Introduction – Why 2025 Feels Different
If you’re a sole trader in the UK right now, chances are you’ve already noticed the landscape around you shifting. The Government’s Making Tax Digital programme is rolling forward, frozen tax thresholds are quietly pulling more people into higher tax bands, and clients and lenders are becoming more selective about who they deal with.
For years, the sole trader route has been the simplest way to run a business: low cost, minimal paperwork, straightforward tax. But simplicity doesn’t always mean sustainability. With the changes arriving in 2025 and beyond, more and more sole traders are asking the same question:
“Is it time to move to a limited company?”
In this blog, we’ll take a deep dive into why the shift is happening now, what the real benefits are, and how Accounting Matters makes the process painless for business owners who are ready to take that next step.
The Sole Trader Model: Pros and Cons
Running a business as a sole trader has always had its appeal:
- Simple set-up – no Companies House registration or complicated paperwork.
- Full control – you are the business, so every decision rests with you.
- Lower admin costs – one annual tax return, basic bookkeeping, fewer deadlines.
- Privacy – limited company directors have details published online, while sole traders do not.
But these advantages come with trade-offs that feel more pressing in today’s environment:
- Unlimited liability – if things go wrong, your personal assets (house, car, savings) are at risk.
- Tax inefficiency – income tax and National Insurance can eat into profits more heavily than corporation tax.
- Perception – some larger clients, lenders, and investors see sole traders as less “credible.”
- Growth limitations – raising finance, bringing in partners, or selling the business later can be harder.
As the rules tighten, the downsides of staying a sole trader are beginning to outweigh the upsides for many business owners.
Limited Company Benefits in Today’s Climate
So, what changes when you incorporate and become a director of a limited company?
1. Limited Liability
This is the biggest shift: the company becomes a separate legal entity. Your personal risk is limited to what you put into the business. For many sole traders, this peace of mind is reason enough to switch.
2. Potential Tax Savings
Corporation tax is currently 25% for profits above £250,000, but small companies benefit from a tapered rate starting at 19%. Compare that with paying up to 45% income tax as a sole trader, plus Class 2 and 4 NICs, and the numbers often speak for themselves. Add in the flexibility of drawing a mix of salary and dividends, and you’ve got more control over your take-home pay.
3. More Professional Image
Clients and suppliers often see “Ltd” as a badge of credibility. It signals that you’re serious about your business and willing to take on more formal responsibilities.
4. Easier to Attract Investment
As a limited company, you can issue shares, bring in partners, or raise finance in ways sole traders cannot.
5. Better for Long-Term Planning
Directors can build pensions, reinvest profits, or eventually sell the business – options that are harder to structure as a sole trader.
The Game-Changer: MTDITSA
Making Tax Digital for Income Tax Self-Assessment (MTDITSA) is the reform every sole trader needs to know about.
From April 2026, sole traders and landlords with income over £30,000 will no longer be able to submit a single annual tax return. Instead, they’ll have to:
- Submit quarterly updates through approved software.
- Provide an End of Period Statement (EOPS).
- File a Final Declaration to confirm the year’s tax position.
That’s six submissions per year, compared to one now.
For sole traders, this means:
- Higher admin burden – keeping records up to date at least every three months.
- Greater risk of penalties for late or incorrect filings.
- Mandatory use of software – no more spreadsheets or paper records.
Meanwhile, limited companies are already used to structured digital reporting. They file accounts with Companies House, submit corporation tax returns, and often use accounting software like Xero as standard. For many business owners, this makes incorporation a natural step towards staying compliant with the new system.
The Hidden Costs of Staying a Sole Trader
It’s easy to think: “I’ll just keep things as they are – it’s simpler.” But under MTDITSA, “simple” doesn’t mean easy anymore.
- Software costs: You’ll need a compatible digital tool, often with a monthly subscription.
- Time lost to admin: Quarterly submissions mean bookkeeping can’t be left until January anymore.
- Risk of penalties: Miss a deadline, and fines could add up quickly.
- Missed tax planning opportunities: Sole traders don’t have the same flexibility around salary, dividends, or pension contributions.
What looks cheap on paper can end up being costly in practice.
Case Study: John the Heating Engineer
Let’s take John, a sole trader heating engineer turning over around £60,000 a year.
- As a sole trader, John currently pays income tax at 20%, then 40% on the portion above £50,270. He also pays Class 2 and Class 4 NICs. His effective tax bill is around £14,000.
- With MTDITSA coming in, John would also face quarterly reporting, new software costs, and more time away from paid work just to stay compliant.
- If John goes limited, he can pay himself a modest salary (keeping NICs low), take dividends taxed at 8.75% (basic rate) or 33.75% (higher rate), and potentially save several thousand pounds in tax. On top of that, he protects his personal assets and looks more professional to clients bidding for larger contracts.
It’s not just about tax savings – it’s about stress savings.
Why Accounting Matters Is the Right Partner
Switching to a limited company is a big decision – but it doesn’t have to be a hard one. At Accounting Matters, we make the transition smooth by handling the details and giving you confidence from day one.
Here’s how we support clients:
- Incorporation made simple – we handle the Companies House registration, HMRC setup, and all the paperwork.
- Seamless software integration – Xero, Dext, and Hubdoc set up for you, with training included.
- Ongoing compliance – we take care of deadlines, submissions, and HMRC communication so you don’t have to.
- Tailored tax planning – monthly or quarterly reviews to optimise salary, dividends, pensions, and expenses.
- Personal support – we don’t just email templates; we train, advise, and hold your hand through the process.
One of our clients, Denise Sims, recently said:
“I would definitely recommend Accounting Matters. They are very professional and helpful. Joanne was lovely – she sorted out our Capital Gains Tax and explained everything in detail. Any problems and she was there to help you out. Would highly recommend Accounting Matters.”
That’s the level of service we bring to every client – whether you’re an established company or a sole trader ready to take the next step.
Conclusion – Is It Time to Go Limited?
The sole trader model isn’t going away, but the world around it is changing fast. With MTDITSA, frozen tax thresholds, and growing pressure from clients and lenders, the advantages of incorporation have never been clearer.
Moving to a limited company isn’t just about saving tax – it’s about:
- Protecting your personal assets.
- Presenting a more professional image.
- Preparing for growth and investment.
- Simplifying compliance under new HMRC rules.
At Accounting Matters, we specialise in guiding sole traders through this transition. From the first conversation to your first set of company accounts, we’ll make sure you feel confident, compliant, and in control.
Ready to explore your options? Book a free discovery call with us today and let’s see whether going limited is the right move for you.