Making the move from sole trader to limited company is not as difficult as you may think it is. Starting up in business as a limited company involves a more complex formation process, and the financial and administrative responsibilities of running a limited company are certainly greater than those of a sole trader. However, there are many benefits a limited company has over the self-employed route. Essentially you can keep your existing business set-up and clients and continue trading as normal, but you will need to change the legal structure of your business. Here’s what you must know to carry out the changeover process.
Inform all of your existing customers, suppliers, lenders, service providers and employees that you are going to start trading as a Limited Company.
If you do not have a business bank account, set one up in your company name. Your accounting requirements will be more complex when you begin trading as a Limited Company.
Let HMRC know that you have stopped working as a Sole Trader. Complete your Self-Assessment tax return as usual. After this you will need to submit tax returns the following year as a director and shareholder.
Within 3 months of starting to trade through your company, you must register with HMRC for Corporation Tax.
If your sole trader business is already registered for VAT, you will have to cancel your VAT registration within 30 days of the change and then and re-register through the company.
When it comes to VAT, we’ve got everything from VAT registration to a free VAT calculator included in our free eBook, which you can download now.
To be able to pay yourself a director’s salary, you must first register your company as an employer. If you already employ people, you should speak to HMRC about the change of business structure.
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Ready to take the next step? If you’re growing from a sole trader to a small business, you’ll find plenty of key information on everything from growth management to outsourcing, in our free guide. Click to download now.