Setting up a company: FAQs
Business experts answer the most frequently asked questions of small business owners, from issues around Tier 2 visas to multiple trading names...
Can I start a business on a Tier 2 visa?
Given that I am on a tier 2 sponsored work visa, am I allowed to start a company in the UK? Are there any restrictions which do not allow this?
Independent factoring broker Ian Johnston of Factoring Solutions explains:
“Anyone can set up a Limited company in the UK and they don’t even have to be a resident although I’m not sure whether you can use it as your main source of income as you will still need to satisfy the conditions of your Visa.
“You may have problems obtaining a bank account as UK banks aren’t too keen on opening accounts for new companies unless the directors are resident in the UK.”
I'm employed in one company and director (shareholder) of another company. What are my tax obligations?
A friend and I are at the early stages of setting up a company which will for the foreseeable future will be a sideline. I am currently employed with PAYE. Our sideline company was recently setup as a LTD company. What I would like to know is how I handle the tax implications of employed PAYE together with paying tax on the sideline. So far, I have worked out that I shouldn’t register as self-employed for the sideline company, but what should I do?
Chartered accountant James Smith explains:
“The company is its own legal entity, and how you pay yourself is up to you, but ordinarily it would be dividends and not PAYE, so what the company does won't impact the day job. The dividends would go on your self assessment tax return which you will need to do as a company director.
“Do however make 100% sure you really need a limited company. Many start-ups (especially part-time ones) simply don't, and end up with a lot of work/stress/cost/fines etc. for no real reason other than some vanity and a vague notion about having a limited company without understanding all the ins and outs.
“Pointless micro limited companies are a pet hate of mine having seem so many of them – they are easily avoided by taking (normally free) advice up front about business structure.”
If I receive dividends as a director of a limited company and do a self assessment tax return, do I have to pay tax on it? If my current salary is £25,000 on PAYE and get dividends £10,000, what would be the tax calculation on a self assessment tax return as a company director?
“The tax on that would be nil in your hands as all the dividend would be at basic rate (dividends don't carry further tax when you are a basic rate tax payer). The company would have to pay corporation tax however. As above, make 100% sure that you need a company for these sort of sums. It may be you ought to be a sole trader, the extra tax of being a sole trader would be less than the cost of having your limited company returns filed.”
How do I create a group of limited companies?
I started my business with one Limited company, which was the main focus. But now l have three in total and can see it growing into a minor group. How does one go about getting all these Limited Companies formed as one group of Limited companies still keeping their own identity and formations.?
Chartered accountant James Smith suggests:
“It really depends how you have set them up. These companies are already a “group” by virtue of your presumed common control, ie if you own the majority shareholding in them all. A “traditional” structure would see a holding company [H] which then owns the shares in the other companies [A] & [B] So you would hold all the shares in H, and H would hold all the shares in A and B. This allows some flexibility in terms of moving funds around between the companies, and is a true group.
“The real question I have is, “is this sort of structure efficient for you?” Assuming you are a small business your accounting bills and administration is going to be quite significant with three of them on the go, and there are generally no tax advantages in having three companies unless one of them isn’t a trading company (ie property investment etc).
“Another route would be to have one company with three divisions, removing a lot of the additional paperwork required to run three co.s There are some good reasons to set up in the manner in which you describe, but it is unusual for anything other than a large business to do so as the extra paperwork is a burden for a small co. I would suggest you sit down with your accountant and plan out where to go from here, there are quite a number of options.”
Steve Harris, co-founder of Small Firms Services, adds:
“I also agree with what has been said here, the paperwork and cost to maintain your current structure could potentially be a nightmare. What a lot of my clients tend to do is trade under one limited company and use trading styles. If you are concerned about protecting the name of your “Trading Styles” you can still register them as limited companies to prevent others doing this but then keep them as dormant companies (only costs £15 a year per company if you do it yourself).
“This does require you to be disciplined about only using the main company for invoicing etc. – basically you brand everything with the relevant trading style (excluding the word “Limited”) and at the footer of all official paperwork you provide the details for your main registered company. Not as effective as trade marking but a much cheaper/simpler option if your reason for having several limited companies is to protect your brand/identities.”
What is the best way to set up multiple trading names?
I have a small creative business that seems to be running well and to the best of my knowledge is set up correctly. I now wish to branch my business into two separate entities but not create an entirely new business for one. I wish to trade under two different names, one for each sector, whilst all the invoicing/tax returns are performed through one single sole-trading business. Can this be done? My business adviser at HSBC suggested that I could trade under any name I wanted if it was registered with them for business use. How would this effect my tax return? What would I put as my business name?
Chartered accountant James Smith says:
“There is no issue in having multiple trading names as a limited company or as a sole trader, so long as you make it clear who you are dealing with on your contracts, invoices and promotional material. From a tax return point of view, just put the main name down, there is no real issue here. ie as a sole trader you would need to say something like “’Gamour Pics’ is a trading name of ‘Steve Newbold Photography’” at the bottom of all your stationery. (Note – I am not a lawyer!)
