To set up a limited company as a contractor, you incorporate with Companies House (£100 online), open a company bank account, register the company for Corporation Tax with HMRC, decide whether to register for VAT, register as an employer if you will pay yourself a salary, arrange insurance, and then invoice your client in the company's name. None of these steps is hard. The risk is missing a registration window because nobody told you it existed.
This guide takes the steps in the order most contractors need them. It also covers where IR35 fits, because it affects how worthwhile the whole exercise is. Many contractors use a limited company, and the admin is manageable if you know the order of work.
Are limited companies the right route for a contractor?
A limited company is legally separate from the people who own it. GOV.UK describes this as limited liability: owners are responsible for business debts only up to the value of their financial investment. That protection is one reason contractors use limited companies. Another is that clients are often wary of engaging sole traders in case HMRC treats them as employees, according to Unbiased. Using a limited company also gives you a degree of tax efficiency, because a director can take a combination of salary and dividends.
But limited companies bring work a sole trader does not have. A private limited company must keep company and accounting records, and the directors need to file accounts and a company tax return. They also confirm the company's details to Companies House in a confirmation statement. GOV.UK is clear that you can hire an accountant to help, but you stay legally responsible for the company's records, accounts and performance.
If you are coming from an umbrella company, you can make the switch at any point. Take accountancy advice first so the changeover is handled correctly.
What qualifies you as a contractor?
The Low Incomes Tax Reform Group (LITRG) defines contractors as individuals who work through their own limited company to provide their skills and services to other people or businesses. If your company supplies your own personal services, as an IT contractor's does, LITRG calls it a personal service company. That is the situation in which IR35 matters.
Is it worth it? Where IR35 comes in
The IR35 and off-payroll working rules only apply, LITRG says, where the worker owns more than 5% of the shares in the company. Who decides whether they apply depends on the client:
- For public sector clients, and for medium and large private sector clients, the end client decides. If the rules apply, PAYE tax and National Insurance are withheld from payments to your company. You can then draw the remaining money out as salary or dividends without further deductions.
- For small private sector clients, the original IR35 rules still apply, and the decision rests with your own company.
LITRG's warning matters for anyone deciding whether to operate through a limited company. If the off-payroll rules apply to you, any cost savings there used to be may have disappeared. Check your contract and your client's size before you commit to the admin. Several later steps (shareholdings, insurance, naming) interact with this.
If you later stop using a limited company, LITRG lists the options: try to be taken on directly by the end client as an employee, work flexibly through an agency but under PAYE, or work through an umbrella company. You may also need to take steps to close the company down properly. The question of whether closing the company affects an IR35 enquiry is one to put to a specialist adviser, because it turns on your own facts.
Step 1: Set up your company with Companies House
You need to register your company before you start trading. You do not have to trade straight away, and GOV.UK confirms you can leave a new company dormant. A company formation can be done by you directly, or through an accountant or formation agent.
Choose a company name
When you choose a company name, Companies House will not allow one that is the same as, or very similar to, an existing company. Names must end in Limited or Ltd and cannot contain sensitive or offensive words. Sensitive words need supporting permission or the application is rejected. You cannot reserve a name in advance; the only way to secure one is to incorporate a company with it. Unbiased also advises contractors against naming the company after themselves, because a business-like name helps show the company is distinct from you.
Company address, directors and shareholders
- A registered office address. This company address is where Companies House and HMRC send official post, and it is publicly searchable. It must be in the same UK jurisdiction as the company (England and Wales, Scotland or Northern Ireland), and it must be an appropriate address where documents are physically handled, not an unmanned PO address. If you do not want your home address on the public register, many contractor accountants and address providers offer a registered office service.
- At least one director. Every company must have at least one director, and a company secretary is optional. Each director can use a separate service address, which must be in the UK and not a PO box.
- At least one shareholder. The same person can be the sole company director and sole shareholder. There is no minimum share capital: you can incorporate with a single £1 share, and many small companies issue 100 £1 shares because they divide easily.
