Switching from a sole trader to a limited company is a major decision for UK business owners. This transition can bring tax efficiencies, legal protection, and business credibility, but it also comes with administrative responsibilities and potential financial implications.
This guide explains the step-by-step process of converting your business structure, updated with the latest 2024-2025 tax rules and regulations. We’ll break everything down into five detailed sections, covering:
The Audio Summary of the Key Points of the Article:
Understanding the Key Differences Between a Sole Trader and a Limited Company
Before deciding to transition to a limited company, you must first understand how it differs from being a sole trader. This section covers:
Legal structure differences
Taxation and financial obligations
Liability and risk exposure
Reputation and business credibility
Real-life example of how incorporation affects business owners
Let’s break down each of these aspects.
1. Legal Structure: Who Owns and Controls the Business?
Sole Trader: The business and the owner are legally the same entity. You personally own and control everything, and any profits belong to you.
Limited Company: The company is a separate legal entity from its owner(s). It must be registered with Companies House, and all financial transactions go through a business bank account.
2. Taxation and Financial Obligations
One of the biggest reasons many sole traders switch to a limited company is the potential for tax savings. Below is a comparison of key tax obligations:
Tax Type | Sole Trader (2024/25 Tax Year) | Limited Company (2024/25 Tax Year) |
Income Tax | 20% on profits over £12,570 (basic rate) 40% on profits over £50,270 | No personal income tax on company profits (only if taken as salary or dividends) |
Corporation Tax | N/A | 19% (on profits up to £50,000) 25% (on profits over £250,000) |
Dividend Tax | N/A | 8.75% (basic rate) 33.75% (higher rate) 39.35% (additional rate) |
National Insurance | Class 2: £3.45 per week Class 4: 9% on profits over £12,570 | Employer’s NI: 13.8% on salaries above £9,100 Employee’s NI: 8%+ (depending on salary) |
VAT (if applicable) | Must register if turnover exceeds £90,000 (2024 threshold) | Must register if turnover exceeds £90,000 (2024 threshold) |
💡 Key takeaway: If your profits exceed around £50,000 per year, incorporating could lead to tax savings, especially if you pay yourself a mix of salary and dividends instead of just salary.
3. Liability and Risk Exposure
Sole Traders: You are personally responsible for all business debts. If the business goes into debt or legal trouble, your personal assets (house, savings, etc.) can be at risk.
Limited Companies: Liability is limited to the company's finances. Your personal assets are protected unless you provide a personal guarantee for a loan.
🚨 Example: If a sole trader business is sued for £50,000 in damages, the business owner is personally liable. However, if a limited company faces the same lawsuit, only the company’s assets are at risk.
4. Business Credibility and Reputation
Limited Companies often appear more professional and may attract larger clients or investors. Some companies prefer working with registered companies rather than sole traders.
Sole traders can sometimes struggle to win high-value contracts because they lack corporate structure and financial transparency.
👔 Example: If you're a freelancer working for large corporations, switching to a limited company can open more opportunities since many clients prefer to deal with a legally registered business.
5. Real-Life Example: Why Business Owners Choose to Incorporate
Let’s consider Emma, a freelance graphic designer earning £60,000 per year as a sole trader.
As a sole trader, she pays Income Tax (40% on profits over £50,270) and Class 4 National Insurance (9%).
Her tax bill for the year is around £18,000.
If she switches to a limited company, she can pay herself a salary of £12,570 (tax-free) and take the rest as dividends.
By structuring her income properly, her tax bill could drop to around £12,000—saving her £6,000 per year.
By understanding the core differences between sole traders and limited companies, business owners can make informed decisions about whether to incorporate.
Financial and Tax Implications of Incorporating
Above, we explored the fundamental differences between being a sole trader and running a limited company. Now, we’ll dive deeper into the financial and tax implications of making the switch.
