What are the basics of Private Limited Company Examples? how to set up a limited company?
This article is perfect for anyone setting up a new limited company for rental property.
As property accountants & Property Tax consultants that serve thousands of UK landlords that purchase buy to let properties, we know that choosing the proper property tax structure is essential for our clients to make.
Private sector businesses account for 35% of the UK’s companies, with over one million in London alone.
More than four million Limited Companies are registered in the UK, with over 500,000 new companies incorporated annually.
A Private Limited Company is simply a Limited Company.
Private Limited Companies can also be called PLC. This is not to be confused with Public Liability Company (PLC).
There are different types of Limited Companies, including Limited Liability Partnership (LLP) and Special Purpose Vehicle (SPV).
Limited Companies pay Corporation Tax on their profits at 19%, which is set to increase up to 25% from 2023.
Corporation Tax is paid on total profits, minus allowable business expenses.
Limited Companies do not pay income tax or national insurance and are separate from the owners, directors and shareholders.
In the UK, all Limited Companies must be registered at Companies House, and the information about Limited Companies is held on a public register available for anyone to see.
There are no restrictions on who may use a Private Limited Company business structure.
Limited Companies in the UK can include hairdressers, cafes, restaurants, manufacturers, and of course, property-related activities such as property investments and property developers.
There is helpful Government advice on running a Limited Company worth reviewing. There is an advantage of buying property under the company name. That advantage is tax. We will now focus on that element with you. Our buy to let accountants are here to serve you.
Our property accountants help our clients understand how to set up a limited company. It can be daunting for anyone setting up a new limited company for rental property.
We will talk later about business bank accounts and how to set those up.
Property Limited Company Formation
Are you looking to form a new limited company? See how we can help you set up the right legal and tax efficient stricture for your property investments and property developments
Choosing a company name
Company name
Your name can’t be the same as another registered company’s name — search the Companies House register to see if a name’s been taken. Your name also can’t:
– contain a ‘sensitive word or expression unless you get permission from the Secretary of State
– suggest a connection with government or local authorities
– be offensive
You can trade using a different name to your registered name. This is known as a ‘business name’.
Business names mustn’t:
– include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company or ‘plc.’
– be the same as an existing trademark
– contain a ‘sensitive word or expression unless you get permission
Similar names
Your name must be unique — it can’t be the ‘same as’ or ‘too like’ an existing name.
‘Same as’ names
‘Same as’ names are those where the only difference to an existing name is:
– punctuation
– a special character, e.g., the ‘plus’ sign
– one or more words listed in the guidance on naming
Example
‘Hands UK Ltd’ and ‘Hand’s Ltd’ are the same as ‘Hands Ltd’. ‘Box.com Ltd’ is too similar to ‘Box Ltd’.
When you don’t have to use ‘limited’ in your name, the names of most private limited companies in the UK must end in either ‘Limited’ or ‘Ltd’.
You will use the name of the company when you set up a business bank account with Tide
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How to structure your limited company?
A private limited company is simply a limited company. This is important to know if you are setting up a new limited company for rental property for the first time and unsure what to do. You may hear them called by different names such as
– Limited Liability Company, also is known as LLP
– Private limited company also is known as PLC. This is not to be mixed up with Public Liability Company (PLC)
– Special Purpose Vehicle, also known as SPV
A limited company is a legal separate entity from you. This means any legal responsibilities is on the limited company and not on the people associated with the limited company. There are times when a limited company director waives rights to be held legally responsible for the dealings of a limited company. This is rare.
It is not a simple matter of thinking of a name and starting a limited company. It is that easy, but there are significant tax consequences by not thinking about the tax-efficient tax structure.
A company will have a name. It is essential to know what the name means and what it relates to. Your limited company will need a home, also known as a registered office.
Directors of a limited company
There may be many company directors in a large organisation. For the vast majority of readers of this article, you likely set up with one or two directors.
Directors are often paid a salary and bonus for the financial performance of the limited company. Some directors are rewarded with shares, which they can then receive dividends from the limited company.
We discuss how directors that are also shareholders may extract tax-free money from a limited company.