- A SIC code. This is the Standard Industrial Classification code that identifies what the company does. You can list up to four.
- People with significant control (PSC). You must identify anyone with more than 25% of the shares or voting rights, and confirm them when you register. This is also why a company with Companies House on its register must keep that information current; the confirmation statement is due even if nothing has changed.
Identity verification
From November 2025, every new director and person with significant control must verify their identity with Companies House before the company can be registered. You supply your Companies House personal code as part of the incorporation filing. Do this first, because the application cannot go through without it. Existing companies have a transition period between November 2025 and November 2026.
Articles of association
The memorandum of association is a statement, signed by the initial shareholders (the subscribers), that they agree to form the company. The articles of association set out how it runs. If you register online you do not file a separate memorandum; you enter each shareholder's details and confirm it. Online applications use Companies House's model articles, which suit most contractors. Bespoke articles mean a postal application on form IN01. ContractorUK suggests that if IR35 compliance is a live issue for your work, a more specific set of articles may be worth considering.
How much does it cost to set yourself up as a limited company?
The Companies House fee is the fixed part of the cost:
| Route | Fee | Timing |
|---|---|---|
| Online | £100 | Typically about 24 hours; many are approved within hours |
| By post (form IN01) | £124 | Up to 10 days |
| Same-day incorporation | £78 | Same day |
Once approved you receive a certificate of incorporation. The date of incorporation is set automatically; you cannot backdate or future-date it. If you want to delay trading, incorporate and stay dormant.
The rest of the cost is the accountant. Some contractor accountants include formation in their monthly fee; others charge a one-off fee plus the Companies House fee. Costs vary, and our page on contractor accountant fees sets out what to compare.
Shareholdings and your family
Many contractors put a spouse or civil partner, or someone who works for the company, on a minority of the shares so dividends can be spread across a household. ContractorUK notes that appointing a spouse or partner as a shareholder is governed by HMRC legislation, so take advice before you do it. The same caution applies to anyone else you are thinking of giving shares to, including relatives. Remember the IR35 point above: how the shares are held matters.
Step 2: Open a business bank account
The company is a separate legal entity, so it needs its own business bank account. A company formation does not require a bank account first; you open one afterwards, because the bank needs your registration number and certificate. Keeping business and personal money apart also gives you a clear audit trail for your accounts and for any HMRC enquiry. Do not invoice into your personal account.
A business bank will typically ask for:
- proof of ID for each director, with date of birth and National Insurance number;
- your address details, usually for the past three years;
- the Companies House registration number and proof of incorporation;
- expected turnover figures.
In some cases the bank also asks for the company's UTR (see below). How long approval takes varies by bank, so apply as soon as you have the certificate of incorporation rather than the week before your first invoice is due.
Step 3: Register for Corporation Tax and get your UTR with HMRC
The company will pay tax on its profits, in the form of Corporation Tax. GOV.UK lists adding Corporation Tax services to your business tax account as the first thing to do after registering the company.
The mechanics:
- Create a Government Gateway account for the business. You cannot use your personal one.
- Choose "Add a tax to your account", then Corporation Tax.
- Enter the company registration number and the date the company started doing business.
Your UTR (Unique Taxpayer Reference) is a 10-digit number issued by HMRC when the company registers for Corporation Tax. HMRC should send it within 14 days of the company's registration. You have up to three months from the date you registered the company to register for Corporation Tax, so put that date in your diary on the day you incorporate.
What you pay personally
The company pays Corporation Tax. You personally continue to pay income tax and employee's National Insurance, although how you pay them depends on your IR35 status, and you pay dividend tax on any dividends you take. The company is also liable for employer's National Insurance contributions and VAT if registered. Being a director no longer automatically means you must file a Self Assessment return, but ContractorUK says most contractor directors will need to file one, typically once they take dividends or have other untaxed income.
