Professional contractors and other small businesses frequently use the limited company structure.
In this guide, we examine the practical aspects of setting up a company for contracting in detail.
Why use a limited company as a contractor?
As the term would suggest, the financial liability of limited company directors is limited. Your personal finances are separate from the company’s (unlike the sole trader business structure).
Although shareholders of limited liability companies are not personally liable for the company’s debts, directors may occasionally be required to guarantee loans or credit extended to the company.
You have more tax planning opportunities as a limited company director than a traditional employee. However, the tax gap between directors and employees has reduced significantly over the past decade.
The directors are responsible for submitting the company Confirmation Statement to Companies House. This provides a snapshot of the company’s details at a moment in time.
Each company must file a Corporation Tax return (CT600) each year, and pay any due liabilities within 9 months and 1 day of the year end.
The company must deduct income tax and National Insurance Contributions from all employees on behalf of HMRC, via the Pay As You Earn (PAYE) scheme.
Anyone employed by the company must pay income tax and national insurance on their income.
Following the implementation of the Companies Act 2006, companies are no longer obliged to appoint a company secretary. A sole director can run a limited company.
What is Companies House?
Companies House is the official central register of UK companies. It incorporates and dissolves companies, examines and maintains company information as required by the Companies Act, and makes this data publicly available.
As a director, your dealings with Companies House include forming your company, filing accounts and confirmation statements, and submitting event-driven updates such as changes to directors, registered office, or share structure.
Most of these can be completed online using the WebFiling service and an authentication code, which acts as your digital signature.
Failure to submit accurate documents on time can result in fines, penalties, or even the company being struck off. While accountants usually handle filings, the legal responsibility rests with the directors.
Directors’ duties and responsibilities
The Companies Act 2006 codified the main statutory duties of directors. These include:
Acting within your powers as a director.
Promoting the success of the company.
Exercising independent judgement.
Using reasonable care, skill and diligence.
Avoiding conflicts of interest.
Not accepting benefits from third parties.
Declaring any interests in proposed transactions with the company.
Directors are also expected to consider the long term impacts of their decisions on employees, customers and the wider community. Responsibilities now extend to areas such as data protection and cybersecurity compliance, given GDPR and digital risks.
Beyond statutory duties, directors must ensure that accounts and tax returns are filed on time, dividends are only declared from available profits, and the company remains solvent.
Even if you employ an accountant, the responsibility for compliance lies with you as a director.
Information required to set up a limited company
To successfully incorporate a limited company in the UK, you must submit three documents to Companies House. In reality, all of this information can be submitted online without the need for any paperwork.
1. Form IN01
This is the formal application form, which includes your registered office address, details of all company officers (directors and company secretary if needed), details of share capital and classes of shares issued.
Before you fill in this form, you must first check that your desired company name is available and that it does not fall foul of the rules governing sensitive words or expressions.
Who can be a company director?
Unless disqualified by the courts, bankrupt, or under 16, most people can become directors. At least one director must always be a real person rather than a corporate entity. No formal qualifications are required, although directors must understand their legal responsibilities.
From March 2025, all new and existing directors will need to complete identity verification with Companies House as part of transparency reforms under the Economic Crime and Corporate Transparency Act 2023.
Appointments and removals of directors must be notified to Companies House using the appropriate form (AP01, CH01, TM01), or via WebFiling. Larger companies may require shareholder or board approval for appointments, as outlined in their Articles of Association.
2. Articles of association
A document that acts as the company’s constitution sets out how it is to be run. On 1 October 2009, new model articles were introduced as part of the Companies Act 2006 rollout.
These model articles are used as standard unless you choose to provide your custom Articles.
The Articles of Association are the main governing document of a company. At the most basic level, they are the rulebook for how the company should be run, and the directors are required to act in accordance with these rules.
The Articles of Association also govern the relationship between the shareholders, and they are considered a form of contract between the shareholders and the company.
What type of information do the Articles contain?
A variety of matters can be included in the Articles of Association, but a common list of matters included within them is:
Details on different classes of shares
When and how new shares can be allotted
Pre emption rights on shares
Limitation of liability
Restrictions on transfers of shares
Scope of powers granted to directors
Provisions on conflicts of interest
Rules on AGMs and other meetings
Provisions on how decisions should be made
Drag and tag rights
Director indemnities
How do you create the documents?
When you set up a new company, you do not need to supply your own Articles and Memorandum. Most applicants choose to use the Companies House model articles. The Memorandum is automatically created using the information provided during the incorporation process.
How do you update the Articles?
To amend or replace the Articles of Association, a special resolution of the shareholders is required.
3. Memorandum of Association
This contains a statement by each subscriber confirming their intention to form and become a member of the company.