This section covers:
Startup and ongoing costs of incorporating
Corporation Tax and personal tax changes
National Insurance implications
VAT registration and how it changes
How to maximize tax efficiency
A real-world financial example of tax savings
1. Costs of Incorporating and Running a Limited Company
Many sole traders hesitate to incorporate because of the costs involved. However, the potential tax savings and limited liability protection often outweigh the costs.
Here’s a breakdown of the key expenses:
Startup Costs of Incorporation
Cost Type | Amount (2024/25) | Details |
Companies House Registration Fee | £12 (online) / £40 (paper application) | Paid when registering a limited company via the Companies House website |
Accountant Fees for Setup | £100 - £500+ | Optional, but recommended to ensure correct setup |
Business Bank Account Setup | Free - £10/month | Required for limited companies |
👉 Minimum cost to incorporate: £12 (DIY) or around £200+ with professional help.
Ongoing Costs of Running a Limited Company
Ongoing Expense | Estimated Cost (2024/25) |
Annual Confirmation Statement (Companies House) | £13 (online) or £40 (paper) |
Accountant Fees (Yearly Tax Returns & Payroll) | £600 - £3,000+ per year (varies by complexity) |
Corporation Tax (on Profits) | 19% for profits up to £50,000 / 25% above £250,000 |
Business Bank Account Fees | Free - £10/month |
PAYE & Payroll Software (if hiring employees) | £5 - £30/month |
💡 Key takeaway: Incorporating comes with administrative and financial responsibilities, but many costs are tax-deductible.
2. Corporation Tax vs. Sole Trader Income Tax
Sole Traders: Income Tax System
Sole traders pay Income Tax on their total profits as part of their Self Assessment tax return.
Tax Band | Income Range (2024/25) | Tax Rate |
Personal Allowance | £0 - £12,570 | 0% |
Basic Rate | £12,570 - £50,270 | 20% |
Higher Rate | £50,271 - £125,140 | 40% |
Additional Rate | £125,140+ | 45% |
💡 Problem: If a sole trader earns £60,000 per year, they could be paying 40% tax on a significant portion of their income.
Limited Companies: Corporation Tax System
Limited companies pay Corporation Tax on profits instead of Income Tax.
Profit Level | Corporation Tax Rate (2024/25) |
Up to £50,000 | 19% |
£50,000 - £250,000 | Tapered between 19% - 25% |
£250,000+ | 25% |
Instead of paying income tax on all earnings, directors can take a salary (tax-free up to £12,570) and dividends (tax-efficient up to £50,000+ profits).
3. National Insurance: Sole Trader vs. Limited Company
Sole traders pay Class 2 and Class 4 National Insurance (NI) based on their profits.
Sole Trader NI (2024/25) | Amount |
Class 2 NI | £3.45 per week (if profits exceed £12,570) |
Class 4 NI | 9% on profits between £12,570 - £50,270, then 2% above |
👉 Limited Companies: Directors do not pay Class 4 NI. Instead, they pay Employer and Employee NI if taking a salary above £12,570.
Employer & Employee NI (Limited Companies)
Salary Level | Employee NI | Employer NI |
Up to £12,570 | 0% | 0% |
£12,571 - £50,270 | 8% | 13.8% |
Above £50,270 | 2% | 13.8% |
💡 Key takeaway: Directors often take a salary just below £12,570 to avoid NI and take the rest as dividends.
4. VAT Considerations: What Changes When You Incorporate?
VAT registration is required if your turnover exceeds £90,000 (2024 threshold).
If you’re VAT-registered as a sole trader, you must transfer your VAT number when incorporating.
A limited company can use the VAT Flat Rate Scheme (if eligible), which simplifies tax reporting.
5. Maximizing Tax Efficiency as a Limited Company
Switching to a limited company allows for strategic tax planning:
✅ Pay yourself a tax-free salary up to £12,570
✅ Take dividends instead of salary to reduce tax
✅ Claim more expenses (e.g., business equipment, travel, home office costs)
✅ Pension contributions from the company can be tax-efficient
✅ Split income with family members as shareholders
Example: How Much Can You Save?
