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Moving from sole trader to a limited company: What is the process? What do you need to be aware of?

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Are you thinking of changing your business structure from a sole trader to a limited company? If so, here’s an overview of the process involved and the key things you need to be aware of before moving.

 

1. NICs

When you cease being self-employed, you no longer have to pay Class 2 National Insurance contributions (NICs). In order to stop paying these you need to call the National Insurance Self-employed Helpline on 0300 200 3505.

 

2. Registration

A limited company only comes into existence when it is registered or ‘incorporated’ at Companies House. You will also have to nominate directors to run the company.

 

3. HMRC

You then need to inform HM Revenue & Customs of the following:

  • date the business became active
  • company name and registered number
  • main business address
  • business type
  • accounting dates

 

4. Accounts

As the director of a limited company you’ll have different obligations regarding record keeping and accounts than you did as a sole trader. You need to keep a complete record of all business income and expenditure, so that you can prepare annual statutory accounts for both HMRC and Companies House. These must adhere to accepted accounting guidelines, so you may require the help of a professional advisor.

 

5. Tax returns

You will still have to complete a Self Assessment tax return – filling in the Employed rather than Self Employed section – and you will also have to file a company tax return, even if the company doesn’t make a profit.

 

6. Corporation tax

Corporation tax is only payable when the company makes a profit.

 

We hope you found this blog post about moving from a sole trader to a limited company helpful. Please let us know if you have any questions. Alternatively, additional information can be found at www.hmrc.gov.uk/ct/getting-started/new-company/start-up.htm.

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