For ambitious entrepreneurs who want to grow a successful business here in the UK, forming a limited company is the first logical step. 

Setting up a limited company means it will be recognised as a separate entity from you or any other shareholders. Limited companies offer plenty of advantages over becoming a sole trader – but it also comes at a cost. 

We’re not talking about the costs of setting up a limited company. It’s actually far cheaper than you might think. Instead, we mean the added fees and costs you’ll likely encounter early on as a newly registered company. 

With that in mind, we’ve created this handy guide to the costs of setting up a limited company. Read on to find out how much launching your new brand might set you back – and how you can keep costs under control as you grow your new venture. 

Understanding a limited company

What is a limited company? Why is it worth setting one up? 

A limited company is a type of business structure that separates the business from the owners (called shareholders). The company has its own assets and liabilities.

The limited part of the term refers to limited liability. This means you are only liable for any company debts up to the value of the shares you hold in the business. The liability for any other debt stays with the company itself and not your personal assets. 

There are two different types of limited business in the UK:

• Private Limited Company (LTD): this is where shares in the business are held privately and cannot be traded. The business can have multiple shareholders and must have at least one director. 
• Public Limited Company (PLC): the shares of a public company can be sold to the public and traded on the stock market. There must be a minimum share capital of £50,000 and is subject to far stricter regulatory scrutiny. 

Setting up a public company is far more complex and is almost always done after growing a private company first, so we’ll focus on LTD businesses for the rest of this guide. 

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Benefits of setting up a limited company

If you’re worried that the whole thing sounds too complex, don’t be – the benefits of having a limited business far outweigh the initial learning curve. 

If you’re still asking whether it’s worth setting up a limited company, here are the most compelling reasons: 

• Limited liability: Separating your personal assets from your business debt is extremely valuable. It means you can’t lose your home or other vital personal holdings if your business falls into debt. 
• Brand authority: Not only does registering a limited company mean you’ve chosen a unique name that nobody else can copy, it also gives you more authority when communicating with other businesses and engaging in contracts. 
• Tax advantages: Compared to sole traders, owners in limited companies have more ways to offset tax liabilities and access employee benefits such as pension schemes. 

Another clear benefit is in the way you earn money from your business. You can pay yourself with a combination of salary and dividends to help keep your tax bill low – and you can also explore things like bonus payments and director’s loans, none of which are available to sole traders. 

An overview of the costs

If you’re worried about the costs of getting your business underway, don’t be – starting a limited company is more affordable than you might think. The actual registration cost is minimal, but there are some additional angles you need to consider…

Legal fees to consider before registration

Before legally registering, you may need a few additional things that incur costs. These are:

1. Company name:

When you register with Companies House, the company name you choose must be unique, and once accepted, nobody else can use it.  However, it must also end in ‘limited’ or ‘LTD‘ to meet their requirements. 

Registering a company name only protects it with the associated ‘LTD/limited’ phrasing. Unscrupulous brands may still be able to copy you with similar names if they change the suffix and get a bit creative. If you want to protect your brand name fully, you can pay to trademark it, which costs at least £170 and must be renewed every 10 years. 

2. Memorandum and Articles of Association:

When registering with Companies House, you may need to submit these two documents. The memorandum of association is a legal statement that agrees to form the company. If you complete a digital registration, you’ll create this as part of it. If you want to apply by post, you must create one separately using a template.

3To provide the necessary articles of association, you can use ‘model articles’ or create your own. If you need to create your own, you might want a solicitor to help prepare both documents, which can add £100-200 to your costs. 

3. Form IN01 Completion:

‍If you don’t want to register online, you’ll need to complete a document named Form IN01, which contains everything needed to create your company and incurs a charge of £71. 

The cost of registering a limited company

You can set up a limited company on your own using this Government page. Registering online costs £50. Once completed, you’ll receive a notification from Companies House – usually within 24 hours, but wait times may vary. 

If you don’t want to do it yourself, there are other ways to register a little further down in this guide. 

Professional fees

As an owner of a limited company, you’ll need to invest in some key professional services – namely insurance and legal protections. The bare minimum you’ll need is Employer’s Liability Cover – but that is also cheaper than you’d think. 

Because a limited company is responsible for preparing and submitting tax returns, you may also need help from an accountant. Crunch offers a flexible online accountancy service to help small businesses – especially those that have just started out and want an affordable way to manage their finances. 