Shareholders of a limited company
The shareholders of the limited company are their owners. They may or may not work within the company. Shareholders receive dividends when the private limited company makes money. They also risk that their capital could be lost if the business does not do very well. Shareholders are responsible for the appointment of a limited company director, who in return is responsible for the hiring and firing of employees.
Free Online Tax Calculators
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Limited company share structures
It is vital that you set the company up with the right tax-efficient shareholder structure.
There are different types of shares that you can create
– Preference shares
– Ordinary shares
– Alphabet shares
Preference shares
are usually used when you wish to have ownership in the business, but you want a guaranteed form of income. You will agree on an amount to invest in a limited company. You will also agree on the % return that you want each year
Ordinary shares
This is the most common format of shares within a limited company. You agree with the value of each share and how many shares each person will pay for. The greater the number of shares, the greater amount of ownership that the person has in the limited company.
Alphabet shares
Mistakes are often made by allocating “Ordinary” shares to the shareholders. This means that dividends are taken out of the company based on the number of shares allocated. This leads to tax nightmares. It is much better to distribute A, B, C shares to shareholders so that dividends may be taken out of the company in the most tax-efficient way.
These are very similar to ordinary shares. The reason why I specified them is for the flexibility for the payment of dividends. Let us imagine that Sarah and John started a limited company with 50 X £1 ordinary shares each. An ordinary shareholder must take out the same £X dividends per share. Sarah and John would need to share £20,000 dividends between them.
John is a tax high taxpayer, and Sarah does not work. John gets his first £2,000 dividends tax-free. He pays 32.5% income tax on the remaining £8,000 dividends. Sarah receives the £10,000 tax-free as it falls below her £12,500 personal allowance.
It would have been beneficial for John to have an A-class share and Sarah to have a B class share. That way, John could be paid £2,000 dividends, tax-free. Sarah would be paid £12,000, which still falls below her personal allowance and would also be tax-free.
Buy multiple properties from the same vendor to claim multiple dwellings relief to reduce Stamp Duty Land Tax. Our SDLT tax experts help many clients understand and mitigate stamp duty for a limited company.
Property Limited Company Formation
Are you looking to form a new limited company? See how we can help you set up the right legal and tax efficient stricture for your property investments and property developments
Setting up a limited company bank account
Once you have formed a limited company, you will need to set up a business bank account. We advise our clients to set up a business bank account using Tide. We suggest Tide because our clients inform us that it takes a long time to set up a landlord bank account with the so-called big banks. Our clients dutifully tell us that setting up a landlord bank account with Tide is quick and straightforward.
A limited company is a separate entity from you. It needs its own bank account as the money belongs to the company and not the shareholders. You need to be careful of managing your business bank account and avoid paying for personal items out of it.
How do I set up a limited company myself
It is possible to set up a limited company yourself. We do not advise this because you will have a company with ordinary shares only. As discussed earlier, creating a limited company with ordinary shares is not tax efficient. When we have clients that ask us “how do I set up a limited company myself?” We ask them to book a tax consultation with one of our limited company tax specialists to determine what alphabet shares are required instead of ordinary shares.
Free Online Tax Courses
Want to save tax in the future?
We have now created free online tac courses to help you build wealth whilst paying less tax. Learn today and save tax tomorrow. We have covered the basics of tax filing with HMRC and IRS. We have created courses on advanced planning strategies that will save you tax in the future.
We have training programmes for UK tax and US tax. Learn today and save tax tomorrow
Free online tax course
How much to create a limited company in England?
We ask clients not to question how much to create a limited company but focus on quality. I appreciate it is easy for us to say that as we are limited company accountants that set up tax-efficient structures for their clients and charge a fee. However, we ask clients to think about the cost of getting it wrong rather than the service price in setting up the company correctly the first time.
It is possible to set up a limited company with an online company formation agent. They will charge you between £12 and £25. Using an online company formation agent sounds appealing when you look at the price.
The first instance of getting the company formation wrong, as we said, is that a limited company formation agent will set up a company with ordinary shares. After a while, you will realise that this is not tax efficient. You will then need to change the company structure and include alphabet shares, as we discussed above. The cost of correcting a company structure is far higher than getting it right the first time. This is because the original share stock forms need to be cancelled and new ones created. There is a lot of time and effort with limited company restructures, which could have been avoided by spending more money to get the right tax-efficient structure in place.
