How to Set Up a Limited Company in the UK
Updated: Oct 25
Setting up a limited company takes less than a day online. Deciding whether you should is the harder part - and in 2026, the answer has changed for a lot of people.
This guide walks through both. First, an honest look at when a limited company actually saves you money, with real 2026/27 figures. Then, if it's right for you, every step to get registered, set up with HMRC and pay yourself properly. It's part of our series of simple explainers, and pairs with our Sole Trader Tax Guide if you're weighing up the two.
📋 Table of Contents
🤔 Is a Limited Company Right for You?
A limited company is a separate legal entity. It owns the business, earns the profit and pays its own tax. You become a director who runs it and, usually, a shareholder who owns it.
What you gain:
Limited liability. The company's debts are generally the company's, not yours - though banks and landlords often ask directors for personal guarantees, which cut through this.
Control over when you're taxed. Profit you leave in the company is taxed at corporation tax rates, and only taxed again personally when you draw it out.
Credibility. Some clients and larger contractors prefer, or insist on, working with a company.
Flexibility. It's easier to bring in partners or investors, or to pass on the business later.
What it costs you:
More admin. Annual accounts, a corporation tax return, a confirmation statement, payroll and dividend paperwork - on top of your own Self Assessment return in most cases.
Less privacy. Your name, a service address and your company's accounts go on the public register.
Higher running costs, mainly in accountancy fees.
The money isn't yours. Company funds belong to the company. Taking cash out has to be done properly, as salary, dividends or a recorded loan.
📊 The Numbers: Sole Trader vs Limited Company in 2026/27
The old rule of thumb was that going limited made sense once profits reached £30,000 to £50,000. That rule no longer holds.
From 6 April 2026, dividend tax rose to 10.75% at the basic rate and 35.75% at the higher rate. Combined with corporation tax at 19% to 25% and employer National Insurance at 15%, a director who takes all the company's profit out now pays about the same as a sole trader, or more.
Here's the total tax on the same profit, for someone with no other income, taking a £12,570 salary and the rest as dividends:
Profit | Sole trader | Limited company (all profit taken out) | Difference |
£40,000 | £7,132 | £8,367 | Company £1,235 worse |
£50,000 | £9,732 | £11,138 | Company £1,406 worse |
£60,000 | £13,889 | £13,909 | Roughly the same |
£80,000 | £22,289 | £24,235 | Company £1,946 worse |
£100,000 | £30,689 | £34,790 | Company £4,101 worse |
That's before the extra accountancy costs of running a company.
So where's the saving now? In leaving profit in the company. Profit you don't draw is taxed at corporation tax rates only, until you take it out - which you might do in a lower-earning year, through employer pension contributions, or never, if it's reinvested in the business.
🧮 Worked Example: Dan's Decision
Dan is a self-employed electrician making £80,000 profit. As a sole trader, his income tax and Class 4 NI come to £22,289, leaving him £57,711.
If Dan sets up a company and takes everything out:
Salary of £12,570 and dividends of £52,476
Corporation tax £13,818, employer NI £1,136, dividend tax £9,282
Total tax £24,235, take-home £55,765 - about £1,950 less than staying a sole trader
If Dan only takes what he needs to stay in the basic-rate band:
Salary of £12,570 and dividends of £37,700, leaving £14,776 in the company
Tax paid this year falls to £18,953 - about £3,300 less than as a sole trader
His take-home is £46,271, with the rest building up in the business
The second route only works if Dan genuinely doesn't need the extra £11,000 or so a year to live on. And the money left in the company isn't tax-free - it's taxed when he eventually draws it, at whatever rate applies then.
That's the real decision: not "how much do I earn?" but "how much do I need to take out?" It's worth running your own numbers with us before you commit.
📝 What You Need Before You Register
A company name that's not the same as, or too similar to, an existing one, ending in "Limited" or "Ltd"
At least one director, aged 16 or over
At least one shareholder - often the same person as the director
Identity verification for every director and person with significant control
A registered office address in the UK, in the same nation the company is registered in
A registered email address for Companies House correspondence (not made public)
A SIC code describing what the business does
Articles of association - most small companies use the standard "model articles"
✅ Step-by-Step: Setting Up Your Company
1. Choose your company name. Check availability on the Companies House register and think about whether the matching web domain is free. Certain words, such as "Bank" or "Royal", need special approval.
