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Upon registering as a sole trader, some individuals expect to be allocated a company registration number (CRN). However, this is not something that sole traders receive. In this article, we explain why they do not get a company registration number and look at what they receive instead.
What entities receive a company registration number?
In the UK, only business entities registered with Companies House are given a company registration number. This includes:
- Private companies limited by shares
- Private companies limited by guarantee
- Limited liability partnerships
- Public limited companies
- Private unlimited companies
The sole trader business model is not a type of company and so does not receive a CRN.
What do sole traders receive instead of a company registration number?
There is no sole trader equivalent of the company registration number.
After a person has registered as a sole trader with HMRC, they will automatically receive a unique taxpayer reference (UTR). This is a 10-digit number that is typically formatted in the following way: 9876543210 (sometimes a ‘K’ is included at the end of the number).
It would be inaccurate to say that the UTR is the sole trader version of the CRN. They serve wholly different functions, and companies actually receive their own UTRs anyway (this means some company directors will have two UTRs; a personal one and a company one).
The only similarity that the company registration number and unique tax reference share is that they’re both automatically assigned upon registration.
The CRN and UTR must be handled differently
An individual should only share their UTR with their accountant, financial advisor, HMRC, and sometimes with their bank. It should not be passed on to anyone else, nor should it be published on a business’ website, letterheads, stationery, or invoices.
In the wrong hands, the UTR can be used to commit identity fraud. HMRC should be contacted immediately if the confidential status of a UTR is compromised. If a sole trader is uncertain about handing over their UTR, they should check with HMRC first.
On the other hand, the CRN is made publicly available on the Companies House register from the moment a company is registered, and as this indicates, no harm can be done with the CRN by itself.
What is the unique taxpayer reference used for?
The UTR is used to identify a self-employed person for tax purposes. This means it needs to be provided to HMRC (or an accountant) when dealing with any tax matters, such as:
- Submitting a Self Assessment tax return
- When working under the Construction Industry Scheme (CIS)
- General correspondence with HMRC
The company registration number is used when a company:
- Deals with HMRC, such as reporting dormant status, registering for Corporation Tax, and registering for VAT
- Files anything with Companies House, such as a confirmation statement, annual accounts, or a director appointment form
- Completes general admin tasks, such as sending invoices, opening a business bank account, and creating share certificates
What other reference numbers and codes do sole traders receive?
As well as the unique taxpayer reference, a sole trader may have a:
- Government Gateway ID (and password) to use HMRC’s online tax services. A sole trader may not have this if an accountant takes care of their tax affairs.
- Employer PAYE reference if the business employs other people.
- VAT registration number if the business has registered for VAT. This is compulsory if a business’ turnover exceeds the £85,000 VAT threshold and optional if doesn’t. If a sole trader has registered for VAT, they must include the VAT registration number on their invoices.
How can a sole trader get a company registration number?
The only way a sole trader can obtain a CRN is by converting their business into a company by registering with Companies House. There are a number of benefits to be had from doing this, which we cover in more detail in ‘Sole trader or limited company?’. However, to summarise, by switching from a sole trader business structure to a limited company, a business owner can:
Protect their finances
When operating as a sole trader, there is no distinction between the individual and the business, they are the same entity. This means that if debts are accrued, the business owner must pay out of their own finances. In a limited company, the shareholders (who own the company) are only liable for the unpaid nominal value of their shareholding in the company.
Impress with an esteemed business structure
A limited company is more likely to secure new business and investment because of the professional image that the structure provides. By comparison, the sole trader business model, rightly or wrongly, is often associated with a level of amateurism.
Take advantage of tax efficiency
Whilst this depends on a business’ specific circumstances, the general consensus is that when placed side-by-side with the sole trader model, limited companies are more tax efficient.
Sole traders do not receive a company registration number, as these are the domain of businesses (companies) that have been registered at Companies House. Sole traders receive a unique taxpayer reference, but other than the fact that this is automatically issued upon registration, this has no real similarity to the company registration number
If you are a sole trader who wishes to convert to a limited company, we can help you make the switch with our company formation services. The company registration process is simple and prices start from only £12.99. All you need to do is pick your company name, choose your package, make payment, and then provide some details about your new company.
It’s entirely online and you’ll typically be in possession of a company registration number (and Certificate of Incorporation) within 3 – 6 working hours.
Thanks for reading. Please leave a comment if you have any questions and we’ll get in touch as soon as possible.