As a sole trader you may consider changing your business structure and form a Limited company. This will mean that the company is a separate legal entity to you, the finances are separate from you, and the company keeps any profits it has made after tax.
Watch our video to learn more.
What you will need to do?
To set up a Limited company, you will need to register with Companies House. You will need:
- A suitable company name
- An address for the company
- At least one director
- Details of the company’s shares
- To check what your Standard Industrial Classification code is – this identifies what your company does.
You will also need:
- The shareholders to agree to create the company and the written rules
- The details of people with significant control over your company
Once you have all of these details you will have to pay £12 to register online with Companies House. Alternatively, you can register via post but this costs £40 and can take longer to process.
When you receive a certificate of incorporation, your company can then begin actively trading.
Do I need a company bank account?
If you don’t already have a bank account setup in the name of your limited company, then this tends to be the next step. As your Limited company is a separate legal entity, it needs a separate bank account. It also makes things much easier when having to undertake accounting processes when your limited company has commenced trading.
Do I need to contact HMRC?
At the earliest opportunity you should inform HMRC that you have stopped, or intend to stop, working as a sole trader.
You will still have to submit a personal tax return the following year as a director and shareholder.
How do I register for Corporation Tax?
You must register with HMRC to pay corporation tax within three months of doing business.
This means if your business has made purchases, sales, done any advertising, rented a property or, employed someone. Ensure that you do register otherwise you may face getting fined.
To register you will need your Unique Taxpayer Reference. This will have been posted to you when you incorporated your business. You will also need your company registration number, the date you started trading and, the date your accounts are made out to.
You will then receive a deadline to pay your corporation tax.
Do I need to keep records?
It is really important that you keep accurate records for preparing account and paying corporation tax. And with the looming prospect of Making Tax Digital it may be worth considering the use of Cloud Accounting.
You need to make sure you keep all receipts, expenses, sales, and purchases. And you will need records of any company assets and liabilities. You will need to keep these for six years after the tax year that they relate to.
If you have taxable profits of up to £1.5m, your corporation tax payment will be due 9 months after your company year-end to avoid any fines. If your profits are above this threshold you will pay the tax in installments.
What accounts do I need to prepare?
You will need to prepare a set of accounts annually. These are submitted to Companies House within nine months of your company’s year-end.
I hope you found this useful. If you would like to know more, please get in touch.