Whilst incorporation can have huge advantages for contractors, freelancers and small business owners, it doesn’t necessarily suit everyone. So, should you incorporate your business and what do you stand to gain from doing so?
What does it mean to incorporate a business?Incorporating a business is where a new or existing business registers as a limited company. It becomes a legal entity with a distinct identity from those who run or own it. Limited liability companies now make up the vast majority of UK companies.
First of all, as a director of a limited company, there are certain obligations to fulfil each year. This includes filing documentation including the annual accounts and confirmation statement. Directors must also inform Companies House about any changes to the business. This includes changes such as the appointment or resignation of another director.
Incorporation is not compulsory and for many, sole proprietorship works perfectly fine. But in order to bring in co-ownership for instance, a business does need to be incorporated.
Before you decide whether to incorporate your company or not, it’s always a good idea to speak to an accountant. They’ll help you determine if it’s the best option for you and your business moving forward. To spare you the rigmarole, Danbro can take care of all this for you. After all, it’s what we do best. For more information on setting up your own business, and the differences between sole traders and limited companies, click here.
DID YOU KNOW…? Limited companies pay Corporation Tax on the business’ profits in the year earned. At present, company tax rates are proportionally lower than Income Tax rates.
What are the potential advantages and disadvantages of incorporating a business?
The Pros of Incorporating a Business
- Financial Protection By incorporating, and separating things like records and accounts, there’ll be a greater distinction between your business and your personal life, insulating your personal finances from that of your business. This can limit liability and help with things like tax. Incorporation also enhances the protection over your personal assets and credit rating in the unfortunate event that your company is sued or falls into financial trouble.
- Pensions & Funding Obtaining funding can be a struggle for many sole traders and small businesses. Furthermore, if your company becomes a separate entity to yourself, it may make things a little easier in this regard. On a personal level, as a ‘company employee’, you can be provided with a pension as a tax-deductible expense. This would give you a tax advantage over sole traders.
- Succession Planning Transferring the ownership of a business is much easier if you’re a shareholder. So, if you come to retire, decide to sell on, or even in the event of your passing, succession is a more straightforward process than it would be for a non-registered business.
- New Opportunities As a sole trader, you are the business. You’re the owner, the management and the staff all rolled into one. If you incorporate your business, you’ll become a shareholder in a separate legal entity, serving the company as a director. Being the director, you can decide when profits are distributed, potentially allowing you to gain certain tax advantages. Plus, it can’t hurt your self-image to become a director (and shareholder) of a successful business.
The Cons of Incorporating a Business
- Greater Accountability Companies House determines certain legal responsibilities that you’ll take on as the director of a limited company. Likewise, failure to comply with those requirements can result in financial penalties, disqualification, or even criminal prosecutions.
- Higher Fees If you do incorporate your business, you should expect to pay more in accountancy fees than as a sole trader. But, this extra expenditure can often be outweighed by potential tax savings.
- Less discretion Whilst there are no legal requirements for sole traders to publish business information, details about your limited company – including the financial accounts – will be floated in the public domain. Third parties can access and download documents filed at Companies House. If you’re concerned about publicising your home address, you should be able to use the address of your accountant as your registered office address.
- More Obligations As the director of a limited company, you’re also obliged to prepare and submit annual accounts to Companies House which meet the criteria stipulated in the Companies Act of 2006. A company tax return, along with your financial accounts, must also be filed online with HMRC.
- A company name and address.
- A minimum of one director and one shareholder.
- A Standard Industrial Classification (SIC) Code (a four digit code specifying the nature of your business).
- To corroborate how the company will be run and adopt the model ‘memorandum and articles of association’. Though, you may need to check whether something different is necessary for your company.
So, how do I incorporate my business?You can incorporate your business individually by registering online, by post, via an agent, or through third-party software. In order to set up as a limited company, you’ll need:
Once that’s taken care of, you can register your business with Companies House and complete your incorporation. Upon completion, you’ll receive a ‘certificate of incorporation’. This shows the company number, formation date, and confirms the company’s legal existence.