Corporation Tax rates and the deadlines for your first accounts and tax return depend on your accounting period and when you incorporated. Your accountant or HMRC will confirm the dates, and we have not set them out here for that reason.
Step 4: Decide about VAT
VAT is a decision to make early, not a registration you need to do on day one.
You must register if:
- your taxable turnover for the last 12 months goes over £90,000; or
- you expect it to go over £90,000 in the next 30 days.
The second test catches new contractors. GOV.UK's own example: on 1 May you arrange a £100,000 contract to provide services, to be paid at the end of May. You must apply by 30 May, and your effective date of registration is 1 May, the day you realised, not the day the money arrived. A single large contract can put you over the threshold on the day you sign it.
If you instead cross the threshold gradually, you register within 30 days of the end of the month you went over. The effective date is the first day of the second month after. GOV.UK's example: turnover reaches £100,000 on 15 July, so you must register by 30 August, with an effective date of 1 September.
Late registration means paying VAT on sales since the date you should have registered, and possibly a penalty.
Voluntary registration is allowed below £90,000. The benefit is that you can reclaim VAT on business expenses. Some clients also prefer VAT-registered suppliers. The cost is that once registered you charge VAT on your invoices and must account for it. You owe HMRC any VAT from the date they register you, and Making Tax Digital for VAT applies, so you must keep digital records and file VAT returns through compatible software.
The Flat Rate Scheme is the other decision for contractors, because it changes how the VAT you owe is worked out. We cover the rates and rules in flat rate VAT for contractors in 2026, and you should read that before choosing.
Step 5: Set up payroll as a company director
If you intend to pay yourself a salary, you need an employer PAYE reference. HMRC says you must register as an employer even if you are only employing yourself, for example as the only director of a limited company.
The timing rules matter:
- Register before the first payday.
- You cannot register more than two months before you start paying people.
- HMRC sends the employer PAYE reference number by letter. Most limited companies with one to nine directors can register online.
- If you must pay before the reference arrives, run payroll, store your full payment submission, and send a late full payment submission to HMRC afterwards.
Pension auto-enrolment is the part people forget. ITContracting says an employer must take part even if the director is the company's only employee. It adds that a sole director-employee, or a company with directors but no employees, may be able to apply for an exemption and still set up a pension of their own choosing. Check your position before you run the first payroll.
How limited company contractors pay themselves
The usual approach is a mix of salary and dividend payments, and the right split depends on your circumstances and tax year, so it is the question to put to your accountant. For 2026/27, ContractorUK gives dividend tax at 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% at the additional rate, after a £500 dividend allowance. Dividends do not attract National Insurance contributions, which is why a limited company contractor takes a combination. Our page on salary and dividends for contractors in 2026-27 works through the choices.
GOV.UK also notes that an employer's National Insurance bill can be reduced by claiming an allowance. Whether a single-director company qualifies is something to confirm with HMRC or your accountant. Whether a contractor limited company can reclaim Statutory Maternity Pay depends on the employment arrangements involved, so check that with HMRC before relying on it.
Step 6: Put insurance in place
Insurance is not a Companies House or HMRC registration, but clients and agencies often ask for it before you start.
- Professional indemnity protects you if your advice or service causes a client a loss. ContractorUK calls it, together with professional liability cover, a must, and notes that clients often stipulate it. Some insurance products must be declared for tax purposes.
- Public liability and directors' and officers' liability are among the covers insurers bundle into contractor packages, alongside professional indemnity, employers' liability and personal accident cover.
- Employers' liability is a step in GOV.UK's guide to taking on an employee. Whether it applies to a company whose only employee is you depends on your circumstances, so check this with an insurer or adviser rather than assuming.
Unbiased adds that holding business insurance helps show you are a genuine contractor rather than an employee, which matters for IR35. Read your client's contract first, because it will usually say which cover it requires and at what level.
