16/07/2021 - CruseBurke

Changing from a Limited Company to a Sole Trader: What You Need to Know

George16/07/2021Limited Company , Sole Trader

There are many reasons for changing from a limited company to a sole trader. Company owners believe that sole proprietorship is a simple and convenient option to go for. No doubt it is. In this way, they’d save a considerable amount of money – which they are losing as a limited company owner – by becoming a sole trader. There are many other businesses that are going after this option. But there are a few crucial points that you need to consider if you are changing from a limited company to a sole trader. Important Points to Consider Here are a few important points that you to consider before changing your business structure. Firstly, you need to know that sole tradership doesn’t require any registration. You can start your business right away, just by informing HMRC. Secondly, note that sole traders do not have limited liability which means you’re not protected in case of loss or insolvency. It depends on your business type and how much you’re at risk of potential liabilities and insolvency. Thirdly, winding up a limited company needs a proper legal procedure to follow. You need to submit final accounts to HMRC along with taxes. In addition, this process requires more paperwork like you need to file paperwork for capital distribution and so on. After getting through this complex and time-taking process, your company can be struck off from the register. Fourthly, if a limited company has suffered a loss previously, it needs accounting. So, you need to consult this matter with an accountant as after closure, the company’s tax loss history will be erased. The accountant will bring them forward to offset against a future profit of a company. Remember, you’d lost the opportunity to offset the losses when your company is closed. Obviously, it is not possible to use the company’s losses against the profit made from the sole trading activity. Finally, after changing from a limited company to a sole trader, you need to inform your customers and suppliers about becoming a sole trader. So that you may sign new contracts with the new people. Moreover, you will also change your company account to a business account. Why Did You Become a Limited Company? After considering the above points, you need to ask this yourself before making the final decision. You opted for a limited company to get liability protection, credibility, save tax and so on. Though the situation has been better after the vaccination of more than 52% of the UK’s population. This doesn’t mean that everything will revert instantly as it was before the arrival of the pandemic. According to the government scientists of the UK, the third wave is going to arrive that would leave the same impact as the previous ones. So, the complete revert will take time, so changing your business structure might be a good option if you can’t wait for an unexpected time. However, if you think that your business is going well and will be in the future, you should not go for this option. Looking for a qualified accountant, bookkeeper or tax expert at a reasonable price? Get in touch with us right now! Our Advice We recommend clients to wait for 6 months before changing their business status. Within six months, the situation would be expected better due to the continuous vaccination. So waiting for this time wouldn’t hurt your business a lot. Still, if your business is constantly declining, then turning to a sole proprietorship is worth considering. Final Thoughts Finally, if you are changing from a limited company to a sole trader. It is important to consider both the short-term advantages and long-term consequences. Before making the move, make sure to: Talk to our limited company accountant to review your accounts to utilise the losses before becoming a sole trader Extract all your money from the limited company by seeking advice from our accountants Pay the due taxes and outstanding bills to HMRC before closing your bank account Get advice to know the impact of financial support by the government during the current pandemic To sum up, you need to get advice from an accountant to make the final decision. If you are looking for an accountant to review the financial affairs of a business, look no further than CruseBurke. We have a team of expert accountants for your assistance. Don’t hesitate to get in touch with us. Get an instant quote right away! Disclaimer: This blog changing from a limited company to a sole trader provides general information on the above topic.

The Pros and Cons of Trading as a Limited Company in the UK

George16/07/2021Limited Company

Due to numerous tax incentives, many businesses prefer to be limited companies in the UK. In fact, trading as a limited company helps you to manage your tax liabilities more effectively. However, along with a lot of advantages, there are also some downsides that you can’t overlook. So, let’s look at the pros and cons of trading as a limited company in the UK. Want to incorporate a limited company! Feel free to contact our limited company accountants to incorporate a company within no time! Pros of Trading as a Limited Company in the UK Following are some of the pros of working as a limited company in the UK: 1) Works as a Separate Entity from its Owner One of the foremost benefits of trading as a limited company is its separation from the owner. It means that if a limited company is issued, it’s responsible solely and this will not impact the owner. As there might be many instances where a limited company may be sued. For this reason, it is preferable to do business as a limited company. 2) It has a Limited Liability It means that the liability of the business owner/ shareholders is limited to the amount they have invested in the business. In case of loss or insolvency, the creditors can not demand the shareholders to provide additional funds for paying off those debts. 3) Easier to get Bank Loans and Overdrafts If you are a limited company owner, you can easily get bank loans or overdrafts against the business’s securities. This increases the borrowing power of the limited company and provides extra security to the bank. 4) Easy to Transfer Ownership A limited company owner can easily transfer the ownership of a company by selling its shares. Before transferring, you need to be careful about the tax implications that may arise afterwards. 5) Planning for Retirement Running a business as a limited company allows you more flexibility at the time of getting pensions. 6) Perception Other than sole tradership or partnership, a limited company is considered more established and reliable. Cons of Trading as a Limited Company Along with the mentioned benefits, there are also some downsides of the limited company that you need to consider before starting your business: 1) Incorporation A limited company is difficult to incorporate as it needs to be registered with Companies House which can be a difficult and time taking process. 2) Costly to Set Up Generally, a limited company requires more money to set up than other types of businesses. 3) More Chances of Losses As a separate entity, the losses made by a limited company are set off by the profits earned in the previous years or which the company may earn in the future. It’s a great disadvantage, as many new businesses might suffer losses at the beginning stage. 4) Accounting and Administration It requires complex, time-taking accounting and administration responsibilities. It includes filing annual returns to companies houses, preparing dividend tax vouchers, etc. Looking for a qualified accountant, bookkeeper or tax expert at a reasonable price? Get in touch with us right now! 5) Expenses You can only get tax relief, as a company director, on expenses that are crucial for performing duties as a director. 6) Personal Guarantees Whilst getting loans and overdrafts from the banks is easier but it requires the personal guarantee of the director. As in the case of insolvency, the director will responsible to repay the borrowings. In addition, some suppliers also require the personal guarantee of the director that reduce the directors’ limited liability to a great extent. Summing Up Many of the legal requirements of a limited company will incur penalties if they are not dealt properly within time. Hopefully, this post has provided some useful information to you about the pros and cons of trading as a limited company in the UK. If you are looking for an accountant or bookkeeper to record, manage and monitor the financial affairs of a business, look no further other than CruseBurke. We have a team of expert bookkeepers and accountants for your assistance. Don’t hesitate to get in touch with us. Find out our limited company packages and get an instant quote! Disclaimer: This blog is intended just for general information on the above topic.