2. Verify your identity. From 18 November 2025, every new director and person with significant control (anyone with more than 25% of the shares or voting rights) must verify their identity before the company can be registered. You do this online through GOV.UK One Login, and it's free. You'll get a personal code to use during registration.
3. Choose your registered office and email. The registered office is public and must be an address where post will actually be received and acknowledged. Many directors use their accountant's address rather than their home. Directors can also give a separate service address for the public register.
4. Decide on your shares. A single director-shareholder often starts with one share of £1, or 100 shares of £1 to make future changes easier. If someone else will own part of the company, the split of shares decides who gets what in dividends.
5. Register with Companies House. Apply online through GOV.UK. The fee is £100 (up from £50 since February 2026), and most online applications are processed within 24 hours. You'll receive a certificate of incorporation and a company registration number. Or we can form the company for you, including the identity checks, so it’s set up correctly from day one.
6. Open a business bank account. The company's money must be kept separate from yours. This is a legal distinction, not just good practice.
7. Register for corporation tax. You must tell HMRC within 3 months of the company starting to do business. HMRC will issue a Unique Taxpayer Reference (UTR) for the company.
8. Set up payroll. If you'll pay yourself a salary, register the company as an employer with HMRC and run payroll through Real Time Information, even when you're the only employee. Our payroll service can handle this for you.
9. Register for VAT if needed. The same £90,000 threshold applies to companies as to sole traders, measured on a rolling 12 months. Our guide to VAT explained for sole traders covers how the threshold and schemes work, and the rules are the same for companies.
🔄 Switching From Sole Trader
If you're already trading as a sole trader, incorporating is more than registering a new company:
Your sole trade ends. Tell HMRC you've stopped self-employment. You'll still file a final Self Assessment return covering profits up to the date you incorporated, and it can trigger a larger-than-expected final tax bill.
Business assets move across. Equipment, vans and stock usually transfer to the company. Getting the values right matters for tax on both sides.
Contracts, insurance and accounts need updating. Clients, suppliers, insurers and your bank all need to deal with the company from now on.
Your VAT registration can transfer. If you're VAT-registered, you can usually move your existing VAT number to the company rather than starting again.
Making Tax Digital for Income Tax changes. MTD for ITSA applies to self-employment and property income, not to company profits. If incorporating takes your trading income out of the scope, check whether you'll still be caught through other income. Our MTD for ITSA guide explains the thresholds.
The timing and structure of the switch can make a real difference to the tax you pay, so it's worth planning it with us rather than doing it mid-year on the fly.
💷 How You Pay Yourself
Most directors combine a small salary with dividends.
Salary. For 2026/27, the usual choice for a single director is £12,570, matching the personal allowance. There's no income tax or employee National Insurance on it, and while the company pays 15% employer NI on the amount above £5,000 (about £1,136), the corporation tax saved on the salary more than covers it. The Employment Allowance, which would otherwise wipe out that NI, isn't available to companies whose only employee is a director.
Dividends. Paid from the company's profits after corporation tax. The first £500 a year is tax-free, then rates are 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% above that. Dividends can only be paid from available profits, and each one needs paperwork: board minutes and a dividend voucher. We can prepare these for you each time you pay a dividend.
Director's loans. Taking money that isn't salary or a dividend creates a director's loan. If it's still owed to the company nine months after the year end, the company pays a temporary tax charge of 35.75% of the balance. It's one of the most common and expensive mistakes new directors make.
Your own tax return. If your dividends are over £10,000 a year, you'll need to file a Self-Assessment return. Below that, HMRC may be able to collect the tax through your tax code instead.
