Is it time to go limited?

It is one of the most common questions we get from sole traders, and the honest answer is that it depends on numbers rather than instinct. Incorporating can save you money. It can also add cost and admin you did not need. And since the dividend tax rise in April 2026, the answer is less obvious than it was a year ago. Here is how to tell which side of the line you are on.

What actually changes

As a sole trader, you and the business are the same legal entity. Your profit is your income, and you pay income tax and Class 4 National Insurance on it through self assessment.

As a limited company, the business becomes a separate legal person. The company pays corporation tax on its profits, and you then decide how to take money out, usually through a mix of salary and dividends, each taxed differently.

That separation is where the opportunity is, and where the extra obligations come from.

The case for incorporating

• Control over when and how you are paid. Profit left in the company is not taxed on you personally until you draw it, which gives you far more say over your personal tax position year to year.
• Limited liability. Your personal assets are, in most circumstances, separated from the business. For anyone taking on contracts, staff or premises, that matters.
• Credibility. Some larger clients and public sector buyers will only contract with limited companies.
• Succession and investment. Shares can be transferred or sold. A sole trade cannot be, in the same way.

The case against, or at least not yet

• More filing. Statutory accounts, a corporation tax return, a confirmation statement and usually payroll, on top of your own self assessment.
• Your details go on public record. Company accounts and your registered office are searchable by anyone.
• Money is not freely yours. Company money belongs to the company. Taking it out without recording it properly creates director's loan problems that are tedious and expensive to unpick.
• Higher accountancy fees. More compliance means more work. That cost has to come out of the saving before you call it a saving.

The questions that decide it

When we run this for a client, these are the things we look at:

1. How much profit are you making, and how much of it do you need to live on? If you draw every penny, the advantage narrows considerably. If you can leave profit in the business, it widens.
2. Is the profit stable or lumpy? A company gives you more room to smooth income across tax years.
3. Are you taking on risk? Staff, leases, larger contracts and anything with real liability attached push toward incorporating sooner.
4. What do your customers expect? If your pipeline includes clients who will not deal with sole traders, that can settle it on its own.
5. What is the extra admin worth to you? A modest annual saving is not obviously worth several more filing deadlines a year.

If you do decide to go ahead

Incorporating is not just registering at Companies House. There is the transfer of the trade and any assets, VAT registration to consider, a new business bank account, payroll registration, updating contracts and insurance, and getting the accounting records opened correctly from day one. Done in the wrong order it creates problems that take longer to fix than the setup took.

Where to start

Have someone run your actual figures both ways for a full year, including the extra compliance cost, and look at the difference in what you would keep. If it is not a clear enough gap to justify the additional work, wait. If it is, do it properly.