Sole Trader to LTD: A No-Nonsense Guide for 2025

You’ve built your business from scratch. Things are growing, you’re bringing in more income, and now you’re hearing…

“You’ll soon need to file your taxes every 3 months if you earn over £50,000.”

Welcome to Making Tax Digital (MTD) — HMRC’s new rule starting April 2026.
If you’re a sole trader making more than £50k, you’ll have to submit four digital updates every year, plus a year-end summary.

If that sounds like a lot of admin — it is.
That’s why many business owners are asking:

“Should I switch to a limited company instead?”

This guide explains exactly how to do it — in plain English.

Sole Trader vs LTD: What’s the Difference?

When Should You Consider Switching?

You don’t need to switch just because MTD is coming. But here are three signs it might be the smart move:

1. Your income is over £50,000 a year
   → You’ll be forced into quarterly tax reporting from 2026 under MTD.
2. You’re earning £30k+ in profit
   → You could pay less tax as a limited company.
3. You want to look more professional
   → Larger clients prefer to work with LTDs.

Step-by-Step: How to Switch from Sole Trader to LTD

• Step 1: Pick a Switch Date

Choose when you’ll stop trading as a sole trader. Example: 1 January 2026.

• Step 2: Register Your Company

Set up your new business with Companies House. Pick a name, make yourself a director, and open a new business bank account.

• Step 3: Tell HMRC

Let them know you’ve stopped being a sole trader.
Register your new LTD for Corporation Tax (within 3 months).

• Step 4: Move Your Business Over

Transfer tools, stock, your website, and any contracts to the new company.
This may sound tricky, but a good accountant will handle it all smoothly.

• Step 5: Start Trading as a Company

From your start date, you:

• • Invoice clients from the company
  • Get paid into your company bank account
  • Pay yourself a salary or dividends
  • Keep personal and business money separate

• Step 6: File Your Last Sole Trader Tax Return

You’ll submit one final Self Assessment return covering your income up to the switch date.
After that, all earnings go through the company.

Tax Changes You Need to Know

As a Sole Trader:

• You pay Income Tax + National Insurance on all your profits
• From April 2026, MTD means quarterly reports + digital bookkeeping
• Admin is low now, but will rise if you hit £50k+

As a Limited Company:

• Company pays Corporation Tax on profits
• You take a salary (usually tax-free up to £12,570)
• You can take the rest as dividends (which are taxed lower)
• MTD rules are different for companies — no quarterly sole trader updates

With the right setup, most business owners pay less tax this way. And you avoid being hit by the new MTD rules.

Example Scenario (No Names, No LTDs)

A small business earns around £60,000 a year.
As a sole trader, they’re paying over £10,000 in Income Tax and National Insurance.

They decide to register a limited company, take a small salary, and the rest as dividends.
With some smart planning, their total tax bill drops — and they skip MTD stress.

This isn’t magic. It’s just about picking the right structure for your income.

But What About the Admin?

Yes, a limited company means more paperwork — but that’s where we come in.

With the right support, you don’t have to worry about:

• VAT returns
• Payroll
• Corporation Tax (CT600)
• Annual accounts
• Confirmation statements
• HMRC deadlines

Because our partners will do it all for you.

Want the Stress-Free Switch to LTD?

Let’s keep it simple.

With our partner’s  All Inclusive service, they will take care of everything:

✅ Company setup
✅ Bookkeeping
✅ VAT submissions
✅ Corporation Tax returns
✅ Annual accounts
✅ Payroll & dividends
✅ All deadlines and filings handled

Just a calm, professional service — done for you.