Ongoing expenses

Running a business isn’t cheap – you’ll need to budget for costs like utilities, rent, website hosting, and marketing. Though you can register a business inexpensively, these costs are the real things to consider when actually starting a business. 

Different ways to register a company and associated fees

Going it alone isn’t the only way to register your business. In some cases, having external support can help position your business in the right direction for future growth and avoid costly mistakes that you only realise further down the line. 

The most common options for registration are: 

1. Register yourself: Follow the steps outlined in Companies House and submit your own registration. This costs £50 if you do it online and will be most people’s route into limited company ownership. If you choose to register by post, you’ll pay £71.
    
2. Use a formation agent: If you’d prefer to use an expert, company formation agents can register a business for you. They’ll take care of all the documentation and paperwork on your behalf and often provide added value through services like setting up a business bank account. 
   
   Crunch offers a formations service designed with newcomers to business in mind. We’ll take care of all the complexity and help you set yourself up for success. Visit our company formations page to learn more.
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3. ‍Hire a solicitor: For some businesses with more complex legal requirements, hiring an accountant or solicitor early in the process means they can help you complete registration in a way that supports your future goals and keeps you safe as you scale. This is the most expensive option but may provide lasting peace of mind if you’re worried about the process.

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Optional & recurring costs when starting your business

Registration is only the first step when it comes to starting a business. The other costs you’ll face depend on what type of business you want to run. Some will be more immediate, one-off costs and others will be recurring throughout the lifespan of your business. 

Here are some of the main costs you’ll need to factor into a business plan…

• Business bank account
  • You’ll need a business bank account for your limited company, as you must keep all business finances separate from your personal account. Though a few banks offer free accounts to new businesses, expect to pay a small monthly or annual fee once your business grows. 
• Website creation and hosting
  • If you’re setting up a new business, the chances are you’ll want a website to help advertise your brand or even sell directly to customers. Website costs can range from affordable to astronomical depending on what you choose – with small web builder sites like Wix or Squarespace offering cheap monthly packages but less control over your brand. 
  • Hiring a professional web developer can cost far more (£40-70 per hour) but will ultimately result in a bespoke website that you have full ownership over. 
  • Once your site is ready, you must pay a monthly fee to host it. The charge will depend on the size and complexity of your site but is usually fairly minimal – expect to pay somewhere between £3-10. 
• Premises & utilities
  • Depending on the nature of your business, you may need to hire premises to work in. Costs will be entirely based on the type of property you want to rent and the area you’re based. 
  • Whether you rent a premises or choose to work from home, you’ll also need to factor in the additional costs of utilities used during working hours. There are some allowable expenses you may be able to claim but this won’t do much to offset the high cost of electricity and gas in the UK as of 2024. 
• Insurance
  • Limited companies are legally required to have Employer’s Liability Insurance. Costs depend on how many employees you have in your business – so if you’re just starting out alone, you’ll be able to keep costs as low as £5-6 per month. 
  • You may also need other types of insurance such as Public Liability Insurance, which is useful for any business that operates in a public or client environment or even allows members of the public or clients to come to their facility. Note that this might even mean people who work from home but allow clients to visit.  
• Professional fees
  • Though we’ve mentioned solicitors and accountants in terms of registration, it’s important to note that most businesses will at some point require additional professional services in order to operate in compliance with the law and HMRC.
  • Having an accountant, for example, helps businesses meet their tax reporting obligations and keeps finances running smoothly. Despite this, the costs of working with an accountant can often prove too restrictive for new business owners. Crunch offers a cost-effective alternative with our limited company accounting service. 

The costs above are far from comprehensive and different businesses will face different challenges. For example, a potential ecommerce business will need to find capital to invest in stock and pay courier services. 

The initial costs we have outlined, however, do help demonstrate our main point: it might be cheap to register a business, but it’s not necessarily cheap to actually start one. 

How to set up a limited company on your own

Despite the costs involved, setting up your own business is an incredibly exciting opportunity to grow your own venture and become a success. If you’re keen to get started, we’ve got a straightforward guide that walks you through every step of the process. 

Don’t go it alone when you set up on your own, read our comprehensive guide to setting up a limited company to get a helping hand every step of the way. 

Wrapping up 

The key to business success is to find the right balance between your costs and earnings to ensure profit and ongoing growth. From the very first costs you pay to the new ones that will crop up as you build your brand, use Crunch as your digital accountant to keep finances under control and stay on top of your tax obligations.

‍Click here to learn more. 

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