How to Set Up a Limited Company in the UK

Before you register — the question most people skip

The tax efficiency case for incorporating has weakened over the last three years, and most formation agents still talk as if it has not. The dividend allowance has been cut from £2,000 to £500. The employer National Insurance secondary threshold dropped from £9,100 to £5,000 in April 2025, with the rate rising to 15%. Together those two changes pushed the crossover point — where a Ltd produces more take-home than a sole trader — up to roughly £50,000–£60,000. The old £30,000 rule of thumb is dead. Below that new band you are often paying for a company structure that, once you count the accountant, is costing you money.

Contractors have a further complication. If your contracts sit inside IR35, running them through a limited company is often worse than remaining a sole trader once accountant fees are factored in. The salary-and-dividend model that makes a Ltd worth having largely evaporates: you pay employment-style tax plus the admin cost of a company. That is the worst of both worlds, and it is the outcome a surprising number of people incorporate into without checking.

The £50 Companies House fee is not the cost to worry about. Ongoing accountant fees of £800–£2,000 a year are. Factor that in before you register, not after a certificate of incorporation is sitting in your inbox.

What you need to decide before you start the Companies House form

The form itself is short. The decisions it asks you to make are not, and three of them are expensive to unwind later.

Your company name

Your company name must end in “Limited” or “Ltd” and it must be unique on the Companies House register. Check availability at gov.uk/limited-company-formation before you apply. Identical or too-similar names get rejected.

Company name and trading name do not have to match. Smith Consulting Ltd can trade as Digital Strategy by Jane, as long as the registered name appears on official documents — invoices, contracts, the website footer. Certain words (Bank, Royal, NHS, Chartered) require approval. Do not use them hoping it will be fine. It will not.

Your registered office address

Every limited company needs a registered UK address, and that address appears publicly on the Companies House register. If you use your home address, it becomes a permanent public record. Historical addresses stay visible even after you change them later — so using your home address “just for now” is not a temporary decision.

Registered address services cost £50–£100 a year. Your accountant's address is another option, and many contractor accountants include it in their service.

Your share structure

For a single-person contractor: 100 ordinary shares at £1 each, 100% ownership. You do not need multiple share classes or a shareholders' agreement. The exception is incorporating with a spouse or partner to split dividends for tax efficiency — that involves alphabet shares and needs accountant advice before you structure it, not after.

The registration itself — what actually happens

Go to register.companieshouse.gov.uk. The fee is £50. Approval typically comes within 24 hours, and the certificate of incorporation arrives by email. Keep it.

The form asks for the company name, registered office, director details (name, date of birth, nationality, occupation, service address, and residential address — the residential address is not made public), shareholder details and share numbers, and a SIC code.

The SIC code is the thing that trips people up. It is a statistical categorisation, not a licence that constrains what the company can legally do. Pick the closest match and move on. You will also confirm the model articles of association — for a simple one-person contractor company, they are completely adequate.

What to do immediately after incorporation

Register with HMRC for Corporation Tax

You must register within three months of starting to trade. Do it through Government Gateway — you will need your Companies House registration number and your trading start date. Missing the three-month window can result in penalties. Do it the week you incorporate, not the week you remember.

Open a business bank account

This is not optional. Company money belongs to the company, not to you personally. Mixing finances creates three problems at once: your accountant charges more to untangle it, HMRC looks sceptically at mixed transactions, and you undermine limited liability. Digital-first options — Starling Business, Tide, Monzo Business — can be opened in days with no or low fees.

Register as an employer — if taking a salary

Any salary at all — even £5,000 — means registering as an employer with HMRC and running payroll, including submitting Full Payment Submissions each pay period. Most contractor accountants handle payroll as part of their fee. If you are doing it yourself, HMRC's free Basic PAYE Tools covers the basics for a single-director company.

Get accounting software

Keep digital records from day one. Making Tax Digital requirements are expanding, and reconstructing a year of transactions from bank statements at year-end is not fun.

The real ongoing cost — what people underestimate

Item	Typical cost
Companies House registration (one-off)	£50
Registered address service	£50–£100/year
Confirmation statement	£34/year
Accountant (accounts + CT600 + payroll)	£800–£2,000/year
Business bank account	Free to £10/month
Accounting software	£15–£40/month
Professional indemnity insurance	£200–£500/year

The accountant line is the one to focus on. You are not legally required to use one, but practically almost everyone does. Statutory accounts and a CT600 are significantly more complex than a personal Self Assessment, with real consequences for getting them wrong. Budget £1,000–£1,500 a year as a baseline, and factor that into whether incorporating makes financial sense at your income level.

Paying yourself — the salary and dividend strategy

The standard approach is a £5,000 salary, sitting right at the employer NI secondary threshold. At that level there is no employer NI, no employee NI, and no income tax. It still counts as a qualifying year for State Pension, and it is deducted as a company expense, reducing corporation tax. Dividends are then paid from after-tax profit. The first £500 is tax-free; above that you pay 8.75%, 33.75% or 39.35% depending on your total income. For the full current rates and bands, see our complete UK tax rates guide for 2026/27.

The strategy still works. It is just less dramatically advantageous than it was three or four years ago, which is exactly why the crossover point has moved up.

Ongoing obligations — the admin you're signing up for

Each year you will file statutory accounts at Companies House within nine months of year end; file a CT600 within 12 months; pay corporation tax nine months and one day after year end; file a confirmation statement at £34; run payroll and RTI if you are paying a salary; file a personal Self Assessment as a director; and file VAT returns if you are registered. None of these is individually difficult. Together they are a meaningful recurring commitment that a sole trader does not have. Go in with your eyes open.

IR35 — the thing to think about before incorporating if you're contracting

If your contracts are likely inside IR35, a limited company may produce little or no tax advantage over remaining a sole trader once accountant fees are factored in. If they are likely outside, it is worth it at most income levels above the crossover. The IR35 landscape changed in 2021: medium and large clients now determine your status, not you. That is worth understanding before you incorporate and start pitching to large clients who may blanket-determine everything inside IR35. Incorporating first and discovering those clients will not let you operate outside is an expensive way to learn the rules.

Frequently asked questions

How much does it cost to set up a limited company?

Companies House registration is £50 online — the only upfront cost. Ongoing costs typically run to £1,200–£2,500 per year for a simple contractor company including accountant, confirmation statement and registered address if used.

How long does it take?

The online form takes 20–30 minutes, approval within 24 hours. Allow another 1–2 weeks for bank account and HMRC registrations.

Do I need an accountant?

Not legally, but practically almost everyone uses one. Statutory accounts and a CT600 are complex with real consequences for errors. A good contractor accountant typically costs less than the tax they save through proper planning.

Can I use my home address as my registered office?

Yes. It becomes publicly visible on Companies House. If you'd prefer to keep it off the public record, registered address services cost £50–£100/year.

What is the difference between a director and a shareholder?

A director runs the company and has legal responsibilities. A shareholder owns it through shares and receives dividends. In a one-person contractor company you're typically both — they are legally distinct roles though, which matters if you ever bring in other people.