Helping You Set Up a Limited Company
Sole Trader or Limited Company
Operating through a limited company is a more formal structure than trading as a sole trader. While the way you record income and expenditure is broadly similar, and VAT rules do not differ significantly, many other elements are distinct. It is important to understand these differences from the outset.
Unlike a sole trader or partnership, a limited company is a separate legal entity from its owners. The company is owned by shareholders (there may be one or several) and managed by one or more directors, appointed by those shareholders. In smaller companies, it is common—but not guaranteed—for the same individual to act as both shareholder and director.
Directors are legally required to act in the best interests of the company. There are various statutory duties they must observe to ensure the company is run properly and complies with all legal requirements. Understanding these responsibilities is essential.
Incorporating Your New Company
To begin trading as a limited company, your business must be incorporated with Companies House. We can handle the entire incorporation process on your behalf.
The first step is choosing a company name. We will check its availability and ensure it is not already in use. Once confirmed, you will be asked to complete a form setting out the required company details—such as the number of shares, the proposed shareholders, directors, addresses, and other statutory information. This information is used directly to form the company, so accuracy is crucial.
We will also ask you to confirm that your proposed directors are eligible to act, as certain legal requirements must be met.
Tell HM Revenue & Customs
When your company is incorporated, our formation agent will automatically notify HM Revenue & Customs (HMRC) and register the company for Corporation Tax. HMRC will then issue the company’s Unique Taxpayer Reference (UTR) along with details of filing deadlines.
Once you begin taking dividends, you will be required to complete a personal Self Assessment tax return each year. This is usually more straightforward than filing as a sole trader because you no longer need to include the business accounts element. We can assist you with this.
If you are moving from a sole trader structure to a limited company, HMRC must be informed that your sole trade has ceased. We simply include a note on your personal tax return—no separate form is required.
Tell your customers and suppliers
If you are converting from a sole trade to a limited company, it is important to notify your customers and suppliers of the change. You may need to advise them where to send payment for any outstanding invoices—either to the former sole trade business or the new company during the transition period.
If you are transferring vehicles from your sole trade to the limited company, the DVLA must be informed. Any finance agreements held in your sole trader name will also need to be transferred into the company.
Set up your bank account
A limited company must have its own dedicated business bank account. You are free to choose any bank, and most offer accounts specifically designed for companies.
If you already have a bank account for your sole trade, you will still need to open a new account for the company. Business income can continue to be paid into the old sole trade account initially, but funds should eventually be transferred into the new company account and the old account closed.
Set up your year end
You will need to select a year-end (accounting reference date) for the company. This typically falls at the end of the month in which the company was incorporated.
Your year end can be changed if needed—for example, to avoid preparing accounts during your busiest trading period. If you previously operated as a sole trader, you may choose to keep the same year end. We can advise you on selecting the most suitable date.
Register for VAT, if required
You may already be VAT-registered as a sole trader.
If so, your registration can be transferred to the new company, and in many cases you can retain your existing VAT number. However, you must begin keeping separate VAT records from the date your company is incorporated.
If you are not currently registered, it may be worth considering VAT registration when setting up your company. Registering for VAT means you must charge VAT on your taxable sales and can reclaim VAT on certain business expenses, depending on the nature of your activities.
You are required to report VAT to HMRC and pay any VAT due—either monthly, quarterly, or annually—based on the difference between the VAT you charge on sales and the VAT you reclaim on expenses.
If your turnover (taxable sales) exceeds £90,000 in any rolling 12-month period, VAT registration becomes mandatory.
Some businesses choose to register voluntarily even if their turnover is below the threshold. We can advise you on whether VAT registration is appropriate and guide you through the various VAT schemes available.
Stationery and signs
You will need a letterhead and invoice template that clearly display:
- -your company name
- -your company registration number and place of registration (for example, “A company registered in England and Wales”)
- -the address of your registered office
- -your VAT registration number (if applicable)
You are not required to list directors’ names on stationery, but if you choose to do so, all directors must be included.
Your company name must also be displayed correctly and clearly outside every business location you operate from. In addition, your registered name and registered office address must be shown at your registered office.
Decide how to remunerate yourself
As your new limited company is a separate legal entity, profits belong to the company. You will need to consider the most tax-efficient way of extracting those profits.
As a company officer, you are taxed as an employee on any salary you draw, and National Insurance will also apply. Shareholders can additionally receive remuneration in the form of dividends.
Benefits in kind
The company may pay for certain personal expenses on your behalf, such as private medical insurance, professional fees, or the use of a company car. These benefits can create tax charges for both the company and the individual, so it is important to understand the implications before proceeding. We strongly recommend discussing this with us beforehand.
Company pension
You may be able to establish a company-funded pension scheme. Contributions made by the company are tax-deductible, although the level of tax relief may differ from what you would receive personally. We can introduce you to financial advisers who can help you determine the most suitable option.
Start reconciling your bank balance
Before preparing your accounts or VAT returns, it is essential that your financial records align with the transactions appearing on your company bank account. This process, known as bank reconciliation, ensures accuracy and prevents discrepancies.
We can guide you through this process and support you with any reconciliation work required.