Since the introduction of the Companies Act 2006, the Memorandum of Association is a much less important document. All of the provisions that were previously included in the Memorandum are now included in the Articles, and the Memorandum is mainly a formality upon incorporation of a company.
When you incorporate online, the Memorandum is automatically created using the information you submit about the company’s initial shareholders. Once your company’s Memorandum has been created, you cannot change the details. It acts as a snapshot of the company’s initial subscribers at the time of formation.
Choosing a company name
If you want to start contracting through a limited company, one of your first tasks will be to choose a good company name for your new enterprise.
You should take some time to research possible company names, as you may trade under it for many years.
A well-thought-out name can contribute to your branding efforts and make you more memorable to potential clients. You will also want to present a professional image to clients or recruitment agencies.
Future proof
When setting up your limited company, remember that you may one day want to conduct non-contracting business through it.
A more generic or versatile name can save time, money, and hassle in the long term.
Although you can always change your company name in the future, it is wise to try to get it right the first time.
Naming rules
Companies House has a number of company naming rules. The name must not be offensive, it must not be too similar to an existing company name, and you must avoid incorporating trademarked words into your company name. Some words are considered sensitive and may require permission.
In June 2016, Casio Services Ltd was incorporated as a new company, and the choice of name was accepted.
The famous Casio brand later took legal action to force a change of name. Acceptance by the registrar does not guarantee that you will not face a challenge later.
Domain names
When choosing your company name, try to secure related internet domain names simultaneously. Consistency across the company, domain, and email addresses reinforces your brand and builds trust with clients.
IR35 and naming
Although anecdotal, given how closely IR35 is associated with contracting, avoid names that emphasise contracting such as contractor or freelancer if you can. There is no rule against this, but there is no reason to draw attention either.
Changing your company name later
If you change your mind, you can pass a special resolution and file Form NM01. The new name becomes official once Companies House updates the register, and you will receive a Certificate of Incorporation on Change of Name. Using a method set out in your Articles may require Form NM04.
Registered office address
Every company must have a registered office address. This is the official address recorded at Companies House and shown on the public register. It must be a physical location in the UK jurisdiction where the company is registered (England and Wales, Scotland, or Northern Ireland).
All statutory correspondence from Companies House and HMRC is sent to this address, and it often appears on company stationery and websites. For privacy, many directors use their accountant’s address or a professional service provider rather than their home address.
The registered office is not the same as a trading address. Day-to-day business can happen elsewhere. Directors can also choose a separate service address so their home details are not made public.
You can change the registered office at any time by notifying Companies House online or via Form AD01. Many formation agents and accountants provide registered office services, which also ensures important notices are dealt with promptly.
Different ways to set up your company
There are three ways to set up your new company.
Register online via Companies House
If you incorporate directly via the Companies House Web Incorporation Service, you can submit all the required information online, without needing any forms, for a mere £50.
Use a formation agent
An intermediary is likely to charge more for obvious reasons, or they will offer you a company for a very competitive price, and make their money from add ons such as bank account services.
Use an accountant for peace of mind
Although you can form a company directly through Companies House or a formation agent, many contractors prefer to incorporate through a company formation agent or an accountant.
Most contractor accountants will happily set up a company on your behalf, sometimes at no extra cost if you sign up to use their services.
This is a popular option for contractors, as there are several other administrative tax related tasks to attend to as a new company owner. These tasks can be undertaken simultaneously if your accountant also forms your company.
When Companies House approves your application, you will be issued a certificate of incorporation. This confirms that your company exists as a legal entity under the Companies Act 2006, separate from its directors and shareholders.
If you apply online, the certificate usually arrives by email within a few hours as a PDF. Postal applications take longer. You should keep a copy safely stored, as it forms part of your statutory company records.
Although most banks and institutions check the Companies House register directly, you may occasionally be asked for a copy when opening a bank account, applying for finance, or completing due diligence checks. Replacement or certified copies can also be requested from Companies House if needed.
If your company name changes, Companies House will issue a supplementary certificate confirming the change. Your company number and other registration details remain the same.
What happens next? Next steps
These are the typical steps for a new director of a limited company. Do not forget that if you appoint an accountant, they will handle all tax and administrative tasks on your behalf.
Set up a business bank account. A limited company is a distinct legal entity, so you need a separate account.
Authorise your agent. This informs HMRC that you have appointed an accountant to manage your affairs.
Register for VAT. Most contractor companies are registered for VAT, even if they do not meet the £90,000 registration threshold.
Directors must maintain the company’s statutory registers and keep accurate and up-to-date records. This includes:
Register of members (shareholders)
Register of directors and, if appointed, secretaries
Register of People with Significant Control (PSC)
Minutes of board meetings and shareholder resolutions
Accounting records and supporting documents
Records should be kept for the required retention periods. See GOV.UK guidance on company and accounting records. Statutory registers must be kept up to date and be available for inspection in principle.
