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There are a number of steps you need to follow before you can start trading as a limited company, including choosing a company name, appointing officials, and the method of formation itself. Here is our guide on how to set up a limited company and start running your business.
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When starting a small business, one of the first things to be decided is the legal structure used for the business. It can either be a sole trader or limited company or a partnership. Setting up as a sole trader is the most popular legal structure in the UK, with approximately 3.2 million sole proprietorships in 2021. Sole traders accounted for 56% of small businesses in the UK. There were also 2 million limited companies, making it the second most popular legal structure.

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A private limited company is a business structure in which the liability of its members, shareholders and directors is limited, hence the term ‘limited liability company’.
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Setting up a business as a limited company is the second most popular way of setting up a business in the UK. In 2021, there were around 4.5 million private limited companies. There are both huge advantages and disadvantages of running a limited company, as well as, other structures such as sole traders (which is the most popular business structure, with their being 3.2 million in 2021).  It’s important for any aspiring entrepreneurs to understand the range of benefits and pitfalls of different business structures to determine if they are the right fit for their business idea.

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The sole trader business structure is the most popular in the UK. In 2021 there were approximately 3.2 million sole traders, accounting for 56% of small businesses. The sole trader structure has been popular due to its many advantages and the ease of setting up.

Sole trader business owners are known as self-employed and most freelancers opt for this structure of the business. There are both advantages and disadvantages of the sole trader business structure that need to be taken into account before making any business decisions.

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Pensions remain one of the last remaining significant tax breaks available to contractors, freelancers and business owners. And with the sweeping changes to the flexibility surrounding how you access your pension, there has never been a better time to invest. There are a variety of pensions for directors of limited company and contractors available.
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Readers questions:  My year-end is 31st January, I have two companies, can I pay dividends out of one? We have made £160k profit so far this year.

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One of the questions we are most frequently asked at Company Bug is “how many limited companies are there in the UK”, or similar questions relating to the business population as a whole

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If you’re thinking of selling your business, it is important to keep tax considerations in mind. One way to do this is with an Employee ownership trust, which enables you to sell your business without tax (tax free). 

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Reader’s question: I am a sole trader and have machinery worth £20k. If I transfer this to a Limited company by selling it to the company and setup as a director loan in the company, how do I treat this from a self-assessment point of view….do I pay CGT on the £20k?

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There are several different kinds of limited companies available to set up in the UK. Limited companies are the second most popular business structure in the UK, only coming second to sole traders. The type of limited company structure chosen for a business will depend on various factors such as the number of shareholders, the responsibility that the shareholders have and the level of involvement by the public. Each has their own benefits, so each business will need to decide what is the most suitable structure for them.

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If you are thinking about setting up a limited company, you might be surprised to find out that you can incorporate a new company for only £12.99 with our partner 1st Formations. Here, we look at how incorporation costs vary according to the formations service you choose, together with additional costs you may incur.

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Readers questions: As a limited company, can I put garden groundworks (path and patio) through the company? I am now working from a garden office and this work would provide access.

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The tax on dividends is paid at a set rate that is set by the HMRC. Every new tax year, as with other taxes, the rates change. The biggest change in the last couple of years is the tax-free dividend allowance being reduced from £5,000 to £2,000.

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There are numerous reasons you may wish to close your limited company, from approaching retirement, switching operating structures due to IR35 reform or as your business has reached its natural end. Driving factors behind operating through a limited company may be the financial set-up and the associated credibility, however, as legislative measures change and employment opportunities vary, limited company contractors may switch structures.

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Many small companies, including those providing professional services to clients, perform a lot of work from home. One of the most frequently asked questions by directors is what expenses can you legitimately claim back against your company? Here is a breakdown of claiming home office expenses.
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Value Added Tax is charged on almost all products and services provided in the UK. The current standard rate is 20%. If your business becomes VAT-registered, you will charge VAT on all invoices you submit to your clients.
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Salary aside, most limited company directors (and shareholders) typically draw down most of their income in the form of dividends. Dividends are distributed by companies of all types in order to return a proportion of company profits back to their shareholders. Here we look at what are company dividends and how to calculate them.
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Readers questions:  I’m in my first year of running my limited company, and I am the Director and only employee. I haven’t paid myself any salary in this tax year yet, because I earnt a salary in this tax year before I set up my business. My Limited Company will reach it’s one year anniversary in mid-May 2020. My question is, is it tax efficient to pay myself £8632 next financial year, and before mid-May when my Limited Company reaches its 1st anniversary, to minimise corporation tax payment?

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If you set up a limited company, you are not legally required to appoint an accountant, although there are multiple benefits of doing so. In this article, we discuss if appointing a limited company accountant to look after your affairs a statutory requirement, or if can you take care of your accounting duties yourself?
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