Changing from sole trader to Limited Company; are you ready?

When is the right time to change from being a sole trader to a limited company is probably the question we are asked most and unsurprisingly there is no one single answer, so the one most commonly given is…’it depends’.

Here are some of the factors it depends on;

  1. Tax – There is a tax saving when moving from a sole trader to a limited company (factoring in both tax and National Insurance) but this was drastically reduced following the introduction of the dividend tax in April 2017.  As a result the difference is now 2.5% meaning that when the additional compliance costs of operating a limited company are taken into account then profits of around £30,000 per annum are needed for there to be an overall saving.
  2. Cars – Cars provided by the business to its owners are taxed very differently as a sole trader when compared to a limited company, with a very punitive company car tax regime currently in place for limited companies.  So if cars feature in your sole trader business, these will need to be taken into consideration.
  3. Others – Many organisations have an internal policy only to deal with limited companies and will only award contracts/tenders to them.  If this is the case, you may need to convert to a limited company to get the work.
  4. Risk – For us, this is the big one.  If the risk profile of the business changes so it becomes more risky such as taking on employees, borrowings, becoming VAT registered, offering credit to customers then the protection offered by a limited company may outweigh all other considerations.  As a limited company (the limited refers to limited liability) then your personal assets (home, car, savings) are protected if the business were to fail.  Yes, you would lose whatever was in the company, but not everything!

Made up your mind? Here’s your To Do list…

Having weighed up these factors and made the decision to move to a limited company, there are a number of things you will need to do either before, or very soon after the company is formed to ensure that there is a seamless transfer from the sole trader business to the new limited company and you are not exposed in any way.  These include;

  • Changing your bank accounts – All bank accounts need to be in the limited company name and so old sole trader accounts need to be closed and things such as Paypal and card machine facilities need pointing at the new limited company bank account.
  • Advise customers – Ensure that customers are aware of the change of name and have your new bank details.
  • Advise suppliers – Ensure that suppliers are aware of the change of name and invoice you in the correct name.  This is especially important if you are VAT registered.
  • Move staff – Employees will need to be moved onto the limited company payroll scheme and issued with new contracts in the limited company name which reflect their existing terms and conditions.  Changing the T&C’s can be done, but best to source specialist advice first!
  • Change contracts – Contracts and agreements including insurance cover will need to be changed into the limited company name.  This may involve restarting a new contract period but many are happy to just change the name.
  • Update the public face – Ensure all your stationary, advertising, websites, social media, etc all has the new limited company name and details.  May will take the opportunity to refresh the brand and give the new profile a push which is optional, but having the correct details is a legal requirement.

So now you’re ready to take the plunge as a limited company owner (shareholder) and director which can be a scary place as there are a large amount of legal responsibilities of being both a shareholder/director.

Here at Enterprise we are on hand to take you through this to ensure you are fully prepared and ready to make your business a success.  If you would like to know more than please contact us for a no obligation meeting on 01302 752700 or by email at