limited company to sole trader

Can you change from limited company to sole trader?

It is unusual, but not unheard of, for an individual to want to change from limited company status to sole trader status. Perhaps the business did not go as planned. You may not have raised the capital you had hoped for. There are several reasons why people decide to revert to being a sole trader, it may be just a simpler option in comparison to running a company.

The first point to understand is that a sole trader is not officially registered anywhere. You just go about business as a sole trader and inform HMRC. In simple terms you just stop trading as a limited company and start trading as an individual. In reality though there are several points to consider. We recommend you weigh up the pros and cons for both before making a decision.

Company Formation

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  • Full company documents
closing a company

A few points to consider!

Sole traders do not have protected liability. The importance of this will depend on your field of work and potential liabilities.

If you decide to close a limited company there is a formal winding up procedure to follow. You will need to prepare final accounts for submission to HMRC along with tax computations. There may also be further documents to file relating to capital distribution. Once all financial matters are resolved the company can then be struck from the register.

If the company has previously made a loss you may want to discuss this matter with an accountant. When a company stops trading any corporation tax losses previously recorded by the company will be lost. In normal accounting you would carry them forward to offset against future profits of the company. The day the company is closed the opportunity to offset any losses is gone. It is not possible to use the company loses against profits from your sole trading activity.

Will you need a company in the future? If so, you may want to make the limited company dormant rather than close it. You can then reuse the limited company at a later date if required.

Finally, you will need to inform all customers and suppliers that you are now a sole trader. New contracts and/or agreements may need to be issued and signed. Your bank will need to change your account to a personal business account. All stationery and websites will need to be updated.

Our Point of View

Limited companies are a popular choice of business structure. They offer protected liability, more methods of extracting funds, continuity of the business and a recognised legal structure world wide. However, some business owners prefer less filing responsibilities. Seek advice from an accountant on the best option for you.

Keeping Company Registration Simple!

Business owners can start their own limited company in just a few working hours. You enter the details online and within a few hours, you will have a company number. We also provide all legally required company documents.

If you only want to register as a sole trader you simply need to contact HMRC. There is no public register.

Simple, Quick, Company Formation! There is no faster company formation.