21 Jun From Sole trader to a Limited Company. When Are You Taking the Leap and Do you Know What to Expect?
What to expect from incorporating your business.
Many sole traders at particular times in the financial year, or for personal reasons review their business structure and consider whether it’s worth switching to a limited company. Is this you in 2018?
There’s no denying that incorporating a business proved popular in 2017, with Companies House reporting a 7% rise in the number of actively trading companies – bringing the UK total to 1.9 million.
Last year’s statistics showed this trend is continuing as the number of actively trading companies has increased by around 610,000 since 2010.
The following blog is advice in transitioning to a limited company. If you’d like us to speak to you in person and help you with this. please fill out our contact form and one of our trusted team ‘Andrew’ will contact you at your convenience to discuss your situation and how we can support you moving forward.
We have worked with Andrew and his company on many occasions and always found them to be efficient and reliable.
Our relationship has been built up over a number of years and we would have no problem recommending them to others. Les Gordon, Director at Reach Commercial Finance
Where to start
As a sole trader, you are your business so it’s important to know that moving to a limited company will mean your business becomes its own legal entity separate from you, but managed by you.
In setting up your limited company you should settle on a unique name for your company. Make sure it’s not already taken by checking the companies house web check service. You also need to consider the following necessaries:
- your standard industrial classification of economic activities (SIC) code
- you need a memorandum of articles and association
- the people with significant control (PSC) register, such as
someone who holds a 25% stake in your company or has
Company bank account
If you don’t already have a bank account set up in the name of your business, setting one up in the name of your limited company is usually one of the next steps to take. This will make it easier for you to handle the more complex and often time-consuming accounting processes involved after you’ve started trading as a limited company.
It would also be wise at this stage to look into hiring an experienced accountant, who can work with you to potentially reduce your tax liabilities further down the line.
You should let the Revenue know at the earliest opportunity that you’ve stopped, or when you intend to stop, working as a sole trader.
Depending on when you cease working as a sole trader, HMRC will expect you to file a tax return under self-assessment for the rest of the year and possibly the previous year.
You may then have to submit tax returns the following year as a director and shareholder.
It’s worth bearing in mind that the cost of challenging the Revenue’s opinion on whether or not a director should submit a tax return will usually exceed the cost of completing a tax return.
Register with Companies House
The next step is to register – either online or through the post – with Companies House, which deals with incorporating new companies and dissolving existing ones.
- You will need your company name, a company address, and at least one director and shareholder.
- You’ll also require the aforementioned details, including your SIC code, your memorandum of articles and association, and your PSC register.
- Once you have these details, you pay £12 to register online with Companies House and the process can take up to 24 hours to complete.
- your company’s registration number
- the date you started trading (to determine the start of your accounting period)
- the date your annual accounts are made out to.
Work with a good accountant and they save you more than they cost you.
Reporting and payments. Your accountant can do this for you, freeing up your time to run your business.
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