📅 Running the Company: Your Ongoing Deadlines
What | When | Who it goes to |
Confirmation statement (£50) | At least once every 12 months | Companies House |
First annual accounts | 21 months after incorporation | Companies House |
Annual accounts after that | 9 months after the year end | Companies House |
Corporation tax payment | 9 months and 1 day after the year end | HMRC |
Corporation tax return (CT600) | 12 months after the year end | HMRC |
Payroll submissions | Every time you pay a salary | HMRC |
VAT returns, if registered | Quarterly | HMRC |
Late accounts carry automatic Companies House penalties that rise the later you file, and they double if you’re late two years running. We can manage your confirmation statement and other company filings for you, and good bookkeeping through the year makes the accounts deadlines far easier to hit.
🔧 Making Changes to Your Company
Your company’s details won’t stay the same forever, and most changes have to be reported to Companies House:
Directors joining or leaving - within 14 days of the change
Issuing new shares (a share allotment) - on form SH01 within one month
Shares changing hands between existing or new shareholders - recorded in the company’s registers and shown on the next confirmation statement
People with significant control changing - generally within 14 days
A new registered office address - takes effect once Companies House has registered it
Closing a company. If the company has stopped trading and has no debts, it can usually be closed through voluntary strike-off for £13. If there’s significant money or assets left in the company, a members’ voluntary liquidation can be more tax-efficient, so it’s worth taking advice before you apply.
We can look after all of this for you, from share allotments and new shareholders through to closing the company when the time comes.
⚠️ Common Mistakes to Avoid
Going limited for the wrong reason. At 2026/27 rates, incorporating to save tax only works if you leave profit in the company. If you need all of it to live on, a company will usually cost you more.
Treating the company bank account as yours. Every withdrawal has to be salary, a dividend, an expense claim or a recorded loan.
Paying dividends without the profits to cover them. Dividends can only come from available profits. Paying them when there aren't any can make them unlawful.
Forgetting the confirmation statement. It's cheap and quick, but missing it can lead to the company being struck off.
Missing your own Self-Assessment. The company files its own return, but most directors still need to file one personally.
Overlooking personal guarantees. Limited liability doesn't protect you from debts you've personally guaranteed.
💬 Frequently Asked Questions
How much does it cost to set up a limited company? £100 to register online with Companies House, with no fee for identity verification. The bigger ongoing cost is usually accountancy, as companies have more reporting to do.
How long does it take? Most online applications are processed within 24 hours, once identity verification is complete.
At what profit is a limited company worth it? At 2026/27 rates, there's no simple threshold. If you take all the profit out, a company is roughly break-even with sole trading at about £60,000 and more expensive elsewhere. The saving comes from leaving profit in the company, so it depends on how much you need to draw.
Can I be the only director and shareholder? Yes. Most small companies have a single person in both roles.
Do I need an accountant to set up a company? No, you can register it yourself online. But many people prefer an accountant to form the company, handle the ongoing filings like confirmation statements, and plan the most tax-efficient way to pay themselves. We can do all of that for you.
Can I use my home address? You can, but it will appear on the public register as the registered office. Many directors use their accountant's address instead, and give a separate service address for themselves.
Does a limited company help with property? It can, for different reasons: buy-to-let landlords face different rules on mortgage interest. Our guide to owning rental property through a limited company covers that side.
💡 Key Takeaways
Registering a company costs £100 online and usually takes under a day, once directors have verified their identity.
From April 2026, dividend tax is 10.75% and 35.75%, which makes taking all profit out of a company no cheaper than sole trading.
The tax advantage now comes from leaving profit in the company - so decide based on what you need to draw, not just what you earn.
Register for corporation tax within 3 months of starting to trade, and set up payroll if you'll take a salary.
A £12,570 salary plus dividends is the usual split for a single director in 2026/27.
Keep company money separate, and watch the director's loan - an unpaid balance after nine months triggers a 35.75% charge.
📞 Thinking About Going Limited? Talk to Us First
At ASBA Accounting, we help sole traders across Crawley and West Sussex work out whether a limited company genuinely makes sense for them - and if it does, we can form the company for you, handle the switch from sole trading, and look after everything that follows: confirmation statements, dividend paperwork, share changes, payroll, accounts and tax returns.
👉 Get in touch today or call us on 01293 525656 for friendly, straightforward advice.
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