Do I need to register a company name if I am a sole trader?
You don’t need to register a company name if you are a sole trader. However, you should register with HMRC to let them know they should expect an annual self-assessment tax return from you.
7 benefits of registering a company name vs. sole trader
#1 – Pay lower tax
One of the biggest advantages of registering a company name is that running your business as a limited company can help you to legitimately pay less personal tax than being a sole trader.
Limited company profits are subject to UK corporation tax, which is currently set at 19 per cent compared to personal tax rates of 20pc-45%.
If you are the director and shareholder of a limited company, you may choose to take a small salary and draw most of your income from the business in the form of dividends. This reduces the amount of national insurance contributions (NICs) you pay, because company dividends are not subject to NICs.
#2 – Limited liability
Because a limited company is a separate entity to you, the owner, you have “limited liability”. What this means is that you are not responsible for any financial loss made by your business.
#3 – More professional image
If you supply large companies, some prioritise limited companies over dealing with sole traders.
#4 – Easier to raise finance
It is easier to borrow money as a limited company than if you running a business as a sole trader.
#5 – You can sell equity
A limited company is divided up into shares, which means you sell stakes in your business in exchange for funding.
#6 – Tax-free pension contributions
Pension contributions can be made before tax is deducted. Employee pensions qualify as a legitimate business expense.
#7 – Succession planning
It is easier to pass on ownership of a limited company if you retire or on your demise than an unregistered business.
>See also: Registering your business: sole trader or limited company?
How do I register my company name?
If you’d like to set up a limited company, you need to register with Companies House, the UK’s registrar of companies.
Before you get started you should check that:
- Companies House can reject your proposed company name if it is offensive, includes sensitive words or expressions, or if it implies a connection to government. A government allusion could range from anything inferring official status (such as the words “British” or “Institute”) or implies any connection with official bodies, either national or regional, or any regulated activity such as banking, charity work and even the word Windsor. If in doubt, check with Companies House sensitive word annex here.
- Your business name is consistent in your supporting documentation.
Do I need to a trademark?
It makes sense to trademark your brand or business name. A competitor could start using the same or a similar brand name and erode all the goodwill you’ve built up. Yes, you could bring a legal action accusing your competitor of “passing off” but this is a much sterner test than proving infringement of a registered trademark.
Plus, if you sell your business, you can assure your buyer that they can carry on trading with your business name. A registered trademark is an asset that holds its value and can be sold to a buyer.
You can apply for a trademark here at the Intellectual Property Office.
It makes sense to register your trademark first before you apply to Companies House, rather than the other way around.
See also: How to wind up your personal service company ahead of IR35 legislation
3 things you need to do to register a company name
#1 – Check that the name you want isn’t already taken
You will need to register the business name with Companies House, checking first that no other company has already registered the same or has a similar one. Begin by using the Company Name Availability Checker to do a company name search make sure your ideal name isn’t taken or too similar to an existing company’s name. Then click the link to register a “private limited company online”.
#2 – Make sure you have supporting evidence
Before you receive your “certificate of incorporation”, you need to supply at least three pieces of personal information about yourself and your shareholders.
- Town of birth
- Mother’s maiden name
- Father’s first name
- Telephone number
- National Insurance number
- Passport number
#3 – Complete the online questionnaire
Having cleared that your company name is available, you will then fill out an online questionnaire.
Tasks you will be asked to complete include:
- State whether this is a new company or taking over another business.
- Confirm whether any directors or “persons with significant control” are on the Companies House secure register
- Create a Government Gateway user ID
- State whether the company will be a “Community Interest Company”
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders. You can find out more here.
- Give the company’s registered office address
You will need to register your company name to a UK postal address in order to have somewhere for official letters to be sent. Your company address will be publicly available, so if you want to keep your home address private/separate you may want to register your firm with your accountant.
- Say when the company will start trading
- Choose an SIC code for your business activity
You’ll need to state what your business actually does by assigning a standard industrial classification of economic activities (SIC) code. You can see the range of SIC codes here and you are allowed up to four per company.
