Click here to book your FREE consultation meeting

Blog

Sole trade to a limited company
3 min read

Corporation tax from sole trader to a limited company

What to expect from incorporating your business.

Sole trader holding a laptop outside a limited company

You must register with HMRC to pay corporation tax within three months of doing business.

Business in this context includes any buying, selling, advertising, renting a property and employing someone. Be aware you may face a fine if you fail to register within the first three months.

Wherever your limited company is based in the UK, you will pay corporation tax at 19% on any profits you make in 2018/19. That may sound like a large chunk of your income going to the taxman, but the UK rate of corporation tax is actually one of the lowest in the developed world.

Registration

You will need your company’s 10-digit unique taxpayer reference before you register for corporation tax, which will be posted to the company address you submitted to Companies House.

When you’re in a position to register with HMRC for corporation tax, you will need:

  • your company’s registration number
  • the date you started trading (to determine the start of your accounting period)
  • the date your annual accounts are made out to.
  • You will then receive a deadline for paying corporation tax, and it’s also wise to be aware you’ll need to file a tax return regardless of making a profit or loss.

Reliefs

Small businesses can take advantage of the research and development (R&D) scheme, which offers relief on 230% of qualifying R&D costs.

It allows your business to deduct 130% of your qualifying costs from your annual profits on top of the standard 100% deduction.

In certain circumstances, loss-making companies can surrender their losses in return for a payable tax credit worth up to 14.5% of the loss rather than paying corporation tax at 19%.

The patent box enables incorporated companies to reduce their corporation tax rate from 19% to 10% on any qualifying patents or similar intellectual property.

It’s also possible to claim back capital allowances on items, such as any machinery, equipment or vehicles, which are used by your company or any of your staff.

There are various allowances and reliefs to potentially help reduce your corporation tax bill, and we can help you find which ones may be applicable to your company.

Reporting and payments

As a director of a limited company, it is essential for you to maintain accurate records for paying corporation tax.

For this reason, it’s worth considering the use of cloud accounting software (XERO recommended by us).

Not only will it help you remain compliant, it will make our job considerably easier to minimise your tax bill.

Make sure you keep all receipts, expenses, sales and purchases, plus up-to-date records of any company assets, liabilities and stock if your company is selling goods.

These records must be retained for six years after the tax year they related to. One organised option would be to store them on your accounting package like Xero.

For taxable profits up to £1.5 million, you will pay your corporation tax bill nine months and one day after the end of your accounting period. Anything above this threshold and you pay corporation tax by installments.

You must pay corporation tax before your deadline to avoid any fines and any interest accruing, and the fastest ways to pay are by either paying online, over the phone or through CHAPS.

For more information about corporation tax when transitioning from a sole trader to a limited company. Please contact us on 02921 056209. Alternatively, email us admin@e-accounts.co.uk

Similar articles

Navigate articles, whitepapers and thought leadership pieces to learn more about eAccaunts

Questions remain?

Interested in our service?

Contact us to learn more about our services.