Incorporating a company in the UK is quick. Ten minutes on the Companies House website, a debit card, and you can have a certificate of incorporation by the afternoon. The part that catches people out is everything that comes afterwards: the deadlines, the thresholds, and the small oversights that turn into penalty notices.
None of it is complicated, but it is unforgiving. Here is what running a limited company actually involves, what it costs, and where new directors most often slip up.
The incorporation fee is modest. Online filing with Companies House is £50; a paper application costs more, and same-day incorporation more still. Fees change, so check the current figures before you file. If you use an accountant or a formation agent, expect to pay for their time on top.
You will need three things ready: a company name that is not already taken or too similar to an existing one, a registered office address in the same part of the UK as the company, and at least one director. You will also choose a SIC code describing what the business does, and set out who owns the shares.
Two ongoing costs are easy to forget. The confirmation statement, which must be filed at least once every 12 months, currently costs £34. And unless you are comfortable preparing statutory accounts yourself, accounting fees will dwarf the incorporation fee — typically a few hundred pounds a year for a simple or low-activity company.
The registered office is a public record. If you work from home, that address appears on the register and is visible to anyone who looks. Many directors use a formation agent's address or an accountant's office instead. If you do use your home, make sure you can actually receive post there — Companies House expects documents to be delivered and acknowledged.
Companies pay corporation tax on profits. The main rate is 25 per cent for companies with profits above £250,000, while the small profits rate of 19 per cent applies to profits up to £50,000. Between those two figures, marginal relief produces an effective rate somewhere in the middle — so a company with profits of £80,000 does not simply pay 19 or 25 per cent.
The payment deadline is nine months and one day after the end of your accounting period. The tax return itself is due 12 months after the same date. That gap matters: you must pay what you owe before you have filed the return, so you need a reasonable estimate of your profits well before the paperwork is finished.
You must register for VAT once your rolling 12-month turnover exceeds the registration threshold, currently £90,000. There is also a forward look: if you expect to exceed the threshold in the next 30 days alone, registration is required sooner. Registration takes effect from the first day of the second month after you go over, unless you agree an earlier date.
You can register voluntarily below the threshold, which lets you reclaim input VAT on purchases. That can work well if your customers are VAT-registered businesses who do not mind paying VAT. It is usually a poor idea if you sell to consumers and would have to absorb the extra cost.
Once registered, returns are normally quarterly and payment is due one month and seven days after the end of the period. The deregistration threshold — the point at which you can ask to leave the VAT system — sits slightly below the registration threshold.
Most owner-managers take a small salary and top it up with dividends. A salary above the National Insurance lower earnings limit can protect your entitlement to the state pension and other contributory benefits. Dividends are taxed differently and do not carry National Insurance. The right split depends on your circumstances, and it is worth an hour with an accountant rather than a guess built on a forum thread.
The bigger trap is the director's loan account. If the company pays for your personal spending, or you borrow from it, that money is a loan from the company to you. If it is still outstanding nine months and one day after the end of the accounting period, the company owes a tax charge on it — and there may be a benefit-in-kind charge for you as well. Directors who treat the company account as a personal current account tend to find this out at the worst possible moment.
Late filing penalties are automatic and uncompromising. Filing accounts late brings a penalty starting at £150 for a private company, rising to £375 after one month, £750 after three, and £1,500 after six. File late two years in a row and those penalties are doubled. A late confirmation statement is a flat £150, and it repeats. Late VAT returns and payments attract their own penalty points and charges.
The avoidable errors tend to be these:
Set a date to review your accounts and deadlines each quarter, even if it is a 20-minute calendar reminder. Keep business and personal spending in separate accounts from day one. Register for VAT only when you have to, or when the numbers clearly justify it. And if you are unsure whether a transaction is a loan, a dividend or an expense, ask before you spend it, not after the year end.
Setting up a limited company takes an afternoon. Keeping it in good standing takes a routine. Tax rates and filing deadlines change, and the figures above are a guide rather than advice for your specific position. For anything involving your own tax bill, a director's loan or a disputed penalty, speak to a qualified accountant or tax adviser before you act.
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