The leading accountants in Leeds for restaurants, cafes, and takeaways

One of the first big choices for restaurant, café, and takeaway owners is deciding on the right legal structure. Should you stay as a sole trader, or is it time to set up a limited company? It’s more than just a formality. The decision affects how much tax you pay, what risks you’re exposed to, and even how suppliers and customers see your business. Here’s what to consider before making the switch. Why food businesses choose to incorporate Protection from personal liability Running a limited company creates a clear line between your personal finances and your business. If the business struggles or faces legal action, your personal assets are usually protected – you’re only liable for what you’ve put into the company (unless you’ve signed personal guarantees). Tax planning opportunities For profitable restaurants or cafés, incorporation can open the door to more efficient ways of paying yourself. Using a mix of salary and dividends, and leaving profits in the business for reinvestment, can often reduce the overall tax bill compared with being a sole trader. Credibility with suppliers and landlords Being incorporated can strengthen your position when negotiating with suppliers, landlords, or commercial lenders. Having “Ltd” after your name often signals a more established business, which can be reassuring when you’re applying for leases, financing, or supplier credit. Securing your business name When you register with Companies House, your business name is legally protected. That’s important if you’ve invested in building up a recognisable restaurant brand or takeaway identity and don’t want others trading under a similar name. Growth and investment potential If you plan to expand – opening another branch, attracting investors, or taking on partners – a limited company structure makes the process clearer and more appealing. Shares and ownership can be divided more flexibly than as a sole trader. The challenges of incorporation Less privacy Incorporation does mean some of your business details are made public, including accounts and directors’ names. For some owners, that lack of privacy is a drawback. More admin Limited companies must file annual accounts, Corporation Tax returns, and a Confirmation Statement. This adds extra work (and usually accountancy costs) compared with a simpler sole trader setup. Restrictions on taking money out Sole traders can freely withdraw from business profits. With a limited company, money can only be taken as salary, dividends, or loans, all of which come with specific tax rules. This can feel restrictive if you’re used to dipping in and out of the till. IR35 and single-client risks Less relevant to restaurants, but if you’re running a catering business that primarily serves one corporate client, HMRC could class you as a “disguised employee.” In that case, the tax benefits of incorporation may not apply. Which option suits your business? If you’re running a small café or takeaway, earning under around £30,000 a year, and value simplicity, staying as a sole trader often makes the most sense. It keeps admin to a minimum and gives you flexibility in how you draw funds. If you’re concerned about limiting your personal financial risk, want to reinvest profits into the business, or are looking to secure contracts with suppliers and landlords who prefer incorporated businesses, a limited company may be the stronger route. For those who value privacy, sole trader status means less public reporting. But if you’re ambitious about growing your restaurant brand, taking on investors, or opening additional sites, incorporation provides a framework that can support those plans. Making the move If you decide incorporation is right for you, the steps are: Choose a unique name that meets Companies House rules. Decide on company structure – at least one director and one shareholder is required (they can be the same person). Register with Companies House – this can usually be done online within 24 hours. Register for Corporation Tax with HMRC within three months of trading. Open a business bank account to keep business and personal finances separate. Stay on top of annual filings and tax obligations. Can you switch later? Yes. Many food businesses start as sole traders and incorporate once profits and ambitions grow. Switching back to sole trader status is possible but more complicated, and could trigger tax implications – so professional advice is key. How we can help At MSF, we specialise in supporting restaurants, cafés, and takeaways, and we understand the financial challenges food businesses face. So if you’re deciding whether to incorporate, we’ll explain the tax implications, admin requirements, and how the decision aligns with your long-term business plans. Get in touch with us today to see whether forming a limited company is the right move for your restaurant or café.