shareholders are not responsible for its debts. The directors and shareholders have protection from personal financial liability. 

A limited company needs at least one director and one shareholder, who can the same person.

Registering with Companies House and HM Revenue & Customs (HMRC) 

Once you've decided on the type of company, it's time to make it official.  

Companies House 

Registering with Companies House is mandatory for limited companies, limited partnerships and limited liability partnerships. 

To register a limited company, you need to provide details of directors and shareholders or guarantors. For each person, you need to provide three personal details. These details may include place of birth, mother's maiden name, telephone number or National Insurance number.

You might also want to appoint a company secretary but this is not compulsory. 

HMRC 

Sole traders, partners and partnerships need to register with HMRC to pay tax via self assessment. You must tell HMRC by 5th October in your business’s second tax year.  

Limited companies must register with HMRC for Corporation Tax and PAYE within three months of trading. Limited company directors may need to register with HMRC for self assessment.  

Necessary documentation 

When starting a limited company, you need several documents. 

Form IN01 

If you choose to not register a limited company online, you need to complete form IN01. 

In England, Wales, and Northern Ireland, a limited partnership must register with Companies House. You complete the registration using form LP5. However, in Scotland, you complete the registration using form LP5(S). 

You register a limited liability partnership at Companies House using form (LL IN01). You need to provide various details including your designated members and registered address.  

Memorandum of Association 

The first shareholders or guarantors sign this document. The document confirms the signatories wish to form and become members of the company. If you register the limited company online, the system will automatically create the Memorandum of Association.

Articles of Association 

This document outlines the rules agreed by the directors, company secretary and shareholders with regards to the running of the company. 

Annual requirements 

There are various legal requirements for a limited company. The company directors oversee these.  

They must: 

• maintain the company’s rules, as shown in its articles of association  
• keep company records and report changes  
• file annual company accounts and company tax return  
• pay corporation tax  
• submit quarterly VAT returns, if the company is registered for VAT

The limited company filing deadlines to remember are: 

Action	Deadline
File your first accounts with Companies House	21 months after the date you registered with Companies House
File your annual accounts with Companies House	9 months after your company’s financial year ends
Pay Corporation Tax or inform HMRC that your limited company does not owe any	9 months and one day after your ‘accounting period’ for Corporation Tax ends
File a Company Tax Return	12 months after your accounting period for Corporation Tax ends
File your Confirmation Statement	Your 12 month review period begins on either:  The date your company was incorporated  The date you filed your last Confirmation Statement  - You must file your Confirmation Statement within 14 days of the end of your review period

Sole traders and ordinary partnerships must: 

• submit a tax return for individuals and the partnership by 31st January (31st October for paper filing) to HMRC
• pay income tax on profits and Class 2 and Class 4 National Insurance 
• submit quarterly VAT returns, if the sole trader or partnership are registered for VAT 

For limited liability partnerships, designated members must: 

• send an annual Self Assessment tax return for the business and as an individual to HMRC 
• send annual accounts to Companies House 
• submit quarterly VAT returns, if the partnership is registered for VAT 

Benefits of forming a company in the UK 

Forming a limited company in the UK offers several benefits. The advantages include: 

Limited liability

A limited company is separate from shareholders and directors, so you are not personally responsible for any business losses. 

More tax efficient

Individual business owners pay income tax ranging from 20% to 45%. On the other hand, companies pay up to 25% corporation tax. This may be a more tax efficient option. There are also a wider range of allowances and tax deductible expenses for limited companies. 

Access to finance

It is easier to obtain funding for your business if you have a limited company rather than being a sole trader. This is because of the legal protection and tax advantages that come with having a limited company.  

More credibility

Being a limited company can encourage more confidence and trust. Some suppliers prefer to not work with non-limited companies. 

Limited companies have drawbacks, so consult your accountant to determine the best business structure for you.  

Common mistakes and how to avoid them 

While opportunities pave the road to company formation, pitfalls also exist.  

Common mistakes include:  

• Neglecting legal requirements: Failing to meet deadlines for tax returns, annual accounts and other documents can result in financial penalties. Staying on top of the deadlines, working with your accountant and filing early will help you to avoid this. 
• Inefficient market research: Fully understanding the market your business serves will help you to grow it. Effective market research methods include surveys, polls and focus groups, consulting industry reports, analysing competitors and checking your sales data. 

 To run a successful company, you should stay informed, seek advice, plan ahead and set goals.  

Need advice about UK company formation? 

TaxAssist Accountants can help you with a range of services. These include company formation, preparing company accounts and tax returns, calculating corporation tax, and providing tax planning services.

For more information and to schedule a free initial consultation, contact us at 01535 322795 or complete our online form. 

Date published 2 Oct 2023 | Last updated 27 Aug 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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