James is a software developer earning £75,000 per year as a sole trader.
Scenario | Tax Paid as Sole Trader | Tax Paid as Ltd Company | Savings |
Income Tax + NI | £22,000+ | £14,000 | £8,000+ |
Corporation Tax | N/A | £12,000 | - |
Total Tax Bill | £22,000+ | £14,000 | £8,000 savings |
👉 By incorporating, James saves over £8,000 in taxes by using a salary/dividend strategy!
Step-by-Step Process of Switching from Sole Trader to Limited Company
So far, we explored the financial and tax implications of incorporating, showing how switching to a limited company can lead to tax savings and financial efficiency. Now, we’ll move on to the step-by-step process of transitioning from a sole trader to a limited company in the UK.
This section covers:
Registering your limited company
Notifying HMRC and closing your sole trader business
Setting up a business bank account
Transferring assets, contracts, and liabilities
Registering for PAYE, VAT, and other necessary taxes
By the end of this section, you’ll have a clear roadmap to legally and smoothly transition from a sole trader to a limited company.
1. Register Your Limited Company with Companies House
The first step in switching to a limited company is officially registering it with Companies House. This can be done online or by post.
How to Register a Limited Company
Step | Action | Notes |
Step 1 | Choose a company name | Must be unique and not too similar to existing names (Check name availability) |
Step 2 | Appoint at least one director | Directors must be over 16 years old |
Step 3 | Decide on shareholders and share structure | You can own 100% of shares if you're the only owner |
Step 4 | Choose a registered office address | This will be publicly visible on Companies House |
Step 5 | Prepare a Memorandum & Articles of Association | Standard templates are available from Companies House |
Step 6 | Register online with Companies House (£12 fee) | Takes 24 hours to process (Register here) |
👉 After registration, Companies House will issue a Certificate of Incorporation, which confirms your company is legally set up.
2. Notify HMRC About Closing Your Sole Trader Business
Once your limited company is set up, you need to inform HMRC that you are ceasing to operate as a sole trader.
How to Notify HMRC
✅ Step 1: Fill out the “Stopping Self-Employment” form online or call HMRC (Submit online here).
✅ Step 2: Complete and file your final Self Assessment tax return.
✅ Step 3: If you were VAT-registered, transfer your VAT number to your new limited company (Notify HMRC).
🚨 Important: You must still pay any outstanding tax for the period you operated as a sole trader.
3. Open a Business Bank Account
Limited companies are legally separate from their owners, so you must set up a business bank account.
How to Choose a Business Bank Account
🔹 Compare Fees: Some banks offer free accounts for the first 12-24 months.
🔹 Look for Online Banking & Integrations: Ideal for linking to accounting software (Xero, QuickBooks).
🔹 Check Minimum Balance Requirements: Some accounts have minimum deposit rules.
💡 Popular UK Business Banks (2024/25):
Bank | Monthly Fee | Key Features |
Starling Bank | £0 | Free business banking, great mobile app |
HSBC Kinetic | £6.50 | Easy online setup |
Lloyds Business | £6.50 | Free for 12 months |
Tide | £0 - £9.99 | Fast online setup, integrates with Xero |
👉 Opening a business account can take between 1-2 weeks, so plan accordingly!
4. Transfer Business Assets, Contracts & Liabilities
As a sole trader, any assets, contracts, and liabilities are owned personally. When switching to a limited company, you must formally transfer them to the company.
Steps to Transfer Business Assets
✅ Step 1: List all business assets (equipment, stock, intellectual property).
✅ Step 2: Create an Asset Transfer Agreement (especially for valuable items).
✅ Step 3: Update suppliers and clients with new business details.
✅ Step 4: If you rent office space, update the lease to the company’s name.
✅ Step 5: Transfer business insurance to the company.
🚨 Important: If you have business debts, you may need to personally guarantee them before transferring them to the company.
