Setting Up a Limited Company in the UK & Foreign Worker Hiring Rules

Hiring foreign workers

Setting up a limited company in the UK requires careful planning and adherence to legal requirements. Whether you’re a solo entrepreneur or forming a business with partners, following the correct procedures ensures smooth registration and compliance. Additional steps must be taken to verify their work rights if you plan to hire foreign workers.

Setting Up a Limited Company in the UK

To form a limited company in the UK, follow these key steps:

1. Choose a Unique Company Name

The name of your company must be distinct from any existing registered business. Search the Companies House database to ensure availability. Avoid sensitive or offensive words unless special approval is obtained. Including certain words like “bank” or “insurance” may require regulatory approval.

2. Appoint a Company Director and Shareholders

Every limited company needs at least one director legally responsible for managing the business and ensuring compliance with tax and corporate laws. Shareholders who own the company can be individuals or other businesses. A single person can act as both a director and sole shareholder. If multiple shareholders are involved, it’s wise to outline their ownership percentages and responsibilities from the outset.

3. Prepare the Memorandum and Articles of Association

These two documents define how the company will operate:

  • Memorandum of Association– A legal document signed by the initial shareholders, officially stating their intention to establish the company.
  • Articles of Association– A set of rules outlining the company’s management structure, decision-making process, and shareholder rights. Most businesses use a standard template, but custom articles can be created.

4. Register the Company with Companies House

Submit your registration application to Companies House, which can be done online, by post, or through an agent. Online applications cost £12 and are usually processed within 24 hours. The registration form (IN01) requires details such as:

  • Company name
  • Director(s) and shareholder(s) information
  • Registered office address
  • Share capital structure (if applicable)

Once approved, you’ll receive a Certificate of Incorporation, confirming the company’s legal existence.

5. Register for Corporation Tax with HMRC

Within three months of starting business activities, the company must register for Corporation Tax with HMRC. This process includes providing your company’s registration details, expected income, and accounting reference dates. Failure to register on time can result in penalties.

6. Set Up PAYE If Hiring Employees

If the company will employ staff, registration for PAYE (Pay As You Earn) is required. PAYE allows businesses to handle employee tax deductions and National Insurance contributions. Employers must submit payroll information to HMRC regularly.

7. Maintain Proper Records and Annual Filings

Keeping accurate records is a legal requirement. This includes financial transactions, shareholder decisions, and tax filings. Every year, the company must:

  • File annual accounts with Companies House
  • Submit a Confirmation Statement updating company details
  • Pay Corporation Tax and file a Company Tax Return

Failure to meet these requirements can lead to fines or even company dissolution.

Hiring Foreign Workers Legally

Once your company is established, you may need to hire employees, including non-UK workers. UK employment laws require businesses to ensure that every worker has legal authorization to work.

Right-to-Work Checks

Before hiring any employee, conduct a right-to-work check to verify their eligibility. This involves:

  • Checking identity documents such as passports, visas, or biometric residence permits
  • Ensuring the documents are valid and unaltered
  • Keeping a record of the verification for future reference

UK and Irish citizens can typically provide a passport, while non-UK workers need a visa that permits employment. If an employee has a time-limited visa, follow-up checks will be necessary to ensure continued work authorisation.

Sponsorship Licence for Hiring Workers on Visas

If hiring foreign workers under the Skilled Worker visa or similar schemes, your company may need a sponsorship licence from the Home Office. This requires:

  • Applying online and paying the applicable fee
  • Demonstrating that your business meets sponsorship requirements
  • Issuing Certificates of Sponsorship for employees to use in visa applications

Failure to comply with sponsorship duties, such as monitoring visa expiry dates or reporting employment changes, can result in penalties or revocation of the licence.

Hiring Self-Employed Foreign Contractors

Businesses must verify the tax status and visa conditions of self-employed foreign workers. Contractors should provide proof of self-employment (such as an HMRC registration certificate) and ensure their visa allows freelance work. Misclassifying a worker as self-employed when they function as an employee can lead to tax and legal issues.

Final Thoughts

Setting up a limited company in the UK requires careful attention to legal and tax obligations. Choosing a company name, appointing directors, filing incorporation documents, and maintaining financial records are essential to ensure compliance. Once established, the company must meet ongoing reporting requirements to avoid penalties.

Verifying their right to work is a crucial legal responsibility for businesses hiring foreign workers. Employers must conduct proper document checks, and companies hiring visa holders may need a sponsorship licence. Ensuring they have the appropriate visa and tax status is essential for working with self-employed foreign contractors.