How to register with Companies House

Differences between sole trader and a limited company

When you register as a sole trader, you’re letting HMRC know that you’re a self-employed individual working alone. This very simple business structure can be limiting, as you’ll have sole responsibility for any and all business decisions, debt and taxes. Registering your business as a private limited company will legally separate the business from you as an individual – its tax affairs, liability and public transparency will all change. Here are the essential differences between the two types of business:

Tax status

Once you reach a certain level of income, you might feel it makes financial sense to register as a limited company. Instead of paying Income Tax, limited companies pay Corporation Tax, which has a lower rate. Additionally, limited companies can take advantage of a number of allowances and tax-deductible costs that are not afforded to sole traders.

Liability

Owners of a limited company have reduced liability as individuals. If your business accumulates debt as a sole trader, you are personally liable for the amount. This puts personal assets, like property, at risk should your business fail. If you’re running a limited company, the company is liable – however, you may still be pursued in your capacity as a director if you are alleged to have committed wrongdoing.

Public record

When a business is registered with Companies House as a limited company, it is a matter of public record. This means that all its earnings and other details are published and made available to the public. Sole traders, on the other hand, enjoy a greater degree of privacy.

Should I register as a limited company?

If you’re wondering whether or not to register as a limited company, consider your business’s specific circumstances and future goals. If your business is growing in capital and size, registering as a limited company could be beneficial. It grants you limited liability and protection for your personal assets, greater tax efficiency, and rights to your registered name. However, there are drawbacks too, including the legal responsibilities that accompany the role of director, extra paperwork and public transparency.

How to register with Companies House

If you’ve decided to register your business with Companies House and become a limited company, visit the Gov.UK website to do so online. Here are the steps you need to take to complete the process. 

Choose a name

When you’re registering a company name, you must follow a set of rules as outlined on the HMRC website. For example, your name can’t be the same as another registered company’s name or an existing trademark. Your name will usually need to end in ’limited’ or ‘ltd’ on official documents – you will need to apply by post rather than online if you want the choice. Your trading name may differ from your registered name. You may register a name and find it’s challenged by an existing business with a similar name. Or, Companies House itself might get in touch to say your chosen name is too similar to another.

Name the director(s)

Limited companies must have a minimum of one director. Directors take legal responsibility for running the company, specifically ensuring that accounts and reports are properly handled. To be a director, an individual must be 16 or over and have a registered UK address where business correspondence can be sent.

Find your SIC code

To establish your business as a limited company, you’ll need to identify which SIC code you’re operating under. SIC stands for Standard Industrial Classification of economic activities. Simply put, these are codes that correspond to the type of business operations you run. Once you have decided on a name, chosen your director(s) and found the correct SIC code, you’re ready to register your company.

Costs of registering with Companies House

It costs £12 to register your company online. To register via post costs £40, payable by cheque. For further information, see the HMRC website.

Next steps

How long does it take?

It depends on the way you applied. An online registration can be accepted within 24 hours, whereas a postal application tends to take 8 to 10 days. 

Why was my business registration rejected?

There are several reasons why your business registration could have been rejected by Companies House. Some of these reasons include:

• You chose a company name that’s too similar to someone else’s.
• You chose a name containing a ‘sensitive’ word that may suggest royal or official appointment – see here for a full list of protected terms.
• You appointed another company as the sole director, or a person under 16 as an officer – both of which are not permitted under the Companies Act 2006.
• Your registration was not completed in full.

Getting a certificate of incorporation

When your application is completed and approved, you’ll need to obtain your certificate of incorporation. This is the official document for the creation of a business, and you’ll need to show it to banks, and even clients, as proof that your business is a separate entity to its individuals. You can download yours from Companies House once your application has been processed.

Registering your business as a limited company redefines how it’s perceived by HMRC, and potentially by your clients and contacts too. It marks the start of a new way of working and there are lots of other factors to consider as you take your enterprise forward. If you’re thinking of amending your firm’s structure, we’ve also put together some tips on changing from a sole trader to a limited company, including key differences and things to remember.

Read our blog  to stay abreast of all the latest news and get expert opinion, whether you’re a sole trader or the director of a limited company.