When should a Sole Trader go Limited?

10th August 2018 Nicky Cole
When should a Sole Trader go Limited?

As a successful entrepreneur wishing to take the next step with your business, you’re likely to be encouraged to go from being a sole trader, to a limited company…

This is an incredibly important and pretty scary decision; it can mean a lot of changes to how your business is run. Many of the adjustments can be very advantageous to a small company, whilst others can make the already stressful job of running your own business even more demanding.

Becoming a limited company essentially means separating the business from an individual, to make it its own entity and by doing so, means a company is its own legal body unto itself. For a small business this mitigates the legal risk faced by sole traders. If the company gets sued, for instance, you can protect your own assets in a way that would not be possible as a sole trader. Becoming a limited company, simply put, is much safer for small business owners. It can also be a more cost-effective one. By being its own entity, a limited company can avoid the higher taxes facing sole traders.

When to make the change?

The most difficult challenge is knowing when is the right time to turn from sole trader to limited company. Not every sole trader will experience the enormous tax and legal benefits that are possible. In our experience, there is no exact figure that small businesses should use as a benchmark. It all depends on your industry, the nature of your business and what your ambitions are for the company.

However, there is one major advantage that can assist small business of all varieties: it gives the company name some authority. It makes you more appealing to larger companies you might have the ambition to work alongside. Many would rather work with a trustworthy limited company than chance a sole trader. It proves you can be relied upon. The same also goes for businesses seeking investment.

Make sure you’re properly advised

Making the change from sole trader to limited company is not an easy one. Business owners who find finance, tax and paperwork complicated will encounter a number of intricate hurdles throughout this process. Utilising the skills of an accountant who has experience doing this would be advisable. Also, since many entrepreneurs at this stage of their careers will still be very hands-on in the running of their business, it can save you a lot of time as well as a great deal of hassle. After all, the major difference between being a sole trader and a limited company is that you now have more paperwork to file. It requires more than just an annual tax return. There is a set of accounts to send off, an annual return to complete and corporation tax to mail. Luckily Mad About Bookkeeping can assist with it all!

Many successful sole traders will be considering making the change to become a limited company. It can have huge financial, legal and trade benefits in the future. However, it is not an easy process, nor one that just anybody should be taking. You need to be certain that it is the right time for your business to take this important step and if you’re not sure, please let us advise you. Nicky made this exact same decision herself for Mad About Bookkeeping, only last year, so she will really be able to advise you on the positives and negatives of switching to limited and when would be the best time for you and your business.

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