As a crypto investor in the UK, you may be exploring new ways to manage your assets and optimise your tax position. Setting up a limited company is one way to restructure your crypto trading for better tax efficiency and to protect your personal finances. However, the process can feel overwhelming without proper guidance. In this article, we’ll break down the steps involved in setting up a limited company, so you can confidently decide if it's the right choice for you.
For a more detailed look at the pros and cons of a limited company structure in comparison to sole trader, check out our blog "Should you switch from Sole Trader to Limited Company?".
Disclaimer
This guide is intended as a generic informative piece. This is not accounting or tax advice that can be relied upon for any UK individual’s specific circumstances. Please speak to a qualified tax advisor about your specific circumstances before acting upon any of the information in this article.
What is a Limited Company and why set one up for crypto investments?
Forming a limited company is a popular option for many crypto investors because it creates a separate legal entity from you as an individual. This means the company holds responsibility for profits, liabilities, and tax obligations, rather than you personally.
Here's a quick look at some key benefits:
- Personal liability protection: as a limited company, you're not personally responsible for the company's financial losses.
- Legal protection: your company name will be legally protected.
- Flexible ownership transfer: Selling or transferring ownership of the company is simple.
- Potential tax efficiency: You may pay less personal tax than you would as a sole trader, depending on your specific situation.
You can explore these in more detail, by reading more in our detailed blog "Should you switch?" which highlights the advantages and disadvantages.
Step-by-step guide to setting up a Limited Company for crypto investments
- Choose a company name and register with Companies House: Your first step is selecting a unique company name and registering the company with Companies House. This process involves filing key documents and incorporating your company. Keep in mind that you’ll also need to check the availability of your chosen name and ensure it complies with UK regulations.
- Appoint directors and shareholders: As the founder, you’ll normally act as the company’s director. Your name will be publicly available and this also makes you legally responsible for company records, accounts and performance. You’ll also need to assign shareholders or guarantors. A company can have multiple directors, shareholders, and even a company secretary, depending on your preferences.
- Prepare legal documents:
Memorandum of Association: This document is signed by all shareholders to confirm their agreement to form the company. It’s created automatically when you register online, but if you’re registering by post, you’ll need to submit this manually using the government memorandum of association template.
Articles of Association: This is a set of rules agreed upon by shareholders, directors, and company secretaries, dictating how the company will operate. You can either adopt 'model articles or write your own. - Open a business bank account: Separating your personal and business finances is essential. Although it’s not legally required to open a business account it ensures that company income and expenses are kept distinct, which is particularly important for tax reporting.
Get help and advice from a tax professional
Feeling overwhelmed? We highly recommend consulting with an accounting and tax professional. They can help you decide if a Limited Company is the right option for you and help you with the restructure and on-going responsibilities.
Key legal and financial responsibilities of a Limited Company
Once your company is registered, you'll need to maintain comprehensive records and fulfil various reporting obligations, such as:
- Company records: of directors, shareholders, secretaries, and any major transactions such as issuing shares or taking out loans.
- People with Significant Control (PSC) Register: anyone who owns more than 25% of the shares or controls the company.
- Accounting and financial records: maintain detailed records of income, expenses, assets, and debts, so you can file annual accounts and a company tax return.
Tax reporting and filing requirements for Limited Companies
Your limited company must file annual accounts and a Company Tax Return with both HMRC and Companies House. This includes:
- Annual Returns: Submitting a confirmation statement about your company's structure, including directors and shareholders.
- Financial Accounts: Filing a balance sheet, profit and loss statement, and other financial documents to provide a full picture of the company’s activities.
Make sure you stay on top of all tax deadlines and obligations. Failing to file or maintain accurate records can result in hefty penalties, including fines of up to £3,000 or disqualification as a company director.
Accounting records:
As a limited company, you need to keep on top of your accounting records, including:
- money received and spent by the company
- details of company-owned assets
- debts the company owes or is owed
- stock the company owns at the end of the financial year
- stocktakings you used to work out the stock figure
- all goods bought and sold, along with who you bought and sold them to and from
You must keep financial records, information and calculations you need to prepare and file your annual accounts and Company Tax Return, this could be in the form of:
- cash books, orders and delivery notes
- invoices, contracts, sales
- bank statements and correspondence
Record keeping
You must keep records for 6 years from the end of the last company financial year they relate to, or sometimes longer. You can also be fined £3,000 by HMRC or disqualified as a director if you don’t keep accounting records.
Using Recap for Companies can simplify tracking your crypto transactions and calculating your tax position, making it easier to prepare accurate reports for HMRC. You’ll also find other accounting software that can help keep track of traditional finance business expenses and accounts.
Buying, trading, and mining crypto as a UK Limited Company
Buying crypto as a Limited Company
If you're looking to invest in cryptocurrency as a limited company, the process is very similar to how you'd buy crypto as an individual. The key difference is that you'll be making the purchase on behalf of the company, so the crypto will be treated as a company asset. To do this:
- Open a business account on a crypto exchange: Make sure the exchange allows corporate accounts, as some exchanges only support personal users. Coinpass and Kraken are some of the most popular exchanges for companies in the UK, both approved by the FCA.
- Set up a crypto wallet: A business wallet, often a multi-signature wallet, is recommended for security. Ensure your chosen wallet is compatible with your company’s needs, such as whether it's accessible for short-term trading or more suitable for long-term holding.
- Record transactions: As with all financial transactions, you must keep a record of any crypto purchases, including the price and date of the transaction, for tax purposes.
Trading crypto through a Limited Company
Crypto trading through a limited company works in much the same way as personal trading, but the tax treatment differs. Profits from trading may be subject to corporation tax rather than capital gains tax. Here's how to trade as a company:
- Establish a trading strategy: Whether day trading or holding crypto long-term, ensure your strategy aligns with your company goals.
- Use appropriate tracking tools to account for all trades: Track all your trades and provide real-time reporting for tax purposes. Each trade must be recorded, including the buy/sell price, fees, and dates, to meet HMRC requirements for filing annual accounts and tax returns.
Crypto mining through a Limited Company
If you're engaging in cryptocurrency mining through a limited company, the process involves managing both operational and tax-related complexities:
- Acquire mining equipment: Mining requires specialised hardware, and any equipment you buy will be considered a company asset.
- Set up the business infrastructure: Consider the costs of electricity and maintenance, as these can be claimed as business expenses.
- Record mining earnings: Any mined crypto should be treated as company revenue, and you’ll need to track the fair market value of each mined coin at the time it’s generated.
Simplify your Limited Company accounting with Recap
Setting up a limited company can feel daunting, but by considering the steps above, you can streamline the process. Keep in mind the key responsibilities you'll face once your company is operational, including record-keeping and filing tax returns.
Recap can help simplify your crypto accounting, ensuring that your tax obligations are met and your investments are accurately tracked. Whether you're a new or experienced crypto investor, Recap's tools are designed to make managing your limited company easier.
For more guidance on how to stay compliant with HMRC, check out our UK Crypto Tax Guide for Limited Companies.
If you hold crypto personally rather than through a company, gains are subject to capital gains tax rather than corporation tax — you can estimate what you would owe with our free calculator.
