Setting up a UK limited company costs £50 and takes 24 hours. The choice of when (and whether) to incorporate matters far more than the mechanics. This hub covers the decision, the formation process, and the post-formation operational setup.
Who this hub is for
UK freelancers and contractors deciding whether to incorporate, going through the formation process, or setting up the post-formation operational layer (banking, accounting, payroll, VAT registration). UK Ltd company formation is fast and cheap — the structural decision matters more than the mechanics. Most UK freelancers should incorporate around the £40-50k profit mark; below that, sole trader usually wins on simplicity and total tax. The IR35 implications, mortgage knock-ons and pension-efficiency dimensions all factor in.
Start with the structure decision guides if you are not yet committed. If you are committed, the formation mechanics + post-formation checklist take you from "company exists at Companies House" to "company fully operational". The contractor accountant guide is essential reading — most UK Ltd contractors hire a specialist accountant before their first paid invoice because the tax-planning value usually beats the fee in year one.
Reviewed mid-2026. UK Corporation Tax rates and salary/dividend optimal split change with Budget cycles — verify the current year position before finalising your strategy.
Should you incorporate at all?
The classic UK freelance decision — sole trader vs Ltd. Tax breakeven is around £30,000–£40,000 profit drawn fully; below that, sole trader usually wins on simplicity and total tax. Mortgage borrowing, IR35 exposure and client expectations also factor in.
- Sole Trader vs Limited Company — Definitive UK Guide
- Should I Start a Limited Company? UK 2026
- Sole Trader vs Ltd Calculator
Formation mechanics
A formation agent handles the Companies House filing in 24 hours and supplies a registered office address (keeping your home address off the public register). The post-formation setup is where the real work happens.
Post-formation: banking, accounting, payroll
Open a business bank account immediately (legally required). Set up accounting software. Register for PAYE if drawing salary. Decide your salary / dividend split. Calendar the deadlines.
- Best Business Bank Account UK
- Best Accounting Software for UK Freelancers
- FreeAgent for Contractors UK
- Limited Company Accounting Checklist UK 2026
- Contractor Tax Deadlines Calendar
Tax efficiency from day one
Run your take-home through the Ltd calculator before deciding salary / dividend split. Hire a contractor accountant if your profit is £40k+ — they typically save more than they cost.
- Limited Company Take-Home Calculator
- Contractor Accountant Guide UK 2026
- How Much Does a Contractor Accountant Cost?
IR35 implications
Running through a Ltd does not exempt you from IR35 — every engagement is assessed on its own facts. Check status before signing each contract.
Insurance + mortgage setup
New Ltds typically need professional indemnity and public liability insurance from day one. Mortgage borrowing changes after incorporation — be aware before applying.
Formation decision framework
- "Do I incorporate now or stay sole trader?" — tax breakeven around £30-40k profit drawn fully; below that sole trader usually wins. Above £50k and retaining some profit, Ltd usually wins.
- "DIY at Companies House or use a formation agent?" — DIY is £50 and 24 hours. Formation agents (£100-£300) bundle registered office address, post-formation banking introductions, and director services.
- "Where's my registered office?" — home address goes on the public register if you DIY. Formation agents provide an address to keep your home off the public record.
- "What share structure?" — single shareholder + single director is fine for most. Spouse-shareholder splits dividend income across tax bands but invites HMRC scrutiny — needs to be genuine.
- "Which post-formation services do I need?" — business bank account (immediate), accounting software setup, PAYE registration if drawing salary, VAT registration if at/above threshold.
Common UK formation mistakes
- Incorporating too early — sub-£30k profit Ltds usually pay more total tax than sole traders due to Corporation Tax + accountant fees. Wait until profit justifies the structure.
- Using home address as registered office — becomes permanently public on Companies House. Use a formation agent's address from day one.
- Forgetting confirmation statement — annual filing separate from accounts. £100 penalty if late; companies do get struck off for repeated failures.
- Not opening a business bank account immediately — Ltd companies legally need separate banking. Personal account use for business is a breach of bank T&Cs and creates director-loan-account complications.
- Salary set wrong — most tax-efficient is around £12,570 (personal allowance), then dividends. Set too low and you miss NI credits; too high and you trigger employee + employer NI.
- Missing the corporation tax payment — 9 months + 1 day after year end. Late triggers interest immediately. Set a calendar reminder.
- Mixing director loans with dividend declarations — different tax treatments; mis-recording creates s455 tax risk.
UK Ltd formation landscape 2026
UK limited company formation is genuinely fast — 24-48 hours from filing to Companies House confirmation. Three main routes:
- DIY at Companies House — £50, online, takes 24 hours. You handle every step yourself.
- Formation agent — £100-£300. Bundled registered office address, post-formation banking introductions, sometimes accountant referrals. Your Company Formations is the active partner in this cluster.
- Your accountant handles it — if you've engaged a contractor accountant before forming, they typically run the formation as part of onboarding. Often included in the first month's fee.
Post-formation, expect 1-3 weeks to fully operational — banking takes longest (some providers take 1-2 weeks), accounting software setup is same-day, PAYE registration is 1-2 weeks from HMRC.
Glossary — key terms in this cluster
- Companies House
- UK registrar of companies. Where Ltd companies are formed and where statutory accounts are filed.
- Articles of Association
- Ltd company constitutional document — defines how the company is run. Standard model articles cover most contractors.
- PSC
- Person with Significant Control. Anyone holding 25%+ shares or voting rights, or with significant influence over the company. Reported to Companies House.
- Registered office
- The Ltd company official UK address. Public on the Companies House register. Formation agents provide non-home addresses.
- Director
- Officer of the Ltd company. Legal responsibilities include filing accounts on time and acting in the company interest.
- Shareholder
- Owner of the company shares. Receives dividends from post-tax profits.
- SIC code
- Standard Industrial Classification code. Describes what the company does. Required at formation.
- Companies House WebFiling
- HMRC online portal for Ltd company filings. Free DIY route for accounts, confirmation statements and changes.
Cluster FAQ
24-48 hours via Companies House online; 1-3 hours via a formation agent that uses electronic incorporation.
DIY at £50 if you are comfortable with the public register. Formation agent (£100-£300) gets you a non-home registered office address.
Most UK freelancers are sole-director Ltds. Multiple directors add complexity but enable joint-shareholding tax-planning structures.
Only if you cross the £90k threshold within 12 months. Voluntary VAT registration is a separate decision — see VAT threshold guide.
Within 4 weeks of paying yourself or anyone else employment income (salary). Required even for sole-director Ltds drawing a small salary.
Yes — voluntary strike-off (DS01) for simple cases costs £33. Members Voluntary Liquidation (MVL) is more involved but tax-efficient for higher cash balances at closure.
About this hub
This hub is part of FreelanceToolkit UK, an editorial site for UK freelancers and contractors. Every guide and tool here is written and maintained by the FreelanceToolkit UK editorial team using public HMRC, Companies House and regulator sources. See our editorial policy and sources & methodology for how we approach factual accuracy. Affiliate disclosure is in our disclosure page.
Editorial guidance only — not regulated tax, legal, insurance, mortgage or financial advice. For specific decisions consult a qualified professional. See sources & methodology.