Step 7: Check the contract and send the first invoice
Before you invoice, read the contract. It decides payment terms, and for IR35 purposes it is one of the documents that shows how you really work. Settle payment terms with the client before the first invoice, not after.
Then invoice in the company's name, and pay the money into the company account. A few specifics:
- If you trade under a name other than the registered name, both names must appear on invoices and official documents.
- Do not charge VAT unless the company is registered. If you have registered, make sure your invoices meet HMRC's requirements for VAT invoices; GOV.UK's VAT guidance sets out what they must contain.
- Record the income and your expenses as they happen. ContractorUK advises capturing expenses in real time, and says an online accounting package that links to your bank helps with invoices, expenses and payroll.
Choosing a contractor accountant
GOV.UK allows directors to hire an accountant, and a good contractor accountant can register the company, handle the registrations above and keep the books in order. ITContracting says it is worth speaking to one, especially if there will be several directors or a complex shareholding structure. The ongoing duties of running a limited company are the accounts, the company tax return, the confirmation statement, payroll and, if registered, VAT returns. Anything you need to file late has consequences, so agree who does what from the start.
A first-30-days checklist
| What | When | Who |
|---|---|---|
| Verify director and PSC identity | Before you apply | Each director and PSC |
| Incorporate | Day 1 | You or your accountant |
| Open the business bank account | As soon as you have the certificate | Director |
| Register for Corporation Tax | Within three months of incorporation; sooner is better | Director or accountant |
| UTR arrives | HMRC should send it within 14 days of registration | HMRC |
| Register as an employer | Before the first payday; no earlier than two months before | Director or accountant |
| VAT check | Each month; and at once if a contract takes you over £90,000 in the next 30 days | Director |
| Insurance | Before work starts, or as the contract requires | Director |
Frequently Asked Questions
How much does it cost to set up a limited company as a contractor?
The Companies House fee is £100 online, £124 by post. Same-day incorporation can be bought for £78. Accountants' charges are separate and vary; some include formation in their monthly fee.
Can I form a company without a UK bank account?
Yes. The bank account comes after incorporation, because the bank needs your registration number and certificate.
Can I reserve a company name before I'm ready?
No. Companies House does not offer reservations. The only way to secure a name is to incorporate a company with it, even if it then stays dormant.
Can a limited company have no shareholders?
No. At least one shareholder is required, and the same person can be the sole director and sole shareholder.
Do I need to register for VAT straight away?
No. You must register when your taxable turnover over 12 months exceeds £90,000, or when you expect it to within the next 30 days. Below that, registration is voluntary.
Can I switch from an umbrella company later?
Yes, at any point. Take advice first so the move is handled correctly.
Getting help after the first 30 days
The set-up is a short burst of work. What follows is the routine of running a limited company: payroll, accounts, tax returns and, if you register, VAT. Deplexify prepares accounts and tax for UK contractors, and the details are on our accounting for UK contractors page.
Sources
- Set up a private limited company: Limited companies - GOV.UK — gov.uk, read 2026-10-18
- Set up a private limited company: Limited companies - GOV.UK — gov.uk, read 2026-10-18
- Register for VAT: When to register for VAT - GOV.UK — gov.uk, read 2026-10-18
- Register as an employer - GOV.UK — gov.uk, read 2026-10-18
- How to set up a contractor limited company in 10 steps — contractoruk.com, read 2026-10-18
- 10 essential steps to setting up a limited company in 2026 — itcontracting.com, read 2026-10-18
- Contractors using a limited company | Low Incomes Tax Reform Group — litrg.org.uk, read 2026-10-18
- How to set up a limited company for contracting in the UK | Unbiased — unbiased.co.uk, read 2026-10-18
- How to Set Up a Limited Company for Contracting in the UK (2026 Guide) - Wise — wise.com, read 2026-10-18
- 10 tips for setting up your limited company as a contractor — kingsbridge.co.uk, read 2026-10-18