Whether or not sole traders need to register with Companies House is a very common query we get at Crunch. And one that evidently seems to create a lot of confusion for small businesses owners.

Firstly, to make things simple we’ll give you the short answer - no, sole traders have absolutely no requirement, legal or otherwise, to register with Companies House.

However, as a caveat, there are a couple of situations when sole traders may choose to convert to Limited Company and register with Companies House. Which we’ll explain in a moment.

First let’s learn a bit more about what Companies House does and why it doesn’t register sole trader businesses. And also what kind of registration with business authorities sole traders in the UK are obliged to do.
‍

Why don’t sole traders need to register with Companies House?

Companies House plays a crucial role in the UK's business infrastructure by overseeing the ‘incorporation’ of limited companies.

This process involves the official formation and registration of a company, making it a distinct legal entity separate from its owners. 

Through incorporation, limited companies gain the ability to operate under their own name, take on contracts, and bear legal responsibilities. 

Companies House maintains the public register of companies, ensuring transparency by recording and storing company information, including details about directors, shareholders, and annual financial statements, accessible to the public for verification and trust-building purposes. 

Sole traders are not incorporated. So they have no direct connection with Companies House. Fundamentally, as a sole trader, you and your business are legally considered one and the same entity.

For a detailed explanation of the difference between sole traders and limited companies, see this article.
{{cta-sole-trader-crunchone}}

What do sole traders do instead of registering with Companies House?

Although sole traders don’t need to register with Companies House, they do need to register as self-employed with HMRC, if their self-employed income exceeds £1,000 in a fiscal year. In order to pay taxes via self-assessment and pay national insurance. 

This £1,000 threshold is determined before subtracting any tax-allowable expenses. If you earn less than £1000 from self-employment then you don’t need to register. 

So, for example, you could legally earn £999 from selling upcycled furniture on Vinted without registering, as this amount falls under the ‘Trading Allowance’.

You must register by 5th October in your business’s second tax year or you could face late registration penalties.
‍

Why/When would sole traders choose to register with Companies House? (I.e. become a limited company.)

1. To safeguard their business name

Registering as a limited company effectively prevents others from using your chosen name for their company. 

This exclusivity is guaranteed because Companies House prohibits the registration of duplicate (or closely similar) names on its register.

In contrast though, simply registering as a sole trader offers minimal protection for your business name. Consequently, another business could potentially adopt your name by establishing a limited company with an identical name.

So some sole traders opt to register a limited company to secure their business name. 

Upon registering, there is no requirement for the company to engage in trading activities. It can remain inactive or ‘dormant’, existing solely to reserve the name, allowing the owner to continue operating as a sole trader.

Should you choose this route, following the registration of the limited company, you are required to:

• Inform HMRC that the limited company is dormant
• Submit an annual confirmation statement
• Present dormant company accounts annually
  ‍

2. To change their business into a limited company

Transitioning from a sole trader to a limited company structure is a strategic move for many business owners seeking enhanced legal and financial advantages. 

This conversion often reflects the business's growth and the need for a more formal structure that separates personal and business liabilities. 

As a limited company, the business enjoys limited liability protection, which safeguards the owner's personal assets in case of business debts or legal challenges. 

Additionally, this structure can offer tax efficiencies, potentially reducing the amount of personal tax payable through corporation tax rates and the possibility of drawing dividends.

Keeping it simple

In summary, we would reiterate the point that a sole trader does not need to register with Companies House. 

Operating as a sole trader is the most simple and manageable business structure for small businesses and self-employed individuals. 

As it requires minimal interaction and work with government authorities that are responsible for the administration of small businesses. So long as you pay due attention to your tax and accounting.

If you need any help with this, CrunchONE offers tailored solutions for sole traders, simplifying your accounting and tax obligations so you can focus on growing your business.