SETTING UP A LIMITED CONSTRUCTION COMPANY IN ENGLAND

9 March 2023

FBK&PARTNERS

SETTING UP A LIMITED CONSTRUCTION COMPANY IN ENGLAND

What is Limited Company?

A limited company is an organisation that is referred to by law as a ‘legal entity/person’. This means that the company has its own identity, is entirely separate from its owner and does business under its own name. If the business makes money, it must pay tax, and if the business loses money, it can build up debt – just like a real person.

Here is a 10 step guide to walk you through the setup process:

CHOOSE YOUR COMPANY NAME: When registering as a limited company, there are restrictions on the types of names that can be used as company names.

The company name cannot be the same as another registered company’s name. If your name is too similar to another company’s name, you may have to change it if a complaint is made against you. Choosing a name that is already taken is not worth it as it could confuse your customers and affect your business. The company name should not be offensive, must not contain ‘sensitive’ words or expressions, and should not suggest a connection with government or local authorities, unless permission is granted to do so.

APPOINT DIRECTORS AND SHAREHOLDERS: A limited company must have at least one director who is legally responsible of running the company as well as ensuring that the company accounts and reports are properly prepared and up to date. Directors must be 16 years of age or older. Previously disqualified directors cannot assume the role of director in a newly established company. While directors don’t have to live in the UK, the company must have a registered office address at the UK. All directors’ names and addresses are publicly available online in Companies House. If you’re setting up a private limited company, you don’t need a company secretary, although, some companies use them to take on some of the director’s responsibilities.

The company secretary can be a director but cannot be:

The company’s auditor
An ‘undischarged bankrupt’ – unless they have permission from the court.

SHAREHOLDERS AND ISSUING SHARES: A company limited by shares must have at least one shareholder, who can be a director. If you’re the only shareholder, you’ll own 100% of the company shares. There’s is no upper limit for the number of shareholders. The price of an individual share can be of any value. If the company needs to shut down, shareholders will need to pay for their shares in full. You can set a low share value (for example, £1) to limit the shareholders’ liability. You can include any other shareholder in the company, as long as the total amount of shares are divided proportionately to the capital. Selling a share to another person can be beneficial in the event of equal votes. This way, another person can be the tie-breaker and make a decision.

When you register a company, you need to provide a statement of capital that sets forth the information about the shares.

This should include:

The number and the type of shares the company has and their total value – known as the company’s ‘share capital.’
The names and addresses of all shareholders – known as ‘subscribers’ or ‘members.’

REGISTER WITH THE COMPANIES HOUSE: When you have made all the crucial decisions regarding your company name and the people involved (directors, shareholders etc), you need to register your company with the Companies House. To do this, you will need to go online and access the Companies House website, submit all the required information on the setup form and pay a fee of estimately £12.

Companies House will check your application to register your company and see if the name you’ve chosen is available for use. They will also ask you to appoint a company director and a company secretary. You may also seek help from an accountant to do all this for you.

MEMORANDUM AND ARTICLES OF ASSOCIATION: When registering your company, you will also need to file a Memorandum of Association with the Companies House. This is a document that tells everyone why you’ve set up the company, and how you plan on running it. Should a tax dispute arise, this document can have significant legal importance in the courts.

If you are opting to write the document yourself, the key is to keep it simple and only state the key information needed, including:

What is your company for?
How do you intend to run it?

It is always recommended to seek to advise from your accountant before filling the memorandum.

SETTING UP A BUSINESS BANK ACCOUNT: A limited company must have its own business bank account which is used for all income and expenses related to the business. Revenues earned by the company must be paid to the company account and cannot be paid to the company under your own name.

Having a business bank account also makes things a lot easier when managing accounts and filing tax returns. Having your personal and business finances kept separately makes managing your income and expenses clearer, which can help your business to thrive. It’s also how HMRC would expect you to manage your funds should an investigation take place.

A business bank account can take anywhere between a few days to a few weeks to set up, depending on the bank. Shop around for the best bank account options so that you can take advantage of the best deals.

REGISTER FOR CORPORATION TAX: After registering your company with the Companies House, you’ll also need to register it for Corporation Tax within 3 months of starting to do business. This includes buying, selling, advertising, renting a property and employing someone. Failing to register within the 3 month period can result in a penalty fine.

To register online, you’ll need your company’s 10-digit Unique Taxpayer Reference (UTR) which will be posted to your company address HMRC a few days after the company has been incorporated.

REGISTER FOR VAT: VAT is a tax charged on most goods and services in the UK with the ‘standard’ rate currently at 20%.

If your business turnover for the previous 12 months exceeds the current VAT threshold level (£85,000 as of April 1^st, 2017), then your company must register for VAT.

If you expect your turnover to exceed the threshold within the next 30 days alone, you should also register for VAT. You may also decide to register for VAT even if you don’t expect to reach the threshold.

Most contractors who run limited companies are registered for VAT. Not only does it give a professional impression to be VAT registered, but it will also enable you to reclaim any VAT you incur.

