Sole Trader/Partnership to Limited Company
Acumen Accountants & Advisors often helps businesses of Sole Trader or Partnership status develop to a Limited Company. There are number of incorporation procedures to be taken care of when changing your legal structure Sole Trader/Partnership to Limited Company.
Another status adopted by some clients is a Limited Liability Partnership (LLP).
What is the difference?
- A Sole Trader is a type of business entity which is owned and run by one individual. There is no legal distinction between the owner and the business.
- A Partnership is defined as two or more in business with a view to making profits; the number is usually limited to a maximum of 20.
- Limited Companies exist in there own right, meaning unlike sole traders or partnerships, the company's finances are separate from the personal finances of their owners.
Here is a list of important steps to take with changing your legal structure to Limited Company.
1. Advising HMRC
It is essential that all changes are reported to the relevant areas of HMRC. It can be daunting ensuring you pass on all the relevant information but HMRC have created a detailed online guide on what you need to do to ensure your tax affairs are kept in order. To read more click here
2. VAT Registration
Changes to your business details and VAT Registration must be reported within 30 days of the change or penalties can occur. In some cases you may have to give advance notice. To read more click here
3. PAYE Registration
You have to register with PAYE online. You can do this when you receive the employer PAYE reference and Accounts Office Reference. These reference numbers can be found on a letter headed "New employer registration and reference numbers" sent to you by HMRC when you registered as an employer. To read more click here
4. Advise Your Bank
You should contact your bank directly or visit their website to find more information about the changes to accounts and terms and conditions when changing from Sole Trader or Partnership to Limited Company,
A letter informing suppliers of the change to your business and up-to-date contact details are acceptable.
6. Insurance Cover
It is a legal requirement to get business insurance cover. It is advisable to shop around and find the best cover for your business. You will also need Employer Liability Insurance.
7. Accounting System Improvements
As the business structure changes, your accounting system may be limiting depending on your new requirements. Acumen Accountants & Advisors are a Sage Business Partner and can provide an assessment of your business and match the software to meet your business needs.
Sole traders and partnerships are taxed differently from limited companies – there are usually tax savings in forming a limited company created by the facility to withdraw some income by way of dividend to company shareholders rather than have it assessed as earned income to a sole trader or partnership. Acumen can advise on the appropriate company structures and tax implications.
Contact Acumen Accountants & Advisors today on 01224 573904 for further guidance.