Private Limited Companies (PLCs) are businesses that are legally separated from their owners, and therefore have separate finances, unlike a sole trader. PLCs are seen as more professional and credible than sole traders and are preferred by financial institutions for business accounts and transactions.
There are two types of PLCs:
- Limited by shares
- Limited by guarantees (non-profit organizations)
Requirements to set up a PLC:
- Minimum of one director and one member, which can be the same person
- Member must be at least 16 years old
- Not a disqualified director or undischarged bankruptcy
You can apply through a company formation agent, which takes about 3 to 6 working hours. You can find a list of formation and company secretarial agents here.
How to Register your PLC and Needed Documentation
1. Chose an official name
- It needs to end with ‘ltd’ or ‘Limited’
- It’s recommended that you do not use your name as HMRC may flag you as an employee under the IR35 legislation.
2. Registered office address
3. Standard industrial classification of economic activities (SIC) - The SIC code defines your business’ activities/operations
4. Memorandum of association and articles of association
5. Registration with the Companies House and HMRC for corporation tax
PLC Business Requirements
- File annual accounts and an annual confirmation statement with Companies House
- Submit a company tax return to HMRC
- As the director of your PLC, you need to file a Self Assessment tax return in your personal capacity as well.
- If you get your salary from your own PLC, then you need to do it through the PAYE system (for taxes and NIC payments)
- Pay corporation tax
- Keep detailed financial records of your business - (profits, losses, expenses)
PLC Advantages:
- Because company finances are separate from personal assets, there’s limited liability in case of business losses or failure. The company operates as a separate legal entity as its owner/director/employees.
- PLCs are seen as more professional and credible than sole traders.
- Having a PLC is more tax efficient. For instance, limited companies pay 19% corporation tax on profits, compared to 20-45% income tax for sole traders. PLCs can also claim tax-deductible costs and allowances.
- Lower income tax and NIC contributions if you pay yourself through a combination of salary and dividends.
PLC Disadvantages:
- Your personal information is publicly listed on the Companies House website when you set up your own PLC (Name, official address, birthday, telephone number).
- It can get confusing to do accounting for your business, which is why it’s recommended that you hire a CPA for advice and/or assistance.