How to Set Up a Limited Company for UK Freelancing

Why this matters

Limited company structure offers tax advantages over sole trader once profits exceed £30-40k — primarily through dividend allowances and salary/dividend mix. The trade-off is more admin (annual accounts, Corporation Tax returns, Companies House filings) and IR35 complications for inside-IR35 work. Most UK freelancers who pass the breakeven point benefit, but the admin overhead is real.

Step-by-step

1. 1 Register the company with Companies House (online, £12, takes 24 hours) — choose name, registered address, director(s), shareholder(s)
2. 2 Register for Corporation Tax with HMRC within 3 months of starting to trade
3. 3 Open business bank account (Tide, Starling Business, NatWest Business — £5-£30/month)
4. 4 Set up accounting software: FreeAgent (£10-£20/month, free with Mettle), Xero, QuickBooks
5. 5 Hire an accountant (£80-£150/month) — most UK freelancers do; saves admin and reduces tax errors
6. 6 Register for VAT if turnover exceeds £90,000/year (or voluntarily for cash-flow benefits)
7. 7 Set up payroll if paying yourself salary (most accountants handle this)

Common mistakes

• ✗Not separating personal and business finances — creates accounting nightmare
• ✗Missing Corporation Tax registration deadline — penalty fees apply
• ✗Trying to DIY without an accountant — typical first-year tax mistakes cost more than the accountant's fee
• ✗Not planning salary/dividend split optimally — significant tax implications
• ✗Forgetting Companies House annual confirmation statement — automatic strike-off if missed