How to Set Up a UK Limited Company in 2026 — Step-by-Step Guide

Why form a limited company?

A UK limited company is a separate legal entity from its owners. This means:

• Limited liability: shareholders' personal assets are protected from business debts (subject to exceptions for director misconduct or personal guarantees).
• Tax efficiency: company profits are subject to corporation tax (19%-25%), and directors can extract profits as a combination of salary and dividends — potentially more tax-efficient than self-employment.
• Credibility: many larger clients and contracts require suppliers to operate through a limited company.
• Investment readiness: limited companies can issue shares to investors more easily than sole traders or partnerships.

The trade-off is compliance overhead: statutory accounts, corporation tax returns, confirmation statements, and PAYE obligations all require more administration than a sole trader arrangement.

Step 1: Choose your company name

Your company name must be unique and must not be identical (or too similar) to an existing registered company. You can search the Companies House register at companieshouse.gov.uk.

Rules for company names:

• Must end in "Limited" or "Ltd" (or Welsh equivalents for Welsh companies)
• Cannot be offensive or include certain sensitive words without approval (e.g. "Royal", "Bank", "Institute")
• Cannot be the same as or confusingly similar to a trademark

Your company name is separate from your trading name (the name you use with customers). You can trade under any name as long as you disclose your registered company name on business documents.

Step 2: Choose your registered office

Every UK company must have a registered office — a physical address in the UK where official correspondence can be delivered. This address is publicly visible on the Companies House register.

The registered office must be in the same country as the company is incorporated (e.g. if incorporated in England and Wales, the registered office must be in England or Wales).

Options:

• Your home address (but it becomes publicly visible)
• Your accountant's or solicitor's address (common and practical)
• A virtual office address service (typically £50-£200/year)

Step 3: Appoint directors and shareholders

A limited company must have at least one director and at least one shareholder. The same person can be the sole director and sole shareholder.

Directors

Directors are legally responsible for running the company and ensuring it complies with the Companies Act 2006. You must be at least 16 years old and not be disqualified from acting as a director.

Directors' details (name and date of birth, but not residential address) are publicly available on the Companies House register.

Shareholders and share capital

When you set up the company, you decide:

• How many shares to issue
• The nominal value of each share (e.g. £1 per share)
• Who owns the shares (shareholders)

For a typical owner-managed company, one shareholder holding 100 shares at £1 each (share capital = £100) is perfectly standard. If you want to split ownership with a business partner or spouse, you can issue shares to multiple people in any proportion.

Dividend rights: Dividends are paid in proportion to share ownership. If you want different dividend rights for different shareholders, you can create alphabet shares (A shares, B shares etc.) with different dividend entitlements per class — useful for income-splitting with a spouse.

Step 4: Choose your SIC code

The Standard Industrial Classification (SIC) code describes your company's main business activity. You can select up to four SIC codes. Some common examples:

Choose the code that most accurately reflects your business — it affects your credibility with certain clients and some financial institutions.

Step 5: Articles of Association

The Articles of Association are the rules that govern how the company is run — covering shareholder meetings, director powers, share transfers, and more.

You have two main options:

• Model Articles: HMRC-approved standard articles that are suitable for most small companies. Adopted automatically at incorporation unless you state otherwise. No cost or extra legal work required.
• Bespoke Articles: Tailored articles drafted by a solicitor. Useful if you need complex share structures, shareholder agreements, drag-along/tag-along provisions, or are preparing for investment. Costs typically £500-£2,500+ for legal drafting.

For most solo contractors and small business owners, Model Articles are entirely sufficient.

Step 6: Register at Companies House

You can register your limited company:

• Online at Companies House (companieshouse.gov.uk): £50, typically processed within 24 hours. Same-day service available for a higher fee.
• Via a formation agent: typically £30-£150 depending on the service level. Agents often provide additional services such as registered office address, bank account referrals, or accountant matching.
• By post: Form IN01, £71 fee, takes 8-10 working days.

You will receive a Certificate of Incorporation confirming your company's registered number and date of incorporation. Keep this safe — you will need it for bank account opening and other registrations.

Step 7: Register for Corporation Tax

You must notify HMRC that your company has started to trade within 3 months of starting to trade using the CT41G form (or online via HMRC). If you do not notify HMRC in time, you may face penalties.