5. Register for PAYE, VAT & Other Taxes
Registering for PAYE (If You Pay Yourself a Salary)
If you plan to pay yourself a salary, you must register the company as an employer with HMRC.
✅ Step 1: Register for PAYE via the HMRC website (Register here).
✅ Step 2: Set up a payroll system (or use an accountant).
✅ Step 3: Report all salary payments via Real-Time Information (RTI) to HMRC.
👉 Best Payroll Software for Small Limited Companies:
Software | Monthly Cost | Key Features |
Xero Payroll | £5+ | Integrates with Xero accounting |
QuickBooks Payroll | £4+ | Easy tax calculations |
HMRC Basic PAYE Tools | Free | Limited features but works for small businesses |
Transferring or Registering for VAT
If your annual turnover exceeds £90,000, you must register for VAT.
✅ Option 1: Transfer VAT registration from your sole trader business (Apply here).
✅ Option 2: Register for VAT as a new company (Register here).
💡 Tip: If your turnover is below £150,000, consider the VAT Flat Rate Scheme to simplify VAT reporting.
Other Tax Registrations
🔹 Corporation Tax: HMRC automatically registers your company when you incorporate.
🔹 Self Assessment for Directors: If you take dividends, you must still file a Self Assessment tax return each year.
🔹 Business Rates: If you work from home, your company may be subject to business rates (check with your local council).
Legal and Administrative Considerations When Incorporating
Now, we will focus on the legal and administrative responsibilities of running a limited company.
This section covers:
Legal obligations of a company director
Ongoing reporting requirements to Companies House and HMRC
Employment law considerations if hiring staff
Business insurance requirements
Protecting intellectual property and business branding
Understanding these legal and administrative responsibilities will help you stay compliant and avoid costly mistakes.
1. Legal Responsibilities of a Limited Company Director
Once you incorporate your business, you take on the role of a company director. Directors have legal responsibilities under the Companies Act 2006.
Key Duties of a Director
Act in the best interest of the company – Directors must make decisions that benefit the company, not personal interests.
Keep accurate financial records – The company must maintain proper records of all income, expenses, and tax filings.
Ensure the company complies with laws and regulations – This includes tax obligations, employment laws, and data protection laws.
Avoid wrongful trading – Directors must not continue trading if the company is insolvent.
Declare conflicts of interest – Directors must disclose any personal interests that may conflict with company matters.
Failing to meet these responsibilities can result in personal liability, fines, or disqualification from acting as a company director.
2. Annual Reporting and Compliance Requirements
Unlike sole traders, limited companies must file annual reports and accounts with Companies House and HMRC.
Companies House Requirements
Confirmation Statement (Annual Return) – This must be filed once a year to confirm company details, including directors, shareholders, and the registered address. The filing fee is £13 online or £40 by post.
Annual Accounts – All companies must prepare and submit financial statements. The requirements depend on company size:
Company Type | Filing Requirement | Deadline |
Micro-entity (Turnover < £632,000) | Simplified accounts | Nine months after year-end |
Small company (Turnover < £10.2 million) | Abbreviated accounts allowed | Nine months after year-end |
Medium/Large company | Full financial statements | Nine months after year-end |
HMRC Requirements
Corporation Tax Return (CT600) – This must be filed annually, and Corporation Tax must be paid within nine months of the company’s financial year-end.
PAYE Reporting – If you pay yourself a salary, you must file payroll reports under Real-Time Information (RTI).
VAT Returns – If VAT registered, quarterly VAT returns must be submitted.
Failing to submit accounts and returns on time can lead to fines ranging from £100 to £1,500, depending on the delay.
3. Employment Law Considerations for Limited Companies
If your limited company hires employees, you must comply with UK employment laws.
Employer Responsibilities
Register as an employer with HMRC – This must be done before paying any staff.
Provide employment contracts – Written contracts are legally required for all employees.
