Cost Breakdown: Setting Up a Limited Company

Setting up a company requires time, effort and money– all good things do! However, when starting a new business your budget can get away from you quickly which can be detrimental to your financial planning. So it’s important to know what your exact costs are going in.

Today’s blog will explore how much it costs to form a limited company or LLP and places where you can save or splurge during the process. We’ll also highlight any ongoing expenses which business owners should plan for.

Registration Fees for Setting Up a Limited Company

The first cost you’ll encounter and arguably the most important cost is your Companies House Registration fee. This is the fee you pay when you are registering a company in the UK.

There are two ways to register your company which are: online or by post.

Online registration is the most straightforward and cost-effective way to register a company. It costs £50 to register a company online with Companies House, and this is the most popular method of setting up an LTD or LLP in the UK due to its convenience. At times your company can be up and running within 24 hours, depending on delays at Companies House and when you form.

You can also register a company through post. Postal applications can take up to 10 days to process and cost £71. You can register by post using the INO1 form and with a cheque addressed to Companies House.

Your company registration fee is a one-off fee. 

Legal and Administrative Costs

When you form a company directly, you may have to prepare your own Memorandum and Articles of Association (M&As). These documents outline how your business is run and its rules.

A Memorandum of Association will outline your company name, registered office, purpose and share capital. A company’s Articles of Association outline the rules for running the company, agreed upon by the shareholders or guarantors. Memorandum and Articles of Association (M&As) are necessary when forming a company.

It's advisable to consult a legal advisor to draft your M&As due to their complexities, a legal advisor can help you stay legally compliant and save you peace of mind. However, these services can be costly depending on the complexities of your business.

On average, legal fees for M&As can cost anything from £100 to 150 but can be as high as £200 depending on the complexities. This may be a one-off fee or part of a monthly fee you pay for legal services. 

Company Formation Agent Fees

Formation agents provide a service where they form a company on your behalf and assist you by handling all necessary paperwork and ensuring everything is compliant. Using a formation agent can expedite the company formation process and make it far less stressful and easier.

Their fees range from basic to premium in order to suit every need, and often they’ll provide all the necessary documentation such as M&As. Secondly, a formation agent will provide a number of services which can aid your business’s operations. Such as a registered office address service, confirmation statement filing or linking you with business banks.

Ultimately, using a formation agent is a more time-efficient way to form a company, and the additional services can also save you money in the long run. Which is why it’s a popular option for new business owners.

Prices for a formation agent can range from £55 onwards, depending on the package you choose. This fee is often one-off but can incur a yearly charge due to renewable services. 

Accountancy Fees

You may consider hiring an accountant when setting up your limited company. This can be handy for a number of reasons. For example, some accountants offer formation services as a part of their services, this may be at a free or discounted rate if ongoing services are also contracted.

Ongoing services may look like bookkeeping services, tax filing and preparation of annual accounts. The cost of these services can vary depending on accountancy firms, however, typical costs vary from £800 to £1.500 per year.

There are numerous benefits to hiring an accountant. An accountant can provide you with financial advice, create financial forecasts, keep track of tax changes ensure you stay compliant, and find ways to keep your company and salary tax efficient. Most importantly, an accountant can free up time for business owners, allowing them you focus on the bigger picture.

Costs for an accountant are dependent on your business and its details. Larger companies will have higher costs due to the additional tasks an accountant may have to provide, i.e. PAYE tax etc. Secondly, companies in highly regulated sectors have different tax requirements which can also affect the cost of an accountant.

Accountancy fees for small businesses can start from £20 and are charged monthly.

Additional Costs 

You may incur a few additional business setup costs. Depending on the nature of your company and how it's run. For example:

• Business Bank Account: Some business bank accounts are free but others can have monthly fees ranging from £5 to £10. Bank accounts with monthly fees may provide you with extra benefits such as forecasting or an advisor. Therefore, it’s important to consider whether the benefits are worth the additional costs. 
• Insurance: Certain industries or businesses are legally required to be insured. Insurance costs can range from £100 to £500 per year. However, not all small businesses are legally required to have insurance. It is still important to consider insuring your business as it helps to protect your company. 
• Office Space: You may also need to rent a commercial or office space for your company. An office space can range from £50 for virtual office options to £1000 for commercial rentals. This will be a monthly cost.

These additional costs are dependent on the nature of your business. For example, if you’re hoping to work as a hairdresser you must have public liability insurance and you may need to pay to rent a salon or chair in a salon.

• Our Guide For Small Business Insurance

Ongoing Compliance Costs

There are a number of costs that you’ll pay yearly to remain compliant with company law. These are:

• Annual Confirmation Statement, £34 fee for Companies House or £64 for a postal submission. 
• Annual Accounts Filing. The cost of this is dependent on whether you prepare these yourself or use your accountant. 
• Statutory Records Maintenance, filing annual accounts and keeping the company’s register of shareholders up to date can incur a monthly cost from your accountant or administrator.

Compliance filings are necessary, if you fail to file your annual accounts, confirmation statement and other statutory filings your company will be non-compliant with company law. Non-compliance can result in significant penalties such as fines or being struck off the register. 

Cost-Saving Tips when Forming a Limited Company

Of course, there are ways you can save on costs during the formation process. If you’re willing to register your company and do the filings yourself you can keep your company registration costs low. This is great for those on a budget, however, it can be time-consuming and if you make a mistake it may cost you more time to fix!

If you choose to use a formation agent to help you register your company, you’ll often have the option of a range of packages. Most formation agents offer basic services all the way up to a full package in order to suit everyone’s budget. However, using a formation agent will cost more than a DIY registration, but you get the added perks of their services.

Moreover, you can also save on legal fees by opting to use templates for your M&As. Companies House provide a template for postal applications. In most online applications, Companies House will use the information you have submitted as an M&A.

Finally, effective budgeting and planning can help you save costs in the long run and help you prepare for unexpected expenses. You can set up a detailed budget which can help you determine where to cut costs and where to spend money. A budget can also aid in applying for loans, grants or investments. 

Conclusion

Setting up a limited company or LLP is an exciting time for any business owner, it marks their first steps into being a company. However, it can cost a lot, particularly if you require help with the legalities.

The main costs come from the registration fee, any legal advice and accountancy advice you may seek during the process. However, with some careful planning, research and budgeting you can keep the costs of company formation low.

Finally, if you’re unsure about where to start, or need some further advice contact us! We’re experts in company formation, with over 1 million companies formed since 2001. Whether you’re starting your first or tenth company, we’re here to make the process as simple as possible.

Our packages all include the £50 Companies House fee, free lifelong customer support and more!