If you want to start a business, one of the first things to do is choose the structure that’s right for you.
In the UK, the two most popular models are limited companies and sole traders. To start a limited company, you must register with Companies House, a government agency tasked with overseeing the incorporation of new companies. But do sole traders also need to register with Companies House? Let’s take a look.
Sole traders register with HMRC, not Companies House
Companies House only registers companies, including companies limited by shares, companies limited by guarantee, public limited companies, as well as limited liability partnerships (LLPs). They are not involved with the registration of sole traders.
Instead, if you wish to start up as a sole trader, you must register for tax with HMRC. This is also known as registering for Self Assessment.
When would a sole trader need to register with Companies House?
To reiterate, Companies House has no dealings with sole traders. It is entirely possible for you to run your business as a sole trader without ever having to correspond with Companies House.
However, there are two scenarios when a sole trader may wish to register a company with Companies House.
1. To protect their business name
When you register a limited company, you are essentially stopping anyone else from using that name for another company. This is because Companies House does not allow duplicate (or even similar) names to appear on the Companies House register.
However, when you register as a sole trader, the business name that you operate as receives very little protection. This means another business could appropriate your name by forming a limited company with that exact name.
Some sole traders choose to register a limited company to prevent anyone else from using their business’ name, which is permitted. When a limited company is registered, the company has no obligation to partake in any trading activity. It can be left alone serving the sole purpose of holding the name, while the business continues to operate as a sole trader.
If you decide to do this, after registering the limited company, you must:
- Notify HMRC that the limited company is dormant
- File a confirmation statement on an annual basis
- File dormant company accounts on an annual basis
We offer a ‘Reserve a Company Name Service’, where we’ll form your company and then take care of the above, all for only £59.99.
2. To convert the sole trader business into a limited company
The limited company structure offers a number of benefits that the sole trader model does not. Because of this, many business owners who initially set up as sole traders decide to convert into limited companies.
The primary reason for doing this is the financial protection that a limited company can provide. With a sole trader, there is no differentiation between the business owner’s money and the business’ money. They are the same pot. This means that if the company were to ever encounter financial problems, the owner of the business is wholly financially liable. Something that could be catastrophic to an individual’s personal finances.
With a limited company, the shareholders are only liable for the unpaid nominal value of shares. This could amount to as little as £1. The personal finances of the shareholders are protected.
On top of this financial security, other benefits of the limited company structure include:
- Esteemed business model – some businesses will refuse to work with anything other than limited companies
- Tax efficiency – generally speaking, a limited company has a more efficient tax structure, and provides added saving opportunities to its owners
- Funding options – lenders and investors are more likely to provide financial support to limited companies, thanks to this company structure’s greater credibility
If you are interested in converting your sole trader business into a limited company, we recommend reading this blog: How to change from sole trader to limited company. If you wish to proceed, we can then help you register your limited company from as little as £12.99.
So there you have it
Sole traders do not need to register with Companies House. The only time they will need to interact with Companies House is if they wish to form a limited company for the purposes of reserving their name, or restructuring their business into a limited company.
We hope you have found this post helpful. If you have any questions, please leave a comment and we’ll get back to you as soon as possible.