You can register for VAT online at: https://www.gov.uk/register-for-vat

THE CIS (CONSTRUCTION INDUSTRY SCHEME): The Construction Industry Scheme (CIS) is a tax deduction scheme which involves tax being deducted from payments related to certain types of construction work. The CIS covers most construction work to permanent or temporary buildings as well as civil engineering work like roads and bridges.

If you’re working in the construction industry as a subcontractor or contractor, you need to register with HMRC for the Construction Industry SCHEME (CIS).

The scheme works by contractors deducting money from subcontractor’s pay and passing it onto HMRC. The deductions are counted as advance payments towards the subcontractor’s tax and national insurance.

You can apply for gross payment status when you register for CIS if you do not want to pay advance payments.

It is compulsory for contractors to register, but not for subcontractors. However, subcontractors will have to pay a higher rate of national insurance.

How to Register for the CIS: To register for the Construction Industry Scheme (CIS) you will need:

Your legal business name – you can also give a trading name if it’s different to your business name
Your National Insurance Number
The unique taxpayer reference number (UTR) for your business
Your VAT registration number (if you’re VAT registered)

If you’re a subcontractor and a CIS Contractor (you pay subcontractors to do construction work), you’ll need to register for the CIS as both.

You can find online registration forms and procedure at: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register

HOME RENOVATING: DO I NEED PLANNING PERMISSION?

à You can perform certain types of work without needing to apply for planning permission. These are called “permitted development rights”.

They derive from a general planning permission granted not by the local authority but by the Government. Bear in mind that the permitted development rights which apply to many common projects for houses do not apply to flats, maisonettes or other buildings. Similarly, commercial properties have different permitted development rights to dwellings.

In some areas of the country, known generally as ‘designated areas’, permitted development rights are more restricted. For example, if you live in:

A Conservation Area
A National Park
An Area of Outstanding Natural Beauty
A World Heritage Site or
The Norfolk or Suffolk Broads.

You will need to apply for planning permission for certain types of work which do not require an application in other areas. There are also different requirements if the property is a listed building. It is generally advised that you should contact your LOCAL PLANNING AUTHORITY and discuss your proposal before any work begins. They will be able to inform you of any reason why the development may not be permitted and if you need to apply for planning permission for all or part of the work.

à Permitted development rights are a type of general planning permission granted by the Parliament. If your plans fall within certain restrictions, this allows you to bypass submitting a planning application. Permitted development only applies to houses and outhouses (never flats or maisonettes), and there may be exceptions if you live in a listed building or in a conservation area (‘Article 4’ direction). If you have had construction work done in the past, you may have used up some or all of your permitted development rights already. Like planning permission, permitted development is regulated through your local planning authority.

You’re usually within permitted development rights if your single storey extension or conservatory:

Sits to the side (as long as it does not face a highway) or the rear of the house (not the front)
Must not extend beyond the rear wall of the existing house by 3 meters of an attached house or 4 meters if detached
Uses similar building materials to the existing structure
Takes up less than 50% of the size of the land around the original house (‘original’ refers to the time when the property was built or if it was built before 1948, then as it stood on July 1^st, 1948)
If a side extension is less than 50% of the width of the original house
Is less than 4 meters in height (or less than 3 meters if its within 2 meters of a property boundary)
Has eaves and a ridge that are no taller than the existing structure

You’re usually within permitted development rights if your loft conversion:

Adds less than 40 cubic meters to a terraced house, or 50 cubic meters to a detached or semi-detached house
Uses similar building materials to the existing structure
Sits lower or equal to the highest part of the existing roof
A dormer wall that is set back at least 20 centimeters from the existing wall face
Has windows that are non-opening if less than 1.7 meters from the floor level
Has side windows that are obscured/frosted

You’re usually within permitted development rights if your porch:

Takes up a total ground area less than 3 square meters
Has the highest point lower than 3 meters
Does not sit within 2 meters of a property boundary that leads to a road

What building work does not fall under permitted development?

Balconies
Verandas
Raised platforms
Two storey side extensions within 7 meters of a rear boundary
Extensions with eaves higher than 3 meters (within 2 meters of a boundary)
Extensions exceeding 50% of the original land around the original house
Eaves and a ridge of a loft higher than the height of the original house
Extensions over 4 meters tall or exceeding 50% of the width of the original house
Extensions at the front of the house
Side extensions on designated land
Unobscured side windows above ground floor
Loft windows that can open when positioned less than 1.7 meters from the floor

WHAT IS A LAWFUL DEVELOPMENT CERTIFICATE? If the legislation for permitted development on your project are not clear cut, or it has been conditionally withdrawn in your area, you should apply for a lawful development certificate or may even need to submit a planning application. However, we recommend everyone to use their permitted development rights. This process ensures that your building work (past, present or future) is compliant, and will protect you if you wish to sell your property. The application process is similar to a planning application. You’ll need to provide:

An application form
Evidence verifying the information within the application.
This would include architectural plans and elevations
A site location plan
A fee