- Appoint a company director or directors
You’ll need to appoint at least one director. The director is the person legally responsible for running the business and ensuring that reports and company accounts are prepared. The director must be over 16 and can’t be disqualified from being a director. You will also need to provide a publicly available official address and a private home address for each director.
- State whether your company has a “Person with Significant Control”
A Person with Significant Control (PSC) is an individual or company that has at least one of the following:
– More than 25% of the company’s shares and voting rights
– The right to appoint or remove directors
– The right to make decisions or influence decisions that affect the company
- Decide on your share structure
Most limited companies are owned by shareholders. As a shareholder, you receive a portion of company profits in relation to the number and value of shares you own in the company. However, your shareholding also decides the amount you are liable to pay toward business debts. A company limited by shares must have at least one shareholder, who can also be a director. If you’re the only shareholder, you’ll own 100 per cent of the company. This is most common in small businesses and startups, where just one person assumes the role of sole shareholder and sole director.
- Sign a statement of compliance
You need to confirm the requirements of the Companies Act as to registration have been adhered to, and that you have viewed and accepted the Memorandum of Association relating to the rules of running a business.
Can I reserve a company name?
No, you cannot reserve a proposed name.
How much does it cost to register at Companies House?
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Registering a company name costs £12 online at Companies House and can be paid by debit or credit card or PayPal account. A company is usually registered within 24 hours.
If you need to register immediately, you must apply online at Companies House before 3pm and pay an additional £100 fee.
Postal applications take 8-10 days and cost £40.
Can I register without trading?
Yes, you can. This is known as setting up a “dormant company” and can be useful, even if you plan to carry on as a sole trader. Registering a company even though it won’t trade protects you against predators trading on your goodwill. Nobody else can register a company with the same name, safeguarding the interests of your business.
However, if you decide to activate your dormant company, you must:
- Tell HMRC within three months of the company starting trading
- Send your accounts to Companies House within nine months of your company’s year end
- Pay any corporation tax within nine months and one day of your company’s year end
- Submit a tax return within 12 months of the company’s year-end.
Can I use a company name without registering it?
Yes, you can although this is called a “trading name” and must be linked to your limited company. First, you need to check if your trading name is not trademarked. Assuming that “Coco’s Cuddle Club” is not trademarked, you can then start using it, providing you display your correct company name on all paperwork such as invoices (“Coco’s Cuddle Club is the trading name of Coco Chihuahua Ltd).
Is there a difference between a trading name and company name?
Yes, see above.
Can I use a company name that already exists?
If the company name you want is already registered at Companies House, the short answer is no.
However, if you suspect that another company with the same name only registered your trading company name to make trouble, you could make a claim to the Company Names Tribunal. Remember though that the burden is proof is high, and you have to prove the company which has registered your chosen name is “cybersquatting” and wanted you to pay a ransom.
And be careful of trying to sidle around it by registering a company name that’s similar to other more famous brands. So don’t try launching a handbag business called “Plada” – the Italian designer brand has already shut down that copycat competitor.
Remember to get a matching website name
When registering a company name, make sure you can get the matching website domain name for it as well. You can find out which ones are still available by searching through an internet domain seller such as Nominet or GoDaddy.
If the website address you want has already been taken, but is not yet being used, you may be still able to acquire it through Sedo, an online domain marketplace.
Ideally, you should choose a name for which you can get both the dot.com and dot.co.uk version.
What happens once my company name is approved?
Once the name has been approved, Companies House will issue a certificate to confirm the registration and add the name to its registered list of companies, which is available to the public.
- How to choose a great name for your new business – a step-by-step guide to choosing and registering the name of your new business
- Buying a company name before starting up – If I want to buy my company name so no one else can take it, but I’m not ready to start trading, how do I do that?
- Companies House Welsh service – a service for Welsh companies (and LLPs) who prefer to use the Welsh language in their company formation.
- Does registering my company name give me trade mark protection? – Advice on some of the legal ramifications when naming your brand as a business