Many small businesses with low risk and lower profits start off as sole traders as it is much easier to set up and the financial administration is much simpler. Moving from a sole trader to a Limited Company can be done at any time, although one of the most common times is when profits start to increase significantly.

Things to consider when considering moving from sole trader to a Limited Company are:

Protect yourself

Are you looking to protect yourself as an individual? Should someone suffer financial loss due to advice you have given, you won’t be personally liable if someone makes a claim against you (the business).

Protect your business name

Do you want to add a level of protection to your business name? This could be a useful move for you as your business brand is growing. Registering a company name at Companies House means that the chosen name cannot be registered by any other business

Profit levels

What are your profit levels? There are a lot more tax benefits to be had by moving to a limited company if you are in a higher tax bracket. If not, you need to weigh up the costs involved with a Limited company against the profits you are making as a sole trader. There used to be a general rule of thumb that if your profits were under £30,000 you would be better off staying as a sole trader. However, this is subject to change and a number of other factors so professional advice from an accountant should be taken.

Administration time

Do bear in mind the increased time and tasks you will need by incorporating your business. End of year accountancy fees will also be higher so if your business is low risk and with profits of under £30,000 you may wish to remain as a sole trader. If you are a sole trader it can be easy to do the end of year accounts yourself but as a Limited Company, I would always advise using an accountant.

Credibility

Another benefit to moving to a Limited company is that it makes your business look more professional and can boost your status to prospective clients. It will also put you in higher stead should you look to raise finance in the future.

Take professional advice

It is strongly recommended to speak to a Chartered Accountant or financial adviser before making a final decision as they will be able to advise on your individual business needs.

Taking the next step from Sole Trader to Limited Company

If you have made the decision to set up as a Limited Company, Gov.uk has a step-by-step guide to help you. This guide includes:

• Choosing and registering your business name
• Choosing director and a company secretary]
• Deciding who the shareholders are
• Identifying people with significant control over your company
• Preparing a ‘memorandum of association’ and ‘articles of association’
• What company records you need to keep
• What accounting and financial records you need to keep
• Selecting a Standard industrial classification of economic activities (SIC) code
• Registering for Corporation Tax

If you need further advice, get in touch if you would like recommendations of Chartered Accountants who will be able to help.