Starting your own business is an exciting, hopeful time, filled with a desire to succeed and conquer exactly what you have dreamt about. It can also be a time full of confusion, questions and a lot of needless work from yourself, setting up the first hurdle to overcome in your business journey.
Registering your business as a limited company is a lengthy process which needs careful consideration, detailed accreditation, and the correct preparation. The UK market is one of the largest and most promising opportunities for trade in the world, however if you’re not registered and set up correctly, the chances are your prospects of long-standing success will drop significantly.
We spoke to Nordens’ Company Secretarial Manager, Natalija Rynkevic, about the process of registering your business at Companies House, the rapid rise in incorporations, and how Nordens can take the stress of the application process away and join you in your burgeoning business journey…
What is the overall process of registering a company?
Registering a company is the first chapter in turning your business idea into a reality and presenting yourself to clients as a lawful organisation to deal with. Before registering a business, at Nordens we help our clients go through the process in the following steps:
Step 1: Once you have your business idea and plan to move forward, you need to decide what type of business you are going to register as – sole trader, limited company, or business partnerships.
Sole trader is the most common business structure for people who owns and runs their own business individually. Partnership is when two sole-traders set up a joint business venture which needs to be registered with HMRC. If you decide to set up your own business as a limited liability company or limited liability partnership, you need to be aware that this will be a type of business where the company/partnership has a legal identity of its own, with its own assets separate from its directors and shareholders/members.
The right structure will depend on how you want to run your business and where you want to take it in the future.
Step 2: Choose a company name and address.
If you decide to set up as a limited company with Companies House, your company name must end in ‘Limited’ or ‘Ltd’, it needs to be original and not the same as an existing company name, cannot contain any sensitive words or expressions, cannot be offensive, and cannot suggest a connection to government or a local authority without permission.
The company Registered Office address and director’s correspondence address are shown on public records, so you need to think which address you want to use.
Step 3: Decide on the company structure. This is where you choose directors and decide who the shareholders will be (it should be at least one director and at least one shareholder holding at least one share), identifying the people in your business with significant control.
When registering a business, you need to go with the structure that best meets your tax, financial, administrative, and professional needs. This can be a lengthy process and one which needs careful consideration. Fortunately, we can guide you through this with our quality team of tax and financial experts.
Step 4: Prepare documents agreeing how to run your company, these include a company memorandum and articles of association, as well as a Shareholders Agreement which we always highly recommend for.
Step 5: Complete an online application and registration. Once the incorporation application is accepted, we will email the certificate of incorporation to you. Going forward, Nordens will keep company records and registers up to date, regarding the company structure and financial and accounting records.
It might take 1-3 working days to register a company at Companies House and up to 6 months to register director/ shareholder for Self-Assessment records at HMRC, so be aware of this if your application process is time sensitive.
What compliancy checks are needed in order to register a company?
Once the company type and structure are chosen, in order to be compliant with Money Laundering Regulations (MLR) and Know Your Customer (KYC) requirements, Nordens will need to carry out Anti-Money Laundering checks (to check the ID and addresses) on directors and any shareholders owning over 25% of the company. Once this is verified, the company is set up, and the proposal is accepted, we can start the onboarding process.
Over the past year, has there been an increase in the demand for new companies being registered?
In general, the UK is a booming market for start-ups and based on Companies House statistics, hundreds of thousands of new businesses were launched in the UK last year. In fact, the total register size at the end of March 2021 was 4,716,126, which was an increase of 8.4% when compared with the end of March 2020. Of this figure, 810,316 were company incorporations in 2020/21, an increase of 21.8% when compared with 2019 to 2020.
Here at Nordens, the numbers of incorporations we dealt with definitely increased during the pandemic and beyond. We are more than happy to support clients’ ambitions by helping them set up their own business and companies, ensuring they are properly verified and incorporated so they can hit the ground running in their new business endeavours.
What are some of the most common complications and difficulties which arise when handling company registrations?
The process of registering a company is a very simple even if Companies House has strict rules when it comes to registering new businesses. I believe the most common complication in relation to registration is choosing a company name and ensuring that business name complies with Companies House’ naming rules for sensitive words.
The other difficulties occur after the company is registered at Companies House. These are opening a business bank account, setting up the company in the most tax efficient way, planning a combination of salary and dividend strategy, setting up PAYE, and registering for VAT.
If a person came to you and asked to be a registered company, however upon going over their financial details you felt they’d be better suited to being a sole trader, how would you deal with this?
When registering a business, you need to weigh up the pros and cons of each structure and decide the structure that best meets your tax, financial, managerial, and professional needs. If you’re providing services, such as a black cab driver or nail technician, where paperwork might be minimal and finance operations are basic, setting up as a limited company might be unnecessary.
As a general rule of thumb, if you earn less than £45,000 it is more tax efficient to be a sole trader, and if you earn more than £45,000, it is more tax efficient to register a Limited company. However each case is different, and I would heavily discuss and analyse on a case by case basis, whilst taking advice from our dedicated Tax team here at Nordens.
Sole traders are given a personal allowance of £12,570 for 2022. If you earn less than that, you will not need to pay tax. If you earn more than that, but less than £50,270 a year, tax is charged at a rate of 20%. If you earn between £50,271 and £150,000 a year, the tax rate is 40%. Anything over £150,000 is taxed at a rate of 45%. On the other hand, as a limited company you will pay 19% corporation tax and you will also have more flexibility in how you can manage finances for tax purposes, so there are lots of variables to consider. However, you need to bear in mind, that the money in a limited company belongs to the company, which means you are more restricted regarding payments to yourself and/ or other members of staff. Money can only be withdrawn as a director’s salary, expenses and benefits, dividends or a director’s loan, with all withdrawals having to be recorded and accounted for.
Once a company is officially registered, what are the next steps in an accounting sense (e.g. which department are they then passed to, when are they next communicated with and what for i.e self-assessment/tax returns/shareholder agreements)?
Usually before the registration of the company Nordens Client Success team will be in touch with the potential client. Before the registration process begins, we will know if we are going to act as an accountant for this company or if this client is only requiring incorporation of the company.
If it is only incorporation, we will discuss the structure of the business and go through all mentioned steps above. Once the company is then incorporated, we will email the certificate of incorporation and the rest of the references for this company to the client.
If we will act for this company as an agent / accountant, the client needs to accept Nordens proposal and agree to the services we will provide for the company. Once this company is incorporated, the Company Secretarial department will assign this company to the accounting team who will oversee the client and advise Nordens Payroll and VAT teams if this company needs to be registered for PAYE and/or VAT.
Then, the Company Secretarial department will set this company up for web filing at Companies House and HMRC portal for the corporation tax and Self-Assessment for director/shareholders of the business.
We hope this has outlined to you the process of registering your business at Companies House, and how Nordens can fully support you through the process. If you’d like to know any further information on our registering as a limited company, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.