Running a Limited Company in the UK: Complete Guide for Entrepreneurs

Running a Limited Company – When starting a business in the UK, many entrepreneurs consider setting up as a limited company. Unlike sole traders or partnerships, a limited company is a separate legal entity — it has its own identity in law, distinct from the people who run it.

This structure offers credibility, tax efficiency, and limited liability, making it a popular choice for startups and growing businesses. However, it also comes with more responsibilities and compliance requirements.

In this guide, we’ll explore everything you need to know about running a limited company: how to set one up, the advantages and disadvantages, tax responsibilities, and practical tips for managing it successfully.

What Is a Limited Company?

A limited company is a business registered at Companies House. It has its own legal identity, separate from its directors and shareholders. This means:

• The company can own property, assets, and money in its own right.

• Directors manage the company.

• Shareholders (who may also be directors) own the company.

• Liability is limited to the company’s assets — not the personal assets of its owners (except in cases of fraud or misconduct).

There are two main types:

• Private Limited Company (Ltd) – Most common. Shares are privately owned, often by founders, family, or investors.

• Public Limited Company (PLC) – Can sell shares to the public. Requires a higher share capital (£50,000 minimum).

For startups and small businesses, a Private Limited Company (Ltd) is the standard choice.

Setting Up a Limited Company

Setting up a limited company is straightforward and can be done online.

Step 1: Choose a company name

• Must be unique and not too similar to an existing company.

• Certain words are restricted (e.g., “Royal”, “Bank”).

Step 2: Register with Companies House

• File an application to incorporate (form IN01).

• Provide company name, registered office address, director(s), and shareholder details.

Step 3: Create company documents

• Memorandum of association (signed by shareholders).

• Articles of association (rules for running the company).

Step 4: Register for Corporation Tax with HMRC

• Must be done within 3 months of starting business activity.

Responsibilities of Directors

Running a limited company brings legal duties for directors, including:

• Filing annual accounts at Companies House.

• Filing a Confirmation Statement each year.

• Paying Corporation Tax on profits.

• Keeping company records (board meetings, decisions, etc.).

• Acting in the company’s best interests (fiduciary duty).

Failure to meet these obligations can lead to fines or being disqualified as a director.

Advantages of a Limited Company

• Limited liability
  Shareholders’ personal assets are protected (except in fraud or personal guarantees).

• Tax efficiency
  Corporation Tax rates can be lower than Income Tax at higher profit levels. Dividends may be more tax-efficient than salary.

• Credibility
  Many suppliers, clients, and investors prefer dealing with companies.

• Access to finance
  Easier to raise investment through issuing shares.

• Separate legal identity
  The company continues if directors leave, retire, or die.

Taxes for Limited Companies

Limited companies face different tax obligations compared to sole traders and partnerships.

Corporation Tax

• Charged on company profits.

• The main rate (as of 2025) is 25%, with a lower “small profits rate” of 19% for profits under £50,000 (tapering applies between £50,000–£250,000).

Dividends

• After Corporation Tax, remaining profits can be distributed to shareholders as dividends.

• Dividends are taxed separately on the individual shareholder’s tax return, with different rates to income tax.

PAYE & National Insurance

• If directors take a salary, the company must operate PAYE payroll and pay employer NIC.

VAT

• If turnover exceeds the VAT threshold (£90,000 in 2025), registration is mandatory.

Compliance and Record-Keeping

Limited companies must:

• Keep detailed accounting records.

• Submit annual accounts to Companies House.

• File annual Corporation Tax returns with HMRC.

• Keep statutory registers (shareholders, directors, PSCs — persons of significant control).

Insurance for Limited Companies

Even with limited liability, insurance is crucial:

• Employers’ liability insurance – required if hiring staff.

• Professional indemnity insurance – protects against claims of negligence or bad advice.

• Public liability insurance – covers injury or property damage claims.

Common Mistakes New Directors Make

• Confusing personal and business finances
  Always use a separate business bank account.

• Not planning profit extraction
  Pay mix (salary vs dividends) needs to be tax efficient.

• Missing deadlines
  Late filing penalties can be severe.

• Underestimating admin
  More compliance = more time (or accountant costs).

• Not budgeting for Corporation Tax
  Profits don’t equal cash-in-hand.

Growing a Limited Company

As your business expands, a limited company makes growth easier:

• Bring in investors via new shares.

• Improve credibility with larger clients.

• Scale operations with employees.

• Convert to a PLC if raising money from the public.

Who Should Consider a Limited Company?

A limited company suits entrepreneurs who:

• Expect higher profits.

• Want to protect personal assets.

• Plan to seek investment or scale.

• Operate in industries where clients prefer dealing with incorporated businesses.

It may not suit those who:

• Want a simple, low-cost setup.

• Prefer to keep finances private.

• Expect modest income (where sole trader tax may be simpler).

Running a Limited Company Pros and Cons

Running a Limited Company Final Thoughts

Running a limited company in the UK can provide strong benefits: credibility, liability protection, and tax efficiency. But it comes with responsibilities that can’t be ignored.

If you’re ready to scale and take your business seriously, incorporating as a limited company can be the right step.

For those starting small, it may be wise to begin as a sole trader or partnership and switch later — using our [Sole Trader vs Limited Company Calculator] can help you decide.

At GrowMyAcorn, we recommend weighing your current needs against your growth ambitions. The right structure at the right time can save money, reduce risk, and unlock new opportunities.

What would you like to do now?

Read our in-depth guide to forming a limited company.
Compare options with our Choosing the Right Business Structure guide.
Try our Sole Trader vs Limited Company Calculator to see if incorporation might save tax as you grow.