Pay at least the National Minimum Wage – The minimum wage rates for 2024-25 are:
Age Group | Hourly Minimum Wage |
23 and over (National Living Wage) | £11.44 |
21 to 22 | £10.18 |
18 to 20 | £7.49 |
Under 18 | £5.28 |
Apprentices | £5.28 |
Provide a workplace pension – All employees earning over £10,000 per year must be automatically enrolled in a pension scheme.
Ensure health and safety compliance – Employers must follow the Health and Safety at Work Act 1974.
Failure to comply with employment laws can result in fines, legal claims, or reputational damage.
4. Business Insurance Requirements
While sole traders can operate without formal insurance, limited companies often require specific business insurance policies.
Types of Business Insurance
Employers’ Liability Insurance – Legally required if you employ staff. The minimum cover is £5 million, and failure to have this insurance can result in fines of £2,500 per day.
Professional Indemnity Insurance – Required in professions such as consulting, legal services, and financial advising to cover claims of negligence.
Public Liability Insurance – Recommended for businesses that interact with the public. Covers injury or damage claims from customers or third parties.
Directors’ and Officers’ Insurance – Protects directors from legal claims made against them personally for business decisions.
Many clients and suppliers require proof of insurance before working with a company.
5. Protecting Business Name, Branding, and Intellectual Property
When switching to a limited company, it is important to protect your business identity and intellectual property.
Steps to Protect Your Business Name and Branding
Register Your Company Name with Companies House – This prevents others from using the exact name.
Trademark Your Brand – If your business name, logo, or slogan is unique, consider applying for a UK trademark (Apply here). The standard fee is £170 per class.
Secure Domain Names and Social Media Handles – Register relevant domain names and social media usernames to prevent others from using them.
Intellectual Property Considerations
Copyright Protection – Original works such as designs, writing, music, and software are automatically protected by copyright.
Patents – If your business has created a new invention, consider patenting it through the UK Intellectual Property Office.
Non-Disclosure Agreements (NDAs) – If sharing sensitive business information, use an NDA to prevent unauthorized disclosure.
Failing to protect your business identity can lead to brand disputes and legal complications.
Switching from a sole trader to a limited company brings increased legal and administrative responsibilities. Directors must comply with Companies House reporting, tax obligations, employment laws, and business insurance requirements.
Common Mistakes to Avoid and Practical Tips for a Smooth Transition
Switching from a sole trader to a limited company can be highly beneficial, but there are several pitfalls that business owners frequently encounter. Avoiding these mistakes can save you time, money, and legal headaches.
This section covers:
Common mistakes when incorporating a business
Financial and tax pitfalls to watch out for
How to transition your existing business smoothly
Practical tips for making the switch as seamless as possible
Understanding these potential errors will help ensure that your transition is smooth, compliant, and financially beneficial.
Common Mistakes When Incorporating a Business
Choosing an Inappropriate Company Name
A common mistake business owners make is failing to check whether their chosen company name is already taken or too similar to an existing business name. This can lead to rejection by Companies House or potential legal disputes with other businesses.
How to avoid this mistake:
Use the Companies House name availability checker before registering.
Avoid names that sound too generic or could cause confusion with established brands.
If branding is important, consider registering a trademark for additional protection.
Not Understanding Share Structure
Some sole traders rush into incorporation without understanding how shares and ownership work. If you set up a company with multiple shareholders without a clear agreement, disputes may arise in the future.
How to avoid this mistake:
If you are the only owner, issue 100% of shares to yourself.
If there are multiple shareholders, create a shareholders’ agreement outlining responsibilities and ownership rights.
Consider different share classes if you want to retain control while offering shares to investors or partners.
Failing to Set Up a Business Bank Account Immediately
Many new company owners delay opening a business bank account, leading to complicated record-keeping and potential tax issues.
How to avoid this mistake:
Open a business bank account as soon as your company is registered.
Never mix personal and business finances—this is required by law for limited companies.
Choose a bank that integrates with your accounting software for easier bookkeeping.
