changing from a limited company to a sole trader

Changing from Limited Company to Sole Trader : A Simple Guide

16/07/2021Limited Company , Sole Trader

There are many reasons for changing from a limited company to a sole trader. The most common reason – we have seen these days – is the dropping turnover of limited companies due to the impacts of the COVID-19 pandemic. 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.


Few 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 the file 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 its cessation the records of corporation tax losses will be lost. 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.


What Made you Became 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. As within the six months, the situation would be expectedly 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. You need to consider these points:

  • 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 other 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 provides general information on the above topic.

Related post

company limited by guarantee
What is a Company Limited by Guarantee?

26/12/2022Business , Limited Company

Are you wondering about a company limited by guarantee and who takes the charge of actually forming them in the UK? Well, most commonly such companies are formed by membership organisations, workers’ cooperatives, sports clubs, and other non-profit organisations. The purpose of non-profit organisations’ owners is to get the benefit from guiding the limited financial liability. Such companies do not tend to have shareholders or any shares to give in normal practice. This is what makes such companies different from other companies that have shares. However, the company is associated with a few guarantors who are interested in giving a set amount of money for the sake of company debts. Furthermore, we can say that there are no prominent profits generated by this activity for the guarantors. This is due to the fact these guarantors invest in the company to promote the non-profit organisation. And the set of money is considered reinvesting in the company. In some cases where the profits are shared among the distributors, the company will have to go for charitable status by applying a forfeit. Focusing on the basics for a better understanding, this guide has covered what is a limited by guarantee company, how to form a limited by guarantee company, what are the benefits to form one, and how is it different from other companies.   Reach out to one of our professionals to get to know the company limited by guarantee for your earnings in the UK. Get in touch and you will be provided instant professional help!   What is a Company Limited by Guarantee in the UK? The use of a company limited by guarantee is normally for the wide use of charities, societies, clubs, community projects, and other examples of similar bodies. There are several limited companies by guarantee that are not known for being non-profit organisations or associated with them. This is due to the factor that these companies do not have a tendency to share the profits among the distributors. They rather keep the profits within the company to use for a better purpose. Many such companies will be in need of drafting their articles as well. This is for the purpose of specialised work to be undertaken.   What are the Benefits of a Company Limited by Guarantee? The prominent and major reason to form a limited-by-guarantee company is to benefit the charity. Also, the owners or the distributors are to be protected from any kind of personal liability if there is a case of company debts. This can further help to promote the non-profit organisation. There are several examples where organisations are also registered as companies limited by guarantee just like local authorities and funding bodies. Moreover, there are certain benefits to forming a company limited by a guarantee that is outlined in the following for you: Such a company is known to be a distinct legal entity from the owners. This makes it independent and responsible for any kind of company debts. The directors of the company are protected from any liabilities of company debts. The personal finances of the directors are kept away from the company’s financial matters. A limit to the guarantees is only considered to pay the debts of the company by the directors.   How to Form a Company Limited by Guarantee in the UK? If you aim to form a company limited by guarantee, the process of forming is usually easy. There are several customised special guarantee packages offered by professionals for this purpose as well. However, once you make up your mind about forming a limited company by guarantee, you will have to have awareness of a few things. Moreover, ensure to keep certain requirements with you before you aim to apply for it. These details are outlined  below: A memorandum of association and articles of association are required to get a company registered. This document has the basic information of the owner or guarantor. There is either one person who has taken the position of owner and guarantor or there can be multiple people holding these positions. Articles explain the set of rules. For a first-time formation, companies house will give you the memorandum and articles. Information on People with Significant Control will be given. The guarantors or the directors are normally the People with Significant Control. There is a requirement for Standard Industrial Classification (SIC). The code that comes with it will explain what kind of trading activities will be carried out for your business and what is the nature of your company. A company is allowed to have four SIC maximum. The company will also be asked to provide the physical address that can be used for the registered office address. The address should be UK based. The number of guarantors and directors is allowed to be one at least for the limited company by guarantee. The company limited by guarantee must be registered also with companies house. Companies House is known to be the company registrar in the UK.   The Bottom Line Now that you have gathered a fair amount of information about a company limited by guarantee, we can bring the discussion towards wrapping up. A company limited by guarantee to promote non-profit organisations is beneficial in several ways as well. Due to the fact of being a distinct entity, the involvement of directors and guarantors in dealing with the company’s debts is little. This makes their personal assets protected from any kind of debt compensation or penalties. If you aim to form a limited company by guarantee, the simple requirements are to be aware of in the first place. We hope these few minutes of reading have helped to develop a better understanding of what is a company limited by guarantee and how it works.   Get in touch with our young, clever and tech-driven professionals if you want to choose the best guide for a company limited by guarantee in the UK  for your income.    Disclaimer: The information about the …

Read more
Can a Sole Trader Have Multiple Businesses
Can a Sole Trader Have More Than One Businesses?


