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When Should I Change from a Sole Trader to an LTD?

Many first-time business owners choose to set up as a sole trader over becoming an LTD. Starting as a sole trader can be more appealing as it’s straightforward and easier than incorporating as a Limited Company. However, as a business grows, being a sole trader can become more of a restriction than a benefit. Here are some factors to consider when deciding to move from a sole trader to an LTD business structure. 

Protect Your Business Name 

As a sole trader, your company’s name is unprotected as it is not ‘officially’ registered anywhere. This means another business can use your name to trade and even register as their own. If your business has a growing reputation and brand identity, you may want to become an LTD to protect your brand. By ensuring your name is registered, other companies can’t poach your name and you have the right to contest any new businesses whose names are similar to yours. 

Making the Most Out Of Your Income 

Another reason to switch to an LTD formation is when you start earning over a certain threshold. As your revenue picks up, the tax savings from becoming an LTD can help you keep more of your profits. While there isn’t a set amount you need to earn, the best time to switch is when you’re earning enough that the costs of running an LTD are less than the savings from the LTD tax structure. 

Increased Costs and Responsibilities 

The main costs of running an LTD come from any fees owed to Companies House, such as your annual confirmation statement fee. On top of these, you may choose to pay for a registered office service to keep your residential address off the public register and an accountant. While these are not necessary expenses, they can make your life and business run more efficiently and safely. 

Conclusion 

To keep more of your profits, a good time to convert from a sole trader to a limited company is when your earnings start to pick up. There isn’t a set amount, but it’s usually when the potential tax savings outweigh the additional costs required to run a company. However, the decision to switch from a sole trader to an LTD should be based on a careful consideration of the factors mentioned above.

Chief Technology Officer

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