There are various tax and other advantages to setting up a limited company so you may decide to do this when you are in the process of starting up a business.
There are various tax and other advantages to setting up a limited company so you may decide to do this when you are in the process of starting up a business. It is not necessary to do this right from the beginning and most people working part time from home decide in the first instance to be a sole trader, but if your business takes off quickly you may decide to become a ltd company. The ‘limited’ or ‘ltd’ bit of the title means that the financial responsibilities of the director and shareholders are limited to their original stake in the company and this is why most people choose to go down this particular road.
The first stage of setting up a limited company is to register it with Companies House. This is called incorporation and is a fairly simple matter; there are websites which will help you do this and it costs a small fee, usually around £20. Be careful about choosing your name – there are some rules which govern the names of limited companies, mostly there for the protection of the consumer. It is not lawful, for example, for any limited company to call itself by any name which implies it is linked to a larger organisation. So something like BT.UK Ltd would not be allowed, even if your initials are genuinely BT.
Once your limited company is set up – and you can be registered within just a few hours – you are responsible for a number of legal requirements, such as company accounts, which of course will not be due at once. Even so, you must ensure that all the paperwork is in on the deadline, or there are quite serious repercussions. Even if you have a company secretary, it is still your job as director to look after this aspect of your business. This is why running a limited company is definitely not for everyone. Most mums working from home are juggling time and find it tricky sometimes to make sure that orders go out on time; the responsibilities of a limited company are sometimes a task too far.
If you are in any doubt about how to run your limited company, there are loads of websites available to help you, including one from the government found on the Direct Gov pages. This can be a little wordy and hard to understand at first, but if you use it in conjunction with a more chatty and accessible website, of which there are many, you will be able to get everything straight in your mind. If you find running a limited company is not right for you, you don’t have to worry. You can disband it without too much difficulty and go back to being a sole trader until the time is right. This might make your tax situation a little more complicated for a while, but this is where impeccable records come in. In the long run, though, many people starting up a business to run part time from home will ask the question ‘What is a limited company?’ and answer it with ‘not for me right now’.