HMRC will then issue a Unique Taxpayer Reference (UTR) for your company — different from your personal UTR. Your company's UTR is 10 digits and needed for all corporation tax correspondence.

Corporation Tax deadlines:

• Corporation tax is due 9 months and 1 day after the end of your accounting period.
• The Company Tax Return (CT600) must be filed 12 months after the end of your accounting period.

For a company with a 31 March year end:

• Corporation tax due: 1 January following the year end
• CT600 due: 31 March following the year end

Step 8: Register for PAYE

If you plan to pay yourself a salary as a director, you need to register your company as an employer with HMRC. This gives you an Employer PAYE reference number.

You can register online at hmrc.gov.uk. PAYE registration should be completed before the first salary payment.

As a director, you will typically pay yourself a salary up to the National Insurance secondary threshold (£96/week, £5,000/year in 2026/27) or the Personal Allowance (£12,570), and take remaining profits as dividends.

A common optimal structure for owner-directors in 2026/27:

• Salary: £12,570/year — within the Personal Allowance, no income tax
• Dividends: up to £37,700/year — taxed at 8.75% (basic rate dividend tax)

This is more tax-efficient than taking the same amount as salary.

Step 9: Register for VAT (if applicable)

VAT registration is mandatory when your VAT-taxable turnover in any rolling 12-month period exceeds £90,000. You have 30 days from the end of the month in which you exceeded the threshold to register.

Voluntary VAT registration is available at any turnover level. Benefits include:

• Reclaiming VAT on business purchases (input tax)
• Appearing more professional to VAT-registered business clients
• Allowing you to join the Flat Rate Scheme if eligible (potentially profitable at low expense ratios)

Flat Rate Scheme: If your expected VAT-inclusive turnover is under £150,000, you can join the FRS and pay a fixed percentage of your gross turnover in VAT (varying by sector) instead of calculating VAT on each transaction. Contractors in IT services pay 14.5% under FRS.

Filing and compliance obligations

Once registered, your company has ongoing compliance obligations:

Confirmation Statement

An annual Confirmation Statement (formerly the Annual Return) must be filed at Companies House confirming that your company's registered information is up to date. Fee: £34/year filed online.

Annual Accounts

Statutory accounts must be prepared and filed at Companies House within 9 months of your company's financial year end. Small companies (turnover below £10.2m, balance sheet below £5.1m, fewer than 50 employees) can file abbreviated accounts which show less detail publicly.

Your accounts must also be submitted to HMRC with your Corporation Tax return.

Corporation Tax Return (CT600)

The CT600 is filed online via HMRC's portal within 12 months of the year end. Corporation tax itself is due 9 months and 1 day after the year end.

Payroll (RTI)

Real Time Information (RTI) means PAYE is reported to HMRC on or before each pay day. Your payroll software submits a Full Payment Submission (FPS) to HMRC each time you run payroll.

IR35 — the off-payroll working rules

If you provide services through your limited company to a client, the IR35 off-payroll working rules may apply. IR35 was introduced to prevent disguised employment — where someone is effectively an employee but operates through a company to pay less tax.

Since April 2021, medium and large private sector clients are responsible for determining whether your engagement falls inside or outside IR35. If inside IR35:

• The client (or agency) deducts income tax and NICs before paying your company
• Your take-home is similar to employment, eliminating most of the tax efficiency of limited company operation

Small clients (where two of the following apply: turnover below £10.2m, balance sheet below £5.1m, fewer than 50 employees) the contractor remains responsible for their own IR35 determination.

Key factors HMRC considers: substitution rights, control, mutuality of obligation, equipment provision, and financial risk.

Dormant company process

If you register a company but do not start trading immediately (or have a gap in trading), you can declare it dormant. A dormant company:

• Must still file a Confirmation Statement annually
• Must file dormant company accounts at Companies House
• Does not need to file a Corporation Tax return unless HMRC specifically requires one
• Must notify HMRC that the company is dormant

Dormancy does not mean zero compliance cost — accountancy and filing fees still apply.

Related calculators

The take-home pay calculator can help you compare your net income as a limited company director versus a sole trader or employee.

The income tax calculator is useful for modelling how salary and dividend combinations affect your personal tax bill.