Sole trader to limited company

Sole trader vs limited company

A sole trader runs their business as an individual; registering as self-employed with HMRC and then at the end of each tax year reporting their income, expenses and tax liabilities via a self-assessment tax return.

Their responsibilities include:

• Keeping business records and proof of expenses.
• Filing your self-assessment tax return.

Read our How to Set up as a Sole Trader page for more information.

Unlike a sole trader, a limited company is seen as its own legal entity and so isn’t personally liable for any debts or losses made; it’s taxed separately from its directors, shareholders and employees.

There will also be additional taxes and obligations compared to a sole trader.

Their responsibilities include:

• Keeping company records and proof of expenses.
• Reporting any changes to Companies House (such as a change of business address, directors or their personal details).
• Filing accounts and company tax returns.
• Paying Corporation Tax.

Sole trader to limited company

Setting up your own limited company is a simple and easy process.

Firstly, you’ll need to contact HMRC to change your status from sole trader business to limited company.

Then you need to come up with a name for your company. Our Choosing a Limited Company Name page will tell you everything you need to know about this.

You then need to decide on roles – a company must have at least one director and they will be legally responsible for running the company, making sure company accounts and reports are properly prepared and the company’s money is used wisely.

A company secretary is often there to help with some of the director’s responsibilities; however, you don’t have to appoint one.

You will have to have at least one shareholder within the company (who can also be a director) and if there is just one, they will own 100% of the company. There isn’t a maximum number of shareholders and the price of an individual share can be any value, but each person will need to be paid their shares in full if the company shuts down.

Then, you’ll need to register your company through Companies House. For this you’ll need to provide the company’s name and address, as well as the names and addresses of directors, company security and shareholders; it’ll take around 48 to fully set up and comes with a small fee.

When registering, you’ll need a ‘memorandum of association’, which is a legal statement signed by all shareholders or guarantors agreeing to form the company, plus an ‘articles of association’ – these are written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary.

Other contracting options
Apart from sole trader and limited company contracting, there are a couple of other self-employed structures you can choose from:

Limited Liability Partnerships
A Limited Liability Partnership (LLP) is somewhat similar to a limited company; it’s a way for two or more people to come together to carry out business projects and activities.

Many people choose this route because joining with a business partner means you can put your individual skills and expertise together, as well as spread the level of risk that comes with running a company.

Read our Limited Liability Partnerships page for a more in-depth look at how this works.

Umbrella company contractor
An umbrella company employs a temporary worker on behalf of an employment agency and the agency then provides the services of the worker to their clients.

It’s a self-employed route ideal for those who want some of the perks of being self-employed, such as flexibility with a better work-life balance, but don’t want to deal with the admin side of running a business.

Read our What is an Umbrella Company? page for more information on how it all works.

If you’d like to sign up or need any further information, please give us a call on 01442 795 100 or you can email jaime.thorpe@dolanaccountancy.com. There’s also the option to contact us via live chat.