“From a bank point of view they can have more than one name on your cheques if you register it (normally two or three I think) which is probably what they are getting at. I personally have two trading names I use for my services as a limited company.”
I run a online forum for window cleaners. I have also started to provide website hosting for cleaning businesses. My question is around registering as a sole trader and how I manage this. Ideally I just want to register one business and use one account and PayPal account. Can I use one of the site's names as the main business and have ‘trading as' attached to the sites and any documents etc?
Independent factoring broker Ian Johnston suggests:
“If you’re a sole trader you don’t have to register anywhere except HMRC and you just register with them under your real name as they couldn’t care less what your trading styles are as to them it is all just you.
“All websites and invoices need to show the details of the owner so you will have to show something even if it's just John Smith T/A XYZ Widgets.”
Read more about how to go about registering as a sole trader business with HMRC
Can I use a different name for a website other than my company name?
I’m looking to put a website up online, but as I have several websites, I’d like to use a catchy name that isn’t already taken. As long as invoices are paid to my company name, and there’s mention of the actual company name within the ‘about me’ page am I free to use a name of my choosing? For example if my company was called ‘xyz’ and I wanted to create a website to promote marketing skills (for example), and called this website ‘abc’ and refer to ‘abc’ within the text, apart from being a little confusing, is it legally okay to do?
Independent factoring broker Ian Johnston says:
“What you are suggesting is fine as a domain name is quite different to a business name. I have several different websites all with completely different names but each one will say that ABC is a division of DEF.”
Do I need a company registration number as a sole trader?
I am planning to start an online business in the near future. I want to know where I can get a company registration number for my sole trader business?
Chartered accountant James Smith explains:
“There is no company number for a sole trader business – only if you set up a limited company. All you need to do as a sole trader (assuming you are resident in the UK for tax purposes) is register with HMRC. They will send you the tax returns that need to be filled in.”
Read more about how to go about registering as a sole trader business with HMRC
What are the tax implications of running a UK limited company from France?
I am the owner/director of a UK limited company. We are a publishing house and we have clients all over the world. I am now planning to relocate to Paris and I was wondering if (1) I can pay myself in dividends to avoid the thorny issue of French social security and employer’s contributions and (2) my French living expenses are deductible from UK corporation tax?
Accountant Anna Chandley says:
“You can pay yourself dividends. Your French living expenses will not be deductible from UK corporation tax just as your previous UK living expenses would not have been deductible.”
Can you be in full-time employment and run a ltd company?
Myself and my partner are both in full-time employment but have the opportunity to do additional work outside of our normal hours. Between £10k – £30k per year. My main concerns are that even though this work would not be in competition with our current employers, we risk getting the sack or being frowned upon. Also, the company that is offering this additional work to my partner have said she needs to be a Ltd company with a business account. Is this the only route possible and does it need to be a Business account?
Co-founder of Siondo James Devenney suggests:
“I think that as long as you do not use your work time to work on your personal work and it is does not compete with your company then the company you work for should not have any issues. If it is something you do outside of work then they do not need to know.
“I would suggest that you both set up a limited company as this would offer you both some protection and from this set up a business bank account and keep if for business banking only. HSBC are quite good just call into your local branch and they can explain the benefits.
“Both you and your partner should be listed as directors it is better to set it up as you mean to continue and this way you will not have any problems done the line. i.e if you and your close friends stop talking they are still a director in the company that you and your partner have worked hard to set up.
It is also advisable to talk to an accountant before you start and they will be able to offer you sound financial advice as your tax may change if you are earning on the two jobs.”
Do I need to register as a limited company so another person cannot take my company name?
Can a sole trader protect their company name?
An accountant responds: “‘Protecting' the name by registering a limited company isn't necessarily much of a reason to open one. Your legal limited company name and your trading name don’t need to be the same thing – you can trade under the name “Adam's Apples” which is an incorporated entity called “Peter's Pears Ltd”. You could however get the company and keep it dormant if you wished. Each limited company name is unique, so if you have registered a dormant company called “Peter's Pears Ltd” no-one else can have it. They could, however, have “Peter's Pears (Trading) Ltd or many close variants.
The limited company name ITSELF is not very important; what IS important is the trading name owned by the company not the name of the limited company. These are two completely separate things (the trading name is separate to the ‘legal' entity) although they can be the same if you wish.
The amount of protection you get by ‘squatting’ on a limited company name is minimal. The only strong legal protection you get with a trading business name is to trade with it. If you don’t trade with a name (e.g. you are in the planning stage) then there isn’t an awful lot you can do if someone else starts up independently with the same or similar name at the same time.
Your purchase of domain names is probably a lot more important in terms of ‘securing’ a name than forming a company, i.e. in terms of protection, actively trading = 100/100, empty domains = perhaps 10/100 (and the protection is purely from stopping other people choosing the name, not from actually legally as you only get that if you trade) A ltd company is probably only 1/100.”