Starting a Limited Company: The Complete Step-by-Step Guide

1Is a limited company actually right for you?

A limited company offers limited liability protection and, for many profitable businesses, better tax efficiency than staying a sole trader — but it also brings more paperwork, public disclosure of accounts, and running costs an unincorporated sole trader simply doesn't have. The right answer depends heavily on your expected profit level: at lower profit levels the extra admin often outweighs the tax saving, while at higher profit levels the saving can be substantial.

2Registering the company itself

Online incorporation costs £100 as of 1 February 2026 (up from the previous £50), or £124 for a paper application — this single statutory fee is the only payment the government requires to incorporate, though many people also pay a formation agent a modest additional fee for a registered office address or extra document handling. Online applications are usually approved within 24 hours, while paper applications can take considerably longer.

You'll need to choose a company name (checked against the Companies House register for duplicates and restricted words), a registered office address, at least one director, and details of shareholders and their share allocations. It's worth deciding your shareholding structure carefully at this stage — changing it later is possible but adds admin and can have tax consequences depending on how it's done.

3Registering as an employer

You only need to register for PAYE once you're ready to pay a salary — to yourself as a director, or to any employee. You can register up to two months before your first payday, and HMRC typically takes around 5 working days to process the registration, with your PAYE and Accounts Office references arriving by post around 15 working days later — so registering 4-6 weeks ahead of your intended first payday avoids a last-minute scramble.

4Working out whether VAT applies to you

VAT registration becomes compulsory once your VAT-taxable turnover exceeds the registration threshold in any rolling 12-month period — not your accounting year, which catches out businesses that only check turnover once a year. You can also register voluntarily below the threshold, which is often worthwhile if your customers are VAT-registered businesses that can reclaim the VAT you charge them, since it lets you reclaim VAT on your own costs too.

5Getting payroll running properly

Once PAYE registration is confirmed, you need HMRC-recognised payroll software capable of Real Time Information (RTI) submissions, a process for collecting starter information from any employees, and — from day one, with no grace period — automatic enrolment pension duties to assess and act on for anyone you employ, including yourself if you're paid a salary through the company.

6The single biggest ongoing decision

Most director-shareholders pay themselves a combination of a modest salary and dividends rather than one or the other exclusively. A small salary — often set around the National Insurance secondary threshold — protects your State Pension qualifying years and is itself a deductible expense that reduces Corporation Tax, while dividends, taxed separately and without National Insurance, typically make up the bulk of a profitable director's income. The exact optimal split depends on your total profit, other personal income, and current dividend tax rates, so it's worth genuinely modelling rather than guessing.

7What the company itself pays

Corporation Tax is charged on the company's taxable profit at 19% for profits up to £50,000, 25% for profits above £250,000, and a tapered marginal rate in between — an effective 26.5% on profit that falls within that middle band. Payment is normally due 9 months and 1 day after the end of your accounting period, well before the Corporation Tax return itself is due (12 months after the period end), which trips up new directors who assume the payment and filing deadlines are the same.

8Avoiding the most common costly mistake

A director's loan account tracks money owed between you personally and the company, outside of salary, dividends, or genuine expense reimbursements — commonly arising when a director draws cash from the company ahead of a dividend actually being formally declared. If the loan isn't fully repaid within 9 months of the end of the accounting period, the company faces an additional Corporation Tax charge under Section 455, at 33.75% (for loans made before 6 April 2026) or 35.75% (for loans made on or after that date) of the outstanding balance — a genuinely expensive and very common mistake among new company directors who don't realise informal cash drawings count as a loan.