Last Friday was my first birthday as a limited company. I didn’t have much of a party, but as first years go, it has been a pretty good one. I have a very simple business plan: to run a profitable business. And this past year I did just that.
If you currently are a sole trader thinking about becoming a limited company you might find the next things useful to know before you take the plunge.
Registering a Limited Company
Becoming a limited company wasn’t very difficult. You can register online with Companies House, pay the £15 fee and you’re sorted. But there are a few other things which I had to learn along the way.
Your Sole Trader business
As a Sole Trader you are considered to be self-employed by the HMRC. When you register your limited company you need to tell HMRC that you stop being self-employed. Again it’s a formality, but it’s an important one.
All the money you have in your sole trader business is your money. You may think of your sole trader business as a separate entity from you personally, but it’s not. If you keep that money as starting capital for your limited company then your newly formed limited company owes you all of that money.
You will need to make a note somewhere in your company records that you are owed this money. It’s called a Director’s Loan. If you want to take the money out of the company after a month, a year or a few years, then you can. Just remember to update the Director’s Loan account.
You’ll need a new bank account for the limited company. Transferring direct debits and remembering to remind your clients that you have a new bank account is a bit of a hassle, but the bonus is that if you chose your new bank carefully you might get a period of free banking!
At the end of your financial year you will hopefully have made a profit. You can take some (or all) of that profit out of the company. It’s called a dividend. If, how much and when you take out this money you’ll have to decide in a special meeting with yourself (if you are a single person company).
Wear your Limited Company status with pride
It’s a legal requirement that you list your limited company status on all your company documents, letters, publicity and website. If ever you needed an excuse to re-design your letterhead, this is it.