Forming a UK limited company as a freelancer

The UK private company limited by shares — "Ltd" — is one of the fastest and cheapest company formations in the world. You can incorporate online in a few hours for £50, run the company from anywhere, and take advantage of a tax regime that's genuinely favourable for small businesses that reinvest and take a mix of salary and dividends.

Here's how to do it and what running it looks like.

The 15-minute formation

Everything happens through Companies House, the UK registrar. You can file directly or through a formation agent (1st Formations, Rapid Formations, etc.) for £15–£50, who usually give you a registered office address and better dashboards.

To incorporate you need:

• Company name — must be unique on Companies House and not too similar to existing names or trade marks
• Registered office — a UK address for statutory mail (can be a service address)
• At least one director — over 16, not a bankrupt or disqualified person
• At least one shareholder (can be the same person as the director)
• Share structure — one £1 ordinary share is fine for a solo director
• SIC code — a five-digit industry classification
• A person with significant control (PSC) — usually the founder, disclosed publicly

The company exists the moment Companies House accepts the filing — usually within a few hours for online applications.

The first two weeks

Once you have your certificate of incorporation and company number, you'll need to:

1. Register with HMRC for Corporation Tax — usually automatic when Companies House notifies HMRC, but confirm.
2. Open a business bank account — Starling, Tide, Monzo Business, Revolut Business for digital-first; Barclays, HSBC, Lloyds if you want a traditional bank.
3. Register for VAT if you expect to exceed the threshold (£90,000 as of 2024 — check current) or want to voluntarily register.
4. Register for PAYE if you're going to pay yourself a salary through the company — almost every director does.
5. Set up bookkeeping software — Xero, QuickBooks, and FreeAgent all handle UK Ltd compliance well.
6. Get a professional indemnity policy if your work warrants it.
7. Get an accountant. UK small-company compliance is manageable but the annual accounts + Corporation Tax return + director's Self Assessment stack is enough to want a professional at £900–£2,000/year.

The classic salary + dividend split

This is the standard structure most solo Ltd directors use to minimise tax:

1. Pay yourself a small salary through PAYE — typically at the National Insurance secondary threshold (~£12,570/year for 2025/26). This uses your personal allowance, builds state pension entitlement, and is deductible for Corporation Tax.
2. Take the rest as dividends from post-Corporation-Tax profits. Dividends are taxed at your personal dividend rates (8.75% basic / 33.75% higher / 39.35% additional) with a small annual dividend allowance (£500).
3. Keep a chunk in the company if you don't need it — untaxed at your personal level until distributed.

The overall effective tax rate for a solo director earning, say, £60,000 of net company profit is meaningfully lower than the same amount as sole-trader self-employment income, even after Corporation Tax on the company profits.

Corporation Tax — the current picture

• 19% on profits up to £50,000 (small profits rate)
• 25% on profits above £250,000 (main rate)
• Marginal relief taper between the two thresholds

Small companies (which most freelance Ltds are) sit firmly in the 19% band.

Ongoing filings — the annual rhythm

Every UK Ltd has to file the following, every year:

• Confirmation Statement (Companies House) — £34/year, confirms directors, shareholders, registered office, PSC info are correct. Due yearly, filed online in 5 minutes.
• Annual accounts (Companies House) — abbreviated accounts for small companies. Due 9 months after year-end.
• Corporation Tax return (CT600) + full accounts (HMRC) — due 12 months after year-end, but tax is payable 9 months and 1 day after year-end.
• VAT returns — quarterly if VAT-registered. Making Tax Digital (MTD) rules require digital records and MTD-compliant filing software.
• PAYE / RTI submissions — every time you run payroll, even for a single director's salary.
• Personal Self Assessment — the director files their own return covering salary, dividends, and any other income. Due 31 January following the tax year end.

Miss any of these and HMRC / Companies House penalties start small but stack quickly.

Special things to know

• Overdrawn director's loan account. If you take out more than the company's post-tax profit + any salary/expenses due, you've borrowed from the company. If it's not repaid within 9 months of year-end, the company pays a punitive Section 455 tax (33.75%) on the balance. It's refunded when you repay the loan, but the cashflow hit is unpleasant.
• IR35 / off-payroll working. If you contract for large clients as a Ltd, the client determines whether you're "inside IR35" — effectively taxed as an employee. This has wrecked the economics of many UK contractor Ltds. Understand where each engagement sits before quoting.
• National Insurance for the director. A £12,570 salary sits just above the Lower Earnings Limit so you get state pension credit, without paying employee NI. Bump the salary higher and the maths gets more complex.
• Employers' Allowance. Solo director companies with no other employees no longer qualify (rule change from 2016). Add a second employee — even a genuinely-employed spouse doing real work — and it comes back.

The realistic annual cost of a UK Ltd

• Formation: £15–£50 (once)
• Registered office / mail forwarding: £30–£100/year
• Confirmation statement: £34/year
• Accountant: £900–£2,000/year
• Bookkeeping software: £150–£350/year
• Business banking: £0–£120/year

Total: £1,200–£2,600/year for a lean solo Ltd. Under most freelance income levels, that overhead is comfortably covered by the tax savings over sole-trader status — usually break-even around £40,000–£50,000 of profit, with real gains above that.

The UK Ltd is one of the cleanest small-business structures in the world for a freelancer whose customers are OK contracting with a company. Get an accountant, don't miss the filings, and it just quietly works.