By using the online service, you’ll automatically be registered for Corporation Tax at the same time. The same does not apply to postal registrations. In which case, you’ll need to register for Corporation Tax within the first three months of business.
If all this seems like something of a headache, don’t worry. Here at Danbro we specialise in start-up businesses. We’ll take care of your company registration, incorporating your business within 24 hours! Call us now on 01253 600 150, or complete the form below, and launch your business with Danbro today.
“I would recommend Danbro to everyone!” Gemma Webster, Director at Layer Surveys Ltd.
Choosing a business nameFirstly, you must ensure that the name you choose for your business is not the same as an existing trademark. To check whether your preferred name is already in use, click here.
On the other hand, if you’re a sole trader, you don’t need to register your business name. In this instance, you can trade under your personal name or a moniker you’ve selected for your business. However, the words ‘limited’, ‘limited liability partnership’, ‘public limited company’ (‘Ltd’, ‘LLP’ or ‘PLC’) cannot be included.
Choosing a business addressIt is a legal requirement for all incorporated UK companies to provide a ‘registered office address’. A company address is where official communications are sent, including correspondence from Companies House and HMRC. It’s advisable, therefore, to select a location that is easily accessible. The address should be publicly available and ought to be displayed on websites and certain company comms.
It’s also worth noting that if your company is registered with Companies House in ‘England & Wales’, you cannot have a registered office based in Scotland, and vice versa. Your address can be:
- A PO Box; though you must still include a physical address and postcode.
- A home address, or the address of your accountant.
DID YOU KNOW…? Companies House must be informed if you change your company name or registered office address.
Launch your business with DanbroSetting up your own business is a challenge, but one that has the potential to be extremely rewarding. You need an accountant who plans ahead, someone who’ll keep a close eye on your cash flow and help you make informed decisions based on relevant, real-time data.
At Danbro, you’re part of the family. From a simple tax return to the outsourcing of your entire finance department, we can take care of everything. So you have more time to do what you do best.
Support We’ll assign you a dedicated personal accountant. They’ll provide professional advice and tailored support to your new business, giving you the guidance and reassurance you deserve.
Empower Through our cloud-based accounting services, you’ll be able to make important business and cash flow decisions for your new start-up, based on high-quality, real-time information.
Build We are business growth experts, passionate about helping start-ups like yours achieve their absolute potential. We promise to understand, deliver and, ultimately, grow together.
Here are some of the many reasons why we’re the preferred accountancy service provider for new and small businesses nationwide.
- Start-Up Specialists We are award-winning chartered accountants, specialising in providing comprehensive guidance, support, and personal accountancy services to new businesses nationwide.
- Fixed Fees With Danbro, the fee you agree up front is the fee you pay; full stop. So, that means no hidden charges for extra meetings and no surprising bills from hourly charged rates.
- Tax-Planning as standard Upon joining Danbro, your accountant will conduct a thorough tax-planning review of both your business and personal finances. It’s all part of our industry leading start-up service.
- Expert Cloud Accountancy We’re specialists in cloud-based accounting and our clients are Making Tax Digital. Join today and say goodbye to painstaking paper trails and tedious tax returns.
How much does it cost to incorporate a business?When it comes to incorporating your business, Danbro have you covered. We have an exclusive range of service plans for business accountancy, with three affordable monthly fees. All you have to do is decide which plan suits you and your company best.
Our set up cost is £95 (+ VAT). This includes the incorporation of your company, as well as VAT registration and assessment, as standard. With Danbro, you’ll be registered for Corporation Tax and PAYE, and receive advice on the suitability of the model memorandum. What’s more, you’ll also get a fee-free first month of accountancy for your new business. If you wish to upgrade, we also have two other packages with savings to be made on your combined accountancy and incorporation fees!
Next stepsDeciding whether or not to incorporate your business is a complex decision, comprising a range of factors. So, it’s always advisable to discuss your options with an accountant to work out what’s best for you. For more information on what to do next, download our FREE business incorporation guide now.
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.