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How to change from sole trader to limited company

How to change from sole trader to limited company in the UK
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    Running a limited company requires more formalities than operating as a sole trader, but it can give you greater control of your business.

    You may decide to change from being a sole trader to running a limited company if you want to expand your horizons and grow as an entrepreneur, or if you’re looking to implement more structure in your organisation.

    Read on to discover how to change from sole trader to limited company in the UK.

    Is it time to upgrade from sole trader status?

    Speak with the team at WIS if you are at a stage in your business where it may be time to consider upgrading.

    We will be able to advise you on the pros and cons of moving from a sole trader status to a limited company structure, as well as how this will affect your tax situation, self-assessment, corporation tax, annual accounting and much more.

    If you have reached a point where you need more help than just yourself, and/or if you are ready to expand your business then it may be worth considering changing from sole trader to limited company status.

    You also need to be aware that making the switch is not necessarily an instantaneous process and may even take several months depending on the size of your business, its structure and whether any restructuring is necessary.

    Advantages of being a limited company owner

    • Limited liability: This means that you are only liable for the debts of your company up to the amount you have invested in it. This can be very important, especially if you run a risky business or have a lot of assets that could be taken by creditors if the business fails.
    • Tax savings: The government does not tax profits made by limited companies as much as it does those made by individuals or sole traders (unless they are paying themselves too much salary).
    • Flexibility: Being able to set up different types of structures, such as partnerships (where individuals can take advantage of limited liability) and holding companies (which helps with asset protection) is another benefit of being a limited company. You can also use pre-existing structures like limited partnerships and sub-companies which may have been used previously within your industry sector but haven’t yet been adopted elsewhere due to their complexity or the costs involved.
    • More credibility: Though this is a more anecdotal benefit, typically a limited company is known as a more prestigious level of operation. This may have benefits when it comes to networking, grant applications, hiring future talent and much more.

    Disadvantages of being a limited company owner

    • Limited companies are more complex and expensive to set up, so they’re not suitable for all businesses. For example, if you run a business as a sole trader and don’t need to raise capital or grow beyond your immediate area of operations, then there’s no reason why you can’t continue running it as a sole trader instead.
    • Limited companies carry greater risk than sole traders because they have multiple shareholders (i.e., people who own shares in the company). If one shareholder becomes bankrupt or dies with debts that exceed their assets, then this could leave other shareholders exposed to paying off those debts—and even worse still, they may have no idea that they were liable!
    • Don’t forget, you will also be taxed on dividends you receive from your business, so it is always beneficial to know how HMRC will treat you differently from a sole trader who undertakes self-assessment.

    This is where we can help – be sure to call us on 0203 011 1898 in order to find out how your tax situation will change, and how we can help you.

    How to change from sole trader to limited company in the UK

    The first step is to register with the company with Companies House. Once the company has been registered, a business bank account can be set-up. Depending on the requirements of the business they may also register for VAT and PAYE.

    We service clients in a range of sectors and niches, including fintech, cryptocurrency, auto industry, IT and eCommerce.

    Get advice from the experts

    If you’re planning on making a change, it’s important to get advice from a professional accountant. They’ll be able to tell you if your business is structured and operated in such a way that it will be easy to make the transition from one type of business structure to another.

    So remember, before you decide to become a limited company owner, it’s important to understand the pros and cons and to be aware of the full process. You should also consider whether it’s the best choice for your business in the long term.

    We hope that you found our guide on how to change from sole trader to limited company UK useful. At WIS, we are always ready to help you – we are a family of businesses so can also assist customers with mortgages (WIS Mortgages) and business insurance (WIS Business Protection). For any further information contact us today!


    Who can set up a limited company?

    Any individual is allowed to set up a limited company, as long as they are not subject to any UK government regulations, are not restrained by court order, or are undischarged bankrupt.

    Can anyone be a company director?

    Under the Companies Act 2006, every company has to have at least one director – the minimum age for a director is 16.

    Do I have to trade immediately?

    In short – no you cannot trade as a limited company without registering first. You may register your company and it can remain dormant for as long as you need.

    If you want to learn more about limited companies, check out these posts here:


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