Q: Can I change my limited business to a sole trader?
Apr 29 2010
Answered by: Clive Lewis Ask a question
You need to set up the sole trader business first before getting the limited business (a separate legal entity) struck off at Companies House.
The steps are as follows:
- Decide date of transfer of the business from the limited company to the sole trader. Allow plenty of time to complete all the actions.
- At the due date the sole trader takes over the business of the limited company.
- After the date of transfer prepare the final limited company accounts to date of transfer of the business. Agree the final Corporation Tax liabilities and pay them off. Pay off any other creditors of the limited company. Close the limited company bank account.
- At least three months after the date of transfer of the business, apply to the Registrar of Companies to have the limited company struck off.
H M Revenue & Customs (HMRC)
You must notify HMRC of the date the company will cease trading. You will also have to notify them that a new sole trader business is taking over the limited company’s business together with details of the new business.
Before the company is struck off at Companies House, you must have agreed and settled any outstanding tax liabilities (Corporation Tax, Pay as You Earn, VAT etc). You will also have to file the company’s final VAT return and have settled that liability. If the sole trader business is to be VAT registered, you must have registered the new business and transferred the VAT number. If you intend de-registering the business for VAT purposes, you will need to ensure that it is completed successfully. HMRC has the power to object to the company being struck off unless its debts have been settled.
For more information visit the HMRC website.
Companies House
A company may apply to the registrar to be struck off the register and dissolved. The company can do this if it is no longer needed. For example, the directors may wish to retire and there is no one to take over from them; or it was set up to exploit an idea that turned out not to be feasible.
This procedure is not an alternative to formal insolvency proceedings where these are appropriate. Even if the company is struck off and dissolved, creditors and others could apply for the company to be restored to the register.
An application for voluntary striking off can only be made by the company, and must be made on the company’s behalf by its directors or a majority of them. There are conditions which must be met for the Registrar to allow a striking off, mainly that the company cannot at any time in the last three months have traded or otherwise carried on a business. A company cannot apply to be struck off if it is the subject, or proposed subject, of any insolvency proceedings. However, a company can apply for strike off if it has settled trading or business debts in the previous three months.
Before applying you must notify any creditors of the company, such as H M Revenue and Customs, of your intention to ask for the company to be struck off, you should deal with any loose ends, such as closing the company’s bank account, the transfer of any domain names - before you apply.
For further information on striking off visit the Companies House website.
Other Considerations
There are likely to be other people you must notify of the change in legal status of the business – regarding the business premises, insurance, council etc. If you have employees their contracts of employment must be transferred to the sole trader. Any suppliers must be notified so that they can set up new credit accounts in the name of the sole trader, including setting new credit limits.
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