Start keeping financial records
As a limited company, you must maintain accurate and up-to-date records of all sales, purchases and business transactions. We recommend making bookkeeping part of your regular weekly or monthly routine, recording transactions as they occur. HMRC has become increasingly strict about record-keeping, so it is important not to overlook this responsibility.
Bookkeeping for a company can be more complex than for a sole trader, but proper records provide clear visibility of cash flow and business performance. As a director, you are legally responsible for ensuring the company is not trading while insolvent, so maintaining accurate financial information is essential.
We recommend using cloud-accounting software such as QuickBooks Online or Xero. These systems save time, improve accuracy and support Making Tax Digital requirements, especially if your company is VAT-registered.
Directors must keep both business and personal financial records for at least six years. For tax purposes, the financial year runs from 6 April to 5 April, and we recommend retaining all records relating to income, expenditure and gains for each tax year.
If you do not use a cloud-based system with receipt-capture functionality, you must retain all paper receipts and invoices for six years. At year-end, you can provide us with your digital or physical records and we will use them, together with the information in your bookkeeping software, to prepare your statutory accounts.
Our bookkeeping team also supports businesses of all sizes, should you wish to outsource this work.
Understand what expenses you can claim
As a limited company, allowable business expenses are paid by the company before profits are calculated (reducing its taxable income).
As a director, your expenses usually include any salary you take, plus specific business costs relating to the work you carry out.
Below is a refined list of common allowable expenses.
Materials
The cost of goods or materials used to fulfil customer work—for example, paint for a decorator. At year-end, we will also need to know the value of any stock held.
Wages
If you employ staff, they must be paid through a PAYE payroll scheme. We recommend processing payroll monthly.
Working from home
If you work from home, you can claim £6 per week, or a proportion of household expenses based on the number of rooms used for business. We can advise you which method is most suitable.
Laundry
Tradespeople can claim a modest allowance for cleaning work-specific clothing such as overalls.
Work clothing
Only specialist or protective clothing is allowable—for example, safety boots, hi-vis jackets, or branded workwear. Everyday clothing (jeans, shirts, normal shoes) is not an allowable expense.
Telephone
The company can pay for a mobile phone contract in the company’s name, or reimburse business calls made on your personal phone. A dedicated landline used exclusively for business is also allowable.
Postage and stationery
Stationery items—including business cards, headed paper, invoices, printer paper—and postage or courier costs are all allowable.
Advertising
All online and offline advertising costs are allowable, such as website ads, newspaper or magazine adverts.
Note: Sponsorship and client entertaining are not classified as advertising.
Professional fees
Fees paid to accountants, solicitors, and other necessary professionals relating to the company are allowable, provided they are not capital in nature.
Vehicles
If you use your personal car for business travel, record your mileage in a log or app (we can recommend one).
You can claim:
- -45p per mile for the first 10,000 business miles per year
- -25p per mile thereafter
If you use a van solely for work, you may claim the full cost of running it.
Note: Travelling between home and your regular workplace does not count as business travel.
Assets
For equipment or items you’ll use for several years—such as vans, computers, tools or machinery—you may claim capital allowances over time. Keep all invoices; we can advise you on claiming correctly.
Finance costs
If you borrow money for business purposes, you may claim the interest paid and costs of arranging the loan.
(Repayments of the loan principal are not allowable.)
Entertaining
If you entertain someone for business purposes, record who attended and keep the receipt.
You cannot claim VAT on entertaining, and the cost is generally not deductible against tax unless in a very specific allowable category. We can advise further.
Travel and subsistence
Travel, accommodation, and meals while away on business are allowable.
Everyday commuting to your regular workplace is not an allowable business expense.
Not sure if an expense qualifies?
This is not an exhaustive list. If you’re unsure whether something is allowable, simply ask—we can confirm it for you.
Filing requirements of a company
As a limited company, you are required to file annual accounts with Companies House within nine months of the end of your financial year. Company accounts must follow a prescribed format, including a director’s report, profit and loss account, balance sheet and accompanying notes.
Smaller companies may qualify to file a shorter version, referred to as ‘filleted accounts’.
At year end, we will prepare both your company accounts and your personal tax return using the records, receipts, invoices and bank statements you provide, together with details of any other personal income received during the year.
Corporation tax
A corporation tax return must be submitted to HMRC each year. If your company has made a taxable profit, corporation tax will be payable. Once your annual accounts are completed, we will advise you of:
- -how much tax is due, and
- -the date by which it must be paid.
Corporation tax must be paid within nine months and one day of your company’s year end.
Confirmation statement
Once a year, you must also file a confirmation statement. This updates Companies House with key details such as:
- -directors
- -company secretary (if applicable)
- -shareholders
- -registered office and service addresses
- -any changes during the year
The filing fee for submitting a confirmation statement online is £34.
We can prepare and file this on your behalf.
Employing staff
If you already have employees or intend to employ staff, you will need to register a PAYE scheme so that wages can be paid through the company.
We can support you by:
- -helping you select suitable payroll software, or
- -processing payroll for you, allowing you to focus on running your business.
In most cases, employers must also comply with workplace pension regulations, meaning you may be required to set up and contribute to an automatic enrolment pension scheme.
We can provide guidance, but you will also need to consult an independent financial adviser for pension-specific advice.