Starting an eCommerce business is an appealing venture for many, and thanks to platforms like Shopify, Etsy, and Amazon, selling online has never been easier. You may start small, operating under a simple business structure as a sole trader, but as your business and sales grow, you might wonder: Should I take the next step and incorporate?
Incorporating your eCommerce comes with extra responsibilities, but it can save you tax, protect your personal finances and boost your business credibility. The process involves registering with Companies House, choosing a business name, appointing directors, and setting up financial records.
If you’re unsure whether incorporation is right for you, Unicorn Accountants is happy to chat! Give us a call on 0208 064 0454, and we can discuss your specific situation.
Do I need to incorporate my eCommerce business?
When starting your eCommerce business, it's usually more straightforward to operate as a sole trader, and that's perfectly fine! To start trading as a sole trader, you must simply register with HMRC for self-assessment, keep records of your income and expenses, ensure you file an annual tax return and pay what you owe.
As your business grows, incorporation (i.e., 'going limited') can bring additional benefits and protection to support your growth.
When should I incorporate my business?
Deciding whether or not to incorporate usually depends on what stage your eCommerce business is at, how much revenue you're generating, and what your long-term goals are. You could consider incorporation when your eCommerce company reaches certain milestones:
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Your business generates consistent revenue every month.
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You need to separate your personal and business finances.
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Your marketing efforts are paying off, and your business is growing faster than you initially expected.
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You want to build stronger relationships with suppliers and customers.
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Your sales data shows you're approaching the VAT registration threshold (£90,000 for the 2024/25 tax year).
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You plan to seek external investment.
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You are heading from the basic rate of income tax toward the higher rate.
Benefits of incorporating
Incorporating your business, whether you sell business to business (B2B) or business to consumer (B2C), can offer some significant advantages:
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Limited Liability Protection: As a limited company director, you are a separate legal entity to your business. This means that your personal assets are protected if the business runs into financial difficulty.
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Increased Credibility: A registered company often looks more professional to customers and suppliers.
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Potential Tax Savings and Flexibility – As a limited company, you’ll pay Corporation Tax (currently 19-25%) instead of personal income tax (the higher rate of which is currently 40%). As a limited company director, you can also choose to take a combination of salary and dividends. As dividends are taxed at lower rates than income tax, it can help you keep more of your profits.
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Easier Access to Funding: It can be easier to secure loans or investments as a limited company.
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Business Name Protection: Registering your company name at Companies House protects it from being used by others.
Steps to incorporating your eCommerce business
Choose a structure
Your first important decision is selecting the right legal structure. For small to medium-sized eCommerce businesses, this could be either a limited company (Ltd.) or a limited liability partnership (LLP).
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Limited Company (Ltd.) – Best suited for individual eCommerce business owners.
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Limited Liability Partnership (LLP) – Best suited to eCommerce businesses run by multiple founders, such as digital agencies or dropshipping partnerships.
Each structure has specific implications for taxation, liability, and management requirements. Taking time to understand these differences will help you make the right choice.
Select a company name
Your company name needs to meet several criteria:
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Must be unique and available at Companies House
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Cannot contain restricted words or misleading terms
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Should reflect your online business identity
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Must include the appropriate designation (Ltd or LLP)
File incorporation documents
The incorporation process requires submitting these documents to Companies House:
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Form IN01 (Company Registration Application) – The official form submitted to Companies House to register your company, including key business details.
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Memorandum of Association – A legal document signed by all initial shareholders or guarantors confirming their agreement to form the company.
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Articles of Association – The company’s internal rulebook outlining how it will be run, covering decision-making, shareholder rights, and director responsibilities.
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Statement of capital and initial shareholdings – A breakdown of the company’s share structure, showing how ownership is distributed among shareholders.
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Details of directors and company secretary (if appointed) – The official record of who is responsible for managing the company, including their names and contact details.
eCommerce business registration with Companies House
To officially incorporate your business, you'll need to register it. This involves submitting the required documents (mentioned above) and paying the registration fee. You'll also need to provide a registered office address, list your company directors and shareholders, and detail your share capital and company structure.
Open a business bank account
You must have a dedicated business bank account after incorporation. The company is a separate legal entity, and finances must be kept separate from your personal finances. A dedicated bank account is also needed for:
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Managing cash flow effectively
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Building a business credit history
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Processing online payments efficiently
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Keeping clear financial records
Hiring an accountant
Once you have incorporated, it's time to think about keeping your finances in order. You'll need to prepare annual accounts, submit your Corporation Tax return and potentially register for VAT. This requires specialist knowledge and accounting software, so working with an accountant is highly advisable. But a good accountant does so much more than just compliance!
Think of them as your financial partner, helping with things like management accounting, strategic financial advice, tax planning, market research and those everyday tasks like VAT registration and returns, bookkeeping, and payroll. And if you're running an online business, it's especially important to work with an accountant who gets the ins and outs of eCommerce, including sales tax on platforms like Amazon, Etsy, WooCommerce, Shopify, and eBay.
That's where Unicorn Accountants comes in! We specialise in eCommerce accounting and have extensive experience working with online marketplaces and platforms. We also love helping new eCommerce businesses get started – from creating a solid business plan to navigating those initial steps.
Speak to Unicorn Accountants about incorporating your eCommerce business
Incorporating your online company is an important step that can provide a strong foundation for a successful business. While the process requires careful thought and planning, with the right professional support, you can do it!
Contact Unicorn Accounting today by completing our contact form. We'll be in touch as soon as possible to discuss your eCommerce business finances.
Frequently asked questions - how to incorporate your eCommerce business
Can I claim pre-incorporation expenses?
If you have incurred business set-up costs before incorporating your business, you can claim them on your first tax return along with your other e-Commerce business expenses. Reduce your tax liability today by contacting us via our online form or call us on 0208 064 0454.
Is it better to be a sole trader or a limited company?
There is no one-size-fits-all answer to this question. It all comes down to what stage your company is at, how much turnover you generate and what your growth plans are. If you are unsure, speak to an accountant who can talk you through your options and help you make the right decision.
How long does it take to incorporate?
Standard incorporation through Companies House typically takes 24-48 hours. A same-day service is available for an additional fee. The complete process, including bank account setup and tax registrations, usually takes 2-3 weeks.
Can I incorporate my business if I’m already trading?
If you are currently a sole trader, you can choose to incorporate your business whenever you wish. If you are starting a new business, you can decide on your business model from the outset and register as a sole trader or a limited company, depending on your circumstances. Again, it's a good idea to talk to an accountant if you are unsure.
How much does incorporation cost?
Basic incorporation starts from £50 for online registration with Companies House. Additional costs may include:
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Professional fees for incorporation services
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Accountancy fees for tax advice
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Legal fees for document review
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Business bank account setup
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Professional indemnity insurance
You also have to pay an annual confirmation statement fee of £34. More information about other related fees is available on HMRC's webpage about Companies House fees.
Do I need to change the name of my online store after incorporation?
Your trading name can differ from your registered company name, provided you:
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Display your registered company name on official documents
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Include your company registration number in all communications
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Ensure your trading name doesn't infringe on existing trademarks
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Clearly identify the legal entity operating the business
You might want to retain your original trading name so you don't confuse your target audience or potential customers.
What is a business licence?
In the UK, business licences are only required for certain eCommerce businesses, such as those selling restricted goods like alcohol. Becoming a limited company is not a licence as such, but you do need to register with Companies House to run a limited company. Most people in the UK can set up as a sole trader and start selling straight away.