What are the starting costs of a limited company?

Anyone setting up a limited company will need to consider the various costs associated with getting a business off the ground. It may sometimes be necessary to obtain external investment to cover the initial capital needed to start trading. This blog will take a look at the expenses faced by new businesses.

What is the cost of registering a limited company?

Registering a limited company is surprisingly cheap. 1st Formations offers a company formation package from as little as £52.99. This includes the filing fee for registration with Companies House.

Some people decide to start their business as a sole trader because there is no registration cost and fewer formalities. But a limited company has certain benefits, not least because it limits the liability of its owners to the value of their shares, preventing creditors from pursuing company debts from shareholders personally.

Can I ask my accountant or lawyer to set up my limited company?

Accountants and lawyers are sometimes asked by their clients to register a limited company on their behalf. This is generally far more expensive than using an online service such as that provided by 1st Formations. It will normally cost at least several hundred pounds.

One reason to ask an accountant or lawyer for help with registering a limited company is for their assistance in creating bespoke articles of association or shareholders’ agreements. This may be necessary when there are multiple founders, or a complex shareholding structure, when the model articles of association or a template shareholders’ agreement may not suffice.

Any complex tailoring of these documents by lawyers and accountants can run into thousands of pounds.

What are the other costs of starting a limited company?

As we have discussed, unless you are using the services of an accountant or lawyer, the initial costs of registering a limited company are minimal. However, there are various other costs involved with setting up a new business. We have listed a few of them below.

Website

Most limited companies these days will need a website. A domain name will need to be registered which can vary in cost but should not normally be more than about £10 per year.

If you are willing to do the web design work yourself using a web builder tool such as WordPress, Squarespace, or Wix, you can save a lot of money. Web builder business package prices start from around £15.00 per month.

A web designer will generally charge around £50.00 per hour, with the average cost to create a basic website coming in at around £5,000. This figure will include set up, design, build, content, and maintenance. The costs can go much higher for an e-commerce site.

Premises

Renting commercial premises is often one of the most substantial expenses involved with starting a limited company.

A dedicated office will normally cost several hundred pounds a month, but it’s possible to reduce this drastically if you are willing to use shared office facilities. Shops and hospitality venues are generally more expensive than office space, although this depends on the size and location.

If you can work from home, you will be able to save money on business premises, although you may wish to use a virtual office facility offered by business centres. Virtual office packages provide a business address, mail forwarding, and telephone answering services and usually cost around £100.00 per month.

Staff

Taking on employees is generally the single biggest cost of starting a limited company. From 1 April 2024, the National Living Wage (i.e. the minimum wage for those aged 21 and over) is £11.44 per hour.

The cost and administration of employing staff mean that many companies will try and outsource work to self-employed freelancers instead, if possible.

Utilities

Any limited company will have to factor in costs for electricity, water, heating, phone, and internet access. You may wish to factor into your business plan a cost of at least £250 per month for utilities.

Industrial and hospitality businesses may have significantly higher costs for utilities.

Professional fees

At some point, the majority of limited companies will need to consult an accountant, lawyer, or other professionals. Professional fees vary drastically, but the minimum payment for a consultation will normally be several hundred pounds.

Perhaps the most common of these expenses are for accountancy services. All limited companies require filing annual accounts with Companies House and the first set of accounts have to be filed 9 months after the end of a company’s financial year. An accountant will usually charge around £800 to £1,500 to prepare annual accounts for a startup.

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The other annual filing obligation is the confirmation statement. Companies must complete this document every year to confirm that the information Companies House has about them is accurate and up to date. If you wish to file your own confirmation statement, the Companies House filing fee is £34.00. However, if you would like a professional to file this for you, 1st Formations provides a Confirmation Statement Service at a cost of £59.99 per year.

Software and IT

Another cost to consider when setting up a limited company is the range of software licences that will be required. These may include Microsoft Office 365 (from £7.99 per user/month), and Xero accounting software (from £10.00 per month). Savings can be made by using alternative products – such as substituting Microsoft Word with Google Docs.

Aside from software licensing, there is the cost of computer hardware to consider. A cost of a laptop or desktop PC with the operating system and peripheral equipment will typically cost between £500 and £1,000.

Insurance

There are certain types of insurance that some businesses will want to take out. If a limited company – or any other type of business – has employees, they are required by law to take out Employers’ Liability Insurance.

Other types of insurance include Public Liability Insurance, Professional Indemnity Insurance, and Building and Contents Insurance.