Should You Move From Sole Trader to Limited Company?

Thinking about moving from sole trader to a limited company is a big step. It is often talked about in terms of tax savings, but the decision goes far beyond paying less tax.

Incorporation affects how you run your business, how much admin you deal with, how protected you are personally, and how you plan for the future. For some people, it is the right move. For others, it is not.

Here are some key signs that it might be time to consider the switch, and why timing matters more than most people realise.

When Incorporation Might Make Sense

There is no single trigger point, but certain patterns often suggest that incorporation could be worth exploring.

These include:

• Profits that are consistently growing, rather than one-off good months

• Paying a large amount in Self Assessment tax and Class 4 National Insurance

• Wanting to plan long term, including pensions and reinvesting profits

• Looking for clearer separation between personal and business finances

• Thinking about asset protection and risk

When these factors line up, operating as a limited company can provide more flexibility and control.

It Is Not Just About Paying Less Tax

While tax efficiency is part of the conversation, it should not be the only reason to incorporate.

Running a limited company comes with additional responsibilities such as Companies House filings, dividend paperwork, and more structured record keeping. The tax benefits only work when the business is profitable and managed properly.

Incorporation should support your goals, not create extra pressure.

MTD for Income Tax Is Changing the Picture

From April 2026, Making Tax Digital for Income Tax Self Assessment will apply to sole traders and landlords with income over £50,000.

This means:

• Quarterly reporting to HMRC

• More submissions during the year

• Greater reliance on accurate bookkeeping

• Less room for error

For some people, this additional admin tips the balance towards incorporating. For others, it reinforces the need for better systems rather than a change in structure.

There is no automatic right answer.

Admin, Tolerance, and Long-Term Plans Matter

Deciding whether to incorporate depends on more than profit alone.

It also comes down to:

• How comfortable you are with admin

• Whether you want to reinvest profits or extract them

• Your long-term plans for the business

• Your appetite for complexity

• How organised your numbers are

This is why generic advice rarely works.

Talk It Through Before You Make the Leap

Incorporating at the wrong time can cost more than it saves. Staying a sole trader for too long can do the same.

The right decision depends on your numbers, your plans, and your tolerance for admin. This is exactly the kind of conversation that should happen with an accountant before making the move.

The Bottom Line

Moving from sole trader to limited company is a strategic decision, not just a tax one.

With MTD for Income Tax on the horizon, now is a good time to review where you are and where you are heading.

If you are unsure whether to stay a sole trader or switch to a limited company, get in touch. We can review your position, talk through your options, and help you make the right decision at the right time.

Meet Lewis

Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.

Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.