So, you’re interested in setting up a limited company as a sole trader? Well, we’ve put together a simple guide with all the information you need to get started.
By becoming a sole trader, you run the company as an individual and are self-employed. After you’ve paid tax, all profits received will be for you.
Check your entitlement.
In line with government requirements, you need to set up your limited company if you have any of the following circumstances:
- Earned more than £1,000 from being self employed between 6 April 2018 and 5 April 2019
- You’ve been asked to prove you’re self employed so you can claim for tax-free childcare
- You’d like to make voluntary Class 2 National Insurance payments to qualify for benefits including state pension, maternity allowance and bereavement support payment
Choose the type.
Now you'll need to choose which type of company you wish to set up. The main choices are:
- Public Limited Companies (PLCs)
- Private Limited Companies (LTDs)
Contractors, temporary workers and small businesses usually select PLCs
As Public Limited Companies require at least £50,000 start up capital, two directors and shareholders, and a secretary, most contractors and small businesses opt for LTDs.
Choosing a name.
When naming your business, you have the choice of trading through your own name or choosing something different.
The name must not:
- Include limited, ltd, LLP, public limited company, plc or limited liability partnership
- Feature anything offensive
- Have the same name as an existing trademark
Once you’ve decided, you must then register the name online.
All official paperwork going forward needs to have your name and business name for documents such as invoices and letters.
You must inform HMRC that you pay tax through self-assessment, where you must file a tax return every year.
Once you register, within 10 working days you’ll receive a letter with an activation code for your online portal. Now you’ve officially registered, you have 3 main responsibilities to ensure you’re compliant:
- Keep records of all sales and expenses from your business
- Submit a yearly self-assessment tax return
- Pay your income tax on your profits and Class 2 Class 4 National Insurance
If you work within the construction industry as a subcontractor or contractor, then you must register with HMRC for the Construction Industry Scheme (CIS).