Introduction – Planning Ahead for the Big Switch
For many UK business owners, starting out as a sole trader is the obvious choice: it’s simple, low-cost, and easy to manage while you establish your business.
But over time, you might start to feel the limitations:
- Rising profits push you into higher tax bands
- Larger clients prefer working with incorporated businesses
- The incoming MTDITSA rules will add more admin, more deadlines, and more stress
If you’re nodding along, you may already be wondering:
“Is it time to move from sole trader to limited company?”
Incorporation can unlock tax savings, offer personal liability protection, and give you better long-term control over your business—but only if you handle the transition properly.
This guide walks you step-by-step through the process and explains how Hammond & Co make incorporation smooth and stress-free.
Step 1: Ask Yourself the Key Questions
Before incorporating, take a moment to check whether now is the right time.
Am I making enough profit to benefit?
Tax savings usually become noticeable once profits exceed £30,000–£40,000.
Do I want to protect my personal assets?
Limited liability means your home, car, and savings are better protected.
Do I want to grow or bring in partners?
Limited companies can issue shares and raise finance more easily.
Am I ready for more formal responsibilities?
Directors have legal duties, including filing accounts and acting responsibly on behalf of the company.
If you’re leaning “yes” to these questions, incorporation is worth serious consideration.
Step 2: Registering Your Company
Your first official step is registering your company with Companies House.
This includes:
- Choosing a unique company name
- Appointing directors and shareholders (usually the same person at the start)
- Creating a Memorandum and Articles of Association
- Paying the registration fee (currently £12 online)
Once approved, you’ll receive your Certificate of Incorporation—your company’s official birth certificate.
✔ At Hammond & Co, we handle the full registration process for you. You simply pick a name; we take care of the rest.
Step 3: Setting Up with HMRC
After incorporation, you must notify HMRC and register for several obligations:
- Corporation Tax (within 3 months of trading)
- PAYE as an employer—even if you’re only paying yourself
- VAT registration if you approach or exceed the £90,000 threshold (2025 rate)
- Missing the deadlines can result in penalties, so accuracy and timing matter.
✔ Hammond & Co ensure every registration is completed correctly and on schedule.
Step 4: Moving Your Business Assets Across
As a sole trader, your business assets are in your personal name. These need to be transferred to the new company.
This includes:
- Equipment, tools, and stock
- Business vehicles (which may require formal documentation)
- Contracts and supplier accounts
- Your business bank account (you must open a dedicated limited company account)
- Everything must be valued and recorded properly to avoid future issues.
✔ We guide you through transferring assets smoothly and correctly.
Step 5: Structuring Your Pay
This is one of the biggest advantages of incorporating.
As a sole trader:
- All profits are taxed as income.
- As a limited company director/shareholder:
- You can take a tax-efficient salary
- You can top up your income with dividends (taxed at lower rates)
- You can leave profits in the business for future use
- Your company can make pension contributions, reducing Corporation Tax
When done right, this structure can save you thousands.
✔ At Hammond & Co, we tailor a salary–dividend–pension plan specifically for your circumstances.
Step 6: Understanding Your New Responsibilities
Running a limited company comes with new legal and financial duties:
- Filing annual accounts with Companies House
- Filing a Corporation Tax return with HMRC
- Maintaining statutory records
- Filing an annual Confirmation Statement
- Ensuring the company meets its legal and financial obligations
- It may sound daunting, but with the right systems and support, these tasks become routine.
✔ Our compliance packages include deadline tracking, reminders, and full filing support.
Step 7: Avoiding Common Pitfalls
Here are the mistakes we see most often during the transition:
- Using a personal bank account instead of opening a company account
- Taking money out incorrectly, leading to director’s loan issues
- Forgetting about VAT until it becomes a problem
- Missing statutory deadlines, which can lead to costly penalties
✔ Hammond & Co build safeguards into your setup so these issues don’t happen.
Step 8: Leveraging the Strategic Benefits
Once incorporated, the long-term advantages begin to shine:
- Improved credibility
- Better opportunities for finance and investment
- Ability to scale by issuing shares or bringing in partners
- More tax-efficient exit planning—limited companies can be sold or transferred far more easily than sole trader businesses
Incorporation isn’t just about tax—it’s a long-term business strategy.
Case Study: David the Electrician
David was earning around £70,000 per year as a sole trader. His tax bill kept rising, and MTDITSA was looming.
With Hammond & Co:
- He incorporated his business in 2024
- Transferred his van and tools into the company
- Set up a £12,570 director’s salary and took the rest as dividends
- Saved approximately £4,000 in tax in the first year
- Secured finance for a second van more easily because lenders preferred working with a limited company
David now says incorporation was the best decision he made for his business.
How Hammond & Co Make It Simple
Moving from sole trader to limited company can seem overwhelming—but with the right support, it becomes effortless.
We provide:
- Initial consultation – assessing whether incorporation is right for you
- Company setup – all Companies House and HMRC registrations
- Smooth transition – guidance on asset transfers, contracts, and accounts
- Tailored tax planning – salary, dividends, director pensions
- Software setup – Xero, Dext, and Hubdoc included
- Ongoing compliance – bookkeeping, accounts, VAT, payroll, and reminders
Our goal is to remove the stress so you can focus on running and growing your business.
Conclusion – Get It Right First Time
Incorporation is one of the most significant financial decisions you’ll make. When done properly, it offers tax efficiency, protection, credibility, and long-term stability.
By following the steps in this guide—and working with a team that understands the process inside out—you can transition smoothly and confidently.
At Hammond & Co, we specialise in guiding sole traders through the incorporation journey and supporting them as they grow.
Ready to make the switch? Book a free discovery call with Hammond & Co and take your next step with confidence.