If you have been operating as a sole trader and your business is growing, you might be considering switching to a limited company. This is a common step for small businesses who are looking to expand, gain credibility and protect personal assets. There are several steps involved and here are some items to consider before making the move.
Why Switch to a Limited Company?
Operating as a sole trader is straightforward and offers fewer administrative requirements. However, as your income increases or you begin working with larger clients, you might find that trading as a limited company offers more advantages, including:
- Limited liability – your personal assets are protected as the company is a separate legal entity.
- Tax efficiency – corporation tax is often lower than income tax for higher earnings. As of 2025/26 tax year, the main rate of Corporation Tax is 25% for companies with profits over £250,000 and 19% for those under £50,000.
- Professional Image – operating under a company name can enhance your credibility with clients and suppliers.
- Opportunities to grow – you may find it easier to secure funding or investment as a limited company.
When is the Right Time to Switch?
There is no real ‘right time’ to switch, but many sole traders choose to incorporate when:
- Profits are consistently over £30,000 a year
- You are taking on employees
- You want to protect your personal assets
- Your accountant advises it would be more tax-efficient
Here’s how you can Switch, Step-by-Step:
- Register your Limited Company
- You can register online with Companies House for £12. You will need to choose a company name, a registered address and appoint at least one director.
- Inform HMRC
- Once your limited company is registered, you will need to register for Corporation Tax within three months of starting to trade.
- Open a Business Bank Account
- A limited company must have its own business bank account. This separates your personal and business finances clearly.
- Transfer business assets and contracts
- If you are moving from sole trader status, you may need to transfer any business assets, such as stock, equipment, or contracts into the company’s name.
- Update your bookkeeping and payroll
- You will need to keep accurate company records and submit annual accounts to Companies House, as well as a Corporation Tax return to HMRC. If you’re paying yourself a salary, you’ll also need to register for PAYE and run payroll.
- Notify clients and suppliers
- Let everyone you do business with know about the change. This includes updating invoices, contracts and marketing materials with your new company details.
Do you need help making the switch?
Transitioning from sole trader to limited company is a big step, but with our support it can be smooth and stress-free. At Cloud Bookkeeping Warwick, we help small business owners manage the switch with ease, from registering your business to running payroll and meeting HMRC deadlines.
We offer a FREE consultation, so if you are thinking about making the move to a limited company, please get in touch and we can discuss how we can help.