Financial and Tax Pitfalls to Watch Out For
Failing to Inform HMRC About the Business Structure Change
Many business owners forget to tell HMRC that they are no longer trading as a sole trader. This can lead to unexpected tax bills or issues with National Insurance contributions.
How to avoid this mistake:
Notify HMRC immediately about the change by filling out the online form (Submit here).
File a final Self Assessment tax return for your sole trader business.
If VAT-registered, transfer the VAT registration to the new company.
Not Taking Advantage of Tax-Efficient Salary and Dividend Strategies
Sole traders who become directors often continue paying themselves like before, without taking advantage of limited company tax efficiencies.
How to avoid this mistake:
Take a low salary (£12,570 or below) to avoid National Insurance.
Pay yourself through dividends to reduce tax liability.
Work with an accountant to optimize your tax strategy.
How to Transition Your Existing Business Smoothly
Transferring Business Assets Properly
If your sole trader business owns equipment, stock, or intellectual property, these assets must be transferred to the new limited company.
How to do this correctly:
Create a legal transfer agreement for any assets moving to the company.
If the company is purchasing assets from you, document this in your company records.
Update supplier contracts to reflect the new business structure.
Handling Client Contracts and Business Relationships
Existing clients may need to update contracts with your new limited company, as legally, it is a different entity from your sole trader business.
Steps to take:
Inform all clients and suppliers about your new business details.
If contracts are in your personal name, renegotiate them under the company name.
Ensure all invoices and payment details reflect the new company.
Managing Debts and Liabilities
Any outstanding debts under your sole trader business do not automatically transfer to the limited company unless legally assigned.
How to handle this:
Pay off any existing debts before switching.
If transferring a business loan, check if personal guarantees are required.
Seek legal advice if dealing with large financial commitments.
Practical Tips for a Smooth Transition
Work with an Accountant or Business Advisor
Limited companies have more complex accounting requirements. A professional accountant can help with:
Setting up your company correctly.
Registering for Corporation Tax, PAYE, and VAT.
Structuring director salaries and dividends tax-efficiently.
Ensuring compliance with Companies House and HMRC filing deadlines.
Use Accounting Software for Better Financial Management
Manually tracking business finances can become overwhelming. Consider using cloud-based accounting software to manage invoices, expenses, and tax returns.
Recommended accounting software for limited companies:
Software | Monthly Cost | Key Features |
Xero | £14+ | Integrates with bank feeds, VAT filing |
QuickBooks | £12+ | Good for payroll and tax calculations |
FreeAgent | Free with some business accounts | Simple and user-friendly |
Plan Your Cash Flow for the First Year
Switching to a limited company means dealing with new tax deadlines and possibly delayed payments if clients require updated contracts.
How to avoid cash flow issues:
Keep a separate tax reserve for Corporation Tax.
Invoice clients on time and follow up on overdue payments.
Consider business overdrafts or credit lines for short-term cash flow support.
Switching from a sole trader to a limited company can offer significant financial benefits, but it also comes with new legal, tax, and administrative responsibilities.
By avoiding common mistakes, planning for financial changes, and following the right transition process, you can ensure that your business operates efficiently and compliantly in its new structure.
Summary of Key Points
A limited company provides legal separation from personal assets, potential tax savings, and increased credibility compared to operating as a sole trader.
Incorporating a business requires registering with Companies House, selecting a company name, appointing directors, and issuing shares.
Once incorporated, sole traders must inform HMRC, close their self-employment status, and submit a final Self Assessment tax return.
Corporation Tax for limited companies is 19 percent on profits up to £50,000 and 25 percent on profits above £250,000, which can be more tax-efficient than sole trader Income Tax rates.
Directors often take a low salary (up to £12,570) and pay themselves through dividends to minimize National Insurance contributions and overall tax liability.
Limited companies must comply with annual filing requirements, including a Confirmation Statement, Annual Accounts, Corporation Tax returns, and, if applicable, VAT and PAYE reporting.