Are you planning to start a new business as a sole trader? You might be worried about asking the question “Can a Sole Trader Have Multiple Businesses?” The other questions coming along with this primary question are related to the tax, national insurance and VAT implications. So, you need not worry about this as you can run as many businesses as possible to enjoy flexibility and freedom as a sole trader. On the other hand, you can maintain the income you need to bolster your lifestyle. Running a small business as a sole trader may increase your potential to manage more than one business simultaneously. It brings not only a higher level of income but financial problems while dealing with the HMRC. So, let’s discuss each of these problems and discuss the solution!   Are you a sole trader and want to have another business in the United Kingdom? Why not take assistance from financial advisors at CruseBurke who are keen to help you?   Can a Sole Trader Have Multiple Businesses? Fortunately, a sole trader can have multiple businesses at a time. For this, you need to be cautious about a few things and you can manage all your financial hassles seamlessly. A sole trader is simply required to provide self-assessment tax returns including a separate section for each of your businesses. If you register all of your businesses separately with HMRC, you will receive a different Unique Tax Reference (UTR) number each time. It will be a hassle for the sole traders and the HMRC. So, it is wise to report only one self-assessment tax return report instead of reporting separately for each business. HMRC will calculate all of your income as a whole from all your businesses, and not as a separate income. However, you are suggested to not merge the bookkeeping records and other details of all businesses as it won’t be feasible and efficient from the tax perspective.   How To Deal With VAT? With more than one business, the one question arising is that should you register for VAT separately for each of your businesses. The answer to this question is a little bit tricky. For example, the criteria for being a VAT registered is the annual turnover of £85 000. If your total income from all your businesses amounts to this threshold, you are liable to register for VAT with the highest turnover. The major reason behind this is that if you register other businesses for VAT, you will be obliged to pass on the tax to the customers. And, this is not considered an optimum choice due to the financial strain on small businesses. So, it is sensible to register your business with the highest profits for VAT with the HMRC. It will be tax-efficient and a business-friendly approach.   How National Insurance and Tax Returns are Influenced? Your National Insurance Contributions (NICs) and Tax returns will also be affected by the multiple businesses. In this, the option of personal allowance will not be available every time you launch a new business. Instead, you will get a personal allowance only once. The current personal allowance is £12, 570, as of 2022/2023. On the other hand, if your income is more than this personal allowance, you will submit self-assessment tax returns. For this, your income tax bracket will also be updated as your total income from all businesses will be counted. If your annual turnover of £85,000 by adding all the income from all self-employed businesses. On the other hand, your NICs will also be get affected by this branching out of your businesses. Self-employed persons pay Class 2 NICs at a flat rate of £3.15 weekly. Moreover, they fall into the category of Class 4 NICs and it is applied to your profits and not to your income. If your total profits are rising, you have to pay more in NICs. The total profits are counted from all of your businesses.   The Bookkeeping and Invoicing Records Although multiple businesses might be attractive for many, it come along with many financial strains and hassles. Managing your multiple businesses simultaneously requires the management of multiple bookkeeping records and invoicing records. To avoid any mismanagement, you need to maintain business records separately. Merging all of those records can create problems for your business in terms of VAT and customer support. So, it is essential to keep each of your businesses separate unless it is for self-assessment tax returns. Keeping accurate records requires additional time, effort and resources. Therefore, if any one of these is missing, running multiple businesses can become a mess.   The Bottom Line Managing self-assessment tax returns requires no new UTR number. For VAT registration, you need to register your business with the highest earnings if no business has been registered yet. Otherwise, if your first business is VAT registered, the new businesses are not required to get registered for VAT. Your NICs and income tax bracket will also be changed. So, it depends on your whole income and not on a single business. Similarly, you will enjoy the personal allowance only once and not every time you have another business. Above all, you need to consider the factor of time and energy required to put into the management of all businesses. If you can manage all of these businesses efficiently, you can go for the option of multiple businesses. Otherwise, you will ruin your first business as well. I hope you have found an accurate and detailed answer of your question “Can a sole trader have multiple businesses”.   Let’s get the best advice on your business and how it can affect your taxes as a sole trader from the top-notch legal and tax advisors at the CruseBurke. Send us a message or give us a call.   Disclaimer: All the information provided in this article on Can a Sole Trader Have Multiple Businesses, including all the texts and graphics, is general in nature. It does not intend to disregard …

Read more