Introduction – Planning Ahead for the Big Switch
For many UK business owners, starting as a sole trader makes sense: it’s simple, quick to set up, and easy to manage while you’re testing the waters. But as time goes on, the cracks start to show.
- Rising profits push you into higher tax bands.
- Bigger clients want to deal with incorporated businesses.
- The new Making Tax Digital for Income Tax Self Assessment (MTDITSA) rules are about to add more admin and stress.
If you’re nodding along, you might already be wondering: “Is it time to move from sole trader to limited company?”
The good news is that incorporation can open the door to tax savings, protection from personal liability, and better long-term planning. But it does need to be done carefully to avoid pitfalls.
In this blog, we’ll walk you step-by-step through the process of becoming a limited company and show you how Accounting Matters can make it painless.
Step 1: Ask Yourself the Key Questions
Before you jump in, take a moment to check whether incorporation is right for you right now. Ask yourself:
- Am I making enough profit to benefit?
– Tax savings often kick in once profits move beyond £30,000–£40,000.
- Do I want to protect my personal assets?
– Limited liability means your house, car, and savings aren’t on the line if the business fails.
- Do I want to grow or bring in partners?
– Limited companies can raise finance and issue shares, making growth easier.
- Am I ready for more formal responsibilities?
– Directors have legal duties, from filing accounts to acting in the company’s best interest.
If the answer to most of these is yes, it’s time to seriously consider incorporation.
Step 2: Registering Your Company
When you decide to go limited, the first step is to register your company with Companies House.
This involves:
- Choosing a unique company name.
- Deciding who the directors and shareholders will be (often the same person at the start).
- Preparing a Memorandum and Articles of Association (the company’s rules).
- Paying the registration fee (currently £12 if done online).
Once accepted, you’ll receive a Certificate of Incorporation – your company’s birth certificate.
At Accounting Matters, we handle all of this for our clients. You simply choose your name, and we take care of the paperwork.
Step 3: Setting Up with HMRC
After incorporation, HMRC needs to know your company exists and will be trading. That means:
- Registering for Corporation Tax within three months.
- Registering as an employer (even if you’re just paying yourself as a director).
- Considering VAT registration if your turnover is approaching £90,000 (2025 threshold).
Failing to do these on time can lead to penalties, so it’s vital to get them right.
Our team ensures all the registrations are handled correctly and on time.
Step 4: Moving Your Business Assets Across
If you’ve been trading as a sole trader, you’ll have assets in your personal name – equipment, stock, maybe even a van. These need to be transferred into the new company.
- For smaller assets, this might just be a journal entry.
- For vehicles or property, you may need legal documentation.
- Bank accounts should also be switched – your limited company needs its own business account.
It’s not just about bookkeeping; it’s about making sure everything is correctly valued and recorded.
At Accounting Matters, we’ll guide you on what needs moving and how to do it smoothly.
Step 5: Structuring Your Pay
One of the biggest advantages of going limited is flexibility in how you pay yourself.
As a sole trader:
- All profits are taxed as income.
As a director/shareholder:
- You can take a salary (usually set around the NIC threshold).
- You can take dividends (taxed at 8.75% basic rate or 33.75% higher rate).
- You can leave profits in the company to reinvest or draw later.
- You can make company pension contributions for tax efficiency.
This is where a tailored tax plan makes a huge difference.
We review each client’s situation and design the most tax-efficient pay structure.
Step 6: Understanding Your New Responsibilities
Being a company director comes with obligations:
- Filing annual accounts with Companies House.
- Filing a Corporation Tax return with HMRC.
- Maintaining statutory records (shareholders, directors, etc.).
- Filing a confirmation statement each year.
- Acting in the company’s best interest – not just your own.
It sounds heavy, but with the right systems in place, it becomes routine.
That’s why our packages include deadline tracking, reminders, and full filing support.
Step 7: Avoiding Common Pitfalls
Many business owners make mistakes during the transition that end up costing them. Here are some to avoid:
- Mixing business and personal funds – always use a dedicated company bank account.
- Overdrawing director’s loan accounts – taking money out the wrong way can trigger tax charges.
- Ignoring VAT registration – get advice before you hit the threshold.
- Missing deadlines – Companies House and HMRC are less forgiving than with sole traders.
At Accounting Matters, we build checks and safeguards into our onboarding process to stop these errors before they happen.
Step 8: Leveraging the Strategic Benefits
Once you’re set up, it’s not just about compliance. Incorporation opens doors to:
- Improved credibility – “Ltd” carries more weight with clients and suppliers.
- Better financing options – banks and investors prefer limited companies.
- Growth flexibility – issue shares, bring in partners, scale more easily.
- Exit planning – unlike a sole trader business, a limited company can be sold, passed on, or wound down tax efficiently.
This is where the long-term advantages really shine.
Case Study: David the Electrician
David ran his electrical business as a sole trader, earning £70,000 a year. His tax bill was climbing, and with MTDITSA looming, he was already dreading quarterly submissions.
With Accounting Matters, David:
- Incorporated his business in 2024.
- Transferred his van and tools into the company.
- Set up a director’s salary of £12,570 and took the rest as dividends.
- Saved around £4,000 in tax in the first year.
- Found it easier to secure a loan for a second van because lenders viewed his limited company as more credible.
David now says the switch was the best decision he made for his business.
How Accounting Matters Makes It Simple
Moving from sole trader to limited company might sound overwhelming, but with the right partner, it’s straightforward. Here’s how we help:
- Initial consultation – we’ll check whether incorporation makes sense for your situation.
- Company setup – we handle all Companies House and HMRC registrations.
- Smooth transition – we’ll guide you through moving assets, contracts, and accounts.
- Tailored tax planning – designing the best salary/dividend/pension mix.
- Software support – Xero, Dext, and Hubdoc training included.
- Ongoing compliance – deadlines tracked, filings made, no nasty surprises.
Our goal is to take away the stress so you can focus on running and growing your business.
Conclusion – Get It Right First Time
Incorporating your business is one of the biggest financial decisions you’ll make – and one of the most rewarding if done properly. It brings tax efficiency, protection, and credibility, but it also comes with responsibilities you can’t afford to ignore.
By following the steps above – and partnering with experts who know the process inside out – you can make the transition smoothly and confidently.
At Accounting Matters, we specialise in guiding sole traders through incorporation and beyond. From the first conversation to your first set of company accounts, we’ll be with you every step of the way.
Ready to make the switch? Book a free discovery call with us today and take the first step towards building a stronger, smarter business.