A business bank account is legally required for a limited company, and financial transactions must be kept separate from personal finances.
Existing assets, contracts, and client agreements must be legally transferred to the new limited company, ensuring proper documentation and compliance.
Business owners must consider legal responsibilities, including employment law compliance, business insurance, and protecting intellectual property.
Common mistakes to avoid include failing to notify HMRC, choosing an unsuitable company structure, neglecting tax planning, and not keeping accurate financial records.
FAQs
Q1. Can you transfer your existing business debts to the new limited company?
A. No, business debts from your sole trader business do not automatically transfer to the limited company. You may need to personally guarantee them or pay them off before incorporation.
Q2. Do you need to register for VAT again if you were VAT-registered as a sole trader?
A. Yes, you must transfer your VAT registration from your sole trader business to the new limited company using HMRC’s VAT registration transfer process.
Q3. Can you change your company name after registering as a limited company?
A. Yes, you can change your company name after registration by filing a name change application with Companies House and paying the applicable fee.
Q4. Will you lose your existing business bank account when switching to a limited company?
A. Yes, sole trader bank accounts cannot be used for a limited company, and you must open a new business account in the company’s name.
Q5. Can you backdate your limited company registration to cover income earned before incorporation?
A. No, you cannot backdate your limited company’s registration, but you can transfer assets and contracts to reflect the transition.
Q6. What happens to your sole trader business insurance when you switch to a limited company?
A. You will need to take out a new insurance policy in the company’s name, as sole trader insurance policies are not transferable.
Q7. Can you operate both as a sole trader and a limited company at the same time?
A. Yes, you can run both entities simultaneously, but you must keep separate financial records and report taxes separately for each business.
Q8. How do you inform your clients and suppliers about the change in business structure?
A. You should send a formal notice to clients and suppliers, update contracts, and ensure that invoices are issued under the new company name.
Q9. Do you need a new National Insurance number when you switch to a limited company?
A. No, your National Insurance number remains the same, but your tax obligations will change, as you will now pay through PAYE instead of self-assessment.
Q10. How does changing from a sole trader to a limited company affect business loans?
A. If your business has existing loans, you may need to refinance them in the company’s name or continue paying them personally if they were taken as a sole trader.
Q11. Can you keep using your sole trader UTR number after incorporating?
A. No, you will receive a new UTR number for the limited company, and your old sole trader UTR will only be used for your final self-assessment return.
Q12. What happens if you fail to inform HMRC about switching to a limited company?
A. If you do not notify HMRC, you may face penalties, continue being taxed as a sole trader, and risk compliance issues with VAT and Corporation Tax.
Q13. Can you use your home address as the registered office for your limited company?
A. Yes, you can use your home address, but it will be publicly visible on the Companies House register unless you use a registered office service.
Q14. What happens to your business phone number and email address when switching to a limited company?
A. You can continue using them, but you should update your company name on all communication platforms, including email signatures and invoices.
Q15. Can you transfer ownership of a sole trader business to someone else instead of incorporating?
A. No, sole trader businesses are tied to the individual and cannot be sold as entities, but you can sell assets and goodwill to another person or company.
Q16. Does switching to a limited company affect your personal tax code?
A. Yes, your tax code may change once you start receiving a salary through PAYE, and you may need to update your tax code with HMRC.
Q17. Can you register a limited company while still working as an employee elsewhere?
A. Yes, you can own and operate a limited company while being employed, but you must check your employment contract for any restrictions on outside business activities.
Q18. What happens to your self-employed pension contributions when you switch to a limited company?
A. You may need to switch to a company pension scheme, and employer pension contributions made through the limited company can be tax-efficient.
Q19. Can you close your limited company later and return to being a sole trader?
A. Yes, you can close your limited company by following the dissolution process with Companies House and re-register as a sole trader with HMRC.
Q20. Do you need a new website domain or business branding when switching to a limited company?
A. Not necessarily, but you should update your website, business cards, and branding to reflect the new company name and structure.
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