Introduction – Why 2025 Feels Different
If you’re a sole trader in the UK right now, you’ve probably noticed that the business environment is changing fast. Making Tax Digital is edging closer, frozen tax thresholds are quietly pushing more people into higher tax bands, and both clients and lenders are becoming more selective.
For years, being a sole trader has been the simplest, cheapest way to operate: low admin, straightforward tax, and minimal red tape.
But simplicity doesn’t always mean sustainability—and 2025 is the year many business owners are stepping back and asking:
“Is it time to switch to a limited company?”
In this blog, we’ll explore why this shift is happening, what the real benefits are, and how Hammond & Co makes the entire process seamless for business owners ready to take the next step.
The Sole Trader Model: Pros and Cons
Being a sole trader has always had its strengths:
- Simple set-up – no Companies House registration or complex formalities
- Full control – you are the business
- Lower admin costs – one tax return, basic bookkeeping
- Privacy – your details aren’t published online
But in 2025, the drawbacks are becoming harder to ignore:
- Unlimited liability – your home, car, and savings are on the line
- Tax inefficiency – higher rates of income tax and NICs compared to corporation tax
- Perception issues – some clients and lenders prefer working with limited companies
- Growth limitations – raising finance or expanding is more challenging
With regulatory changes incoming, these downsides now feel far heavier for many business owners.
The Benefits of Going Limited in Today’s Climate
Making the move to a limited company brings several major advantages:
1. Limited Liability
Your company becomes a separate legal entity, which protects your personal assets. For many sole traders, this security alone is worth the switch.
2. Potential Tax Savings
Corporation tax is 25% for high-profit businesses, with smaller companies benefitting from a tapered rate starting at 19%.
Compare that with income tax of up to 45% plus NICs, and incorporation can offer substantial savings—especially when using a mix of salary and dividends.
3. More Professional Image
“Ltd” instantly enhances credibility. Larger clients and contractors often see limited companies as more reliable and better structured.
4. Access to Investment
You can issue shares, take on partners, and raise finance far more easily as a limited company.
5. Better Long-Term Planning
Pensions, reinvesting profits, and planning for a future sale are all easier with a company structure.
The Game-Changer: MTDITSA
Making Tax Digital for Income Tax Self-Assessment (MTDITSA) is the biggest reform sole traders have faced in years.
From April 2026, sole traders and landlords earning over £30,000 will need to:
- Submit quarterly digital updates
- File an End of Period Statement
- Submit a Final Declaration
That’s six submissions per year, compared to just one now.
This means:
- More admin
- More deadlines
- Mandatory software use
- Increased chance of penalties
Limited companies are already used to structured digital reporting, and most use software as standard. For many business owners, incorporation is simply the more practical long-term choice.
The Hidden Costs of Staying a Sole Trader
On paper, remaining a sole trader looks “cheaper”—but under MTDITSA, that’s rarely the case.
Hidden costs include:
- Software subscriptions – spreadsheets won’t cut it
- Time wasted on admin – bookkeeping must be updated every three months
- Increased risk of penalties – missed deadlines will be costly
- Missed tax-saving opportunities – fewer planning options than a company
What seems simpler now may end up costing more later.
Case Study: John the Heating Engineer
John is a heating engineer earning around £60,000 a year.
As a sole trader:
- He pays 20% income tax, then 40% over £50,270
- He also pays Class 2 and Class 4 NICs
- His total tax bill sits around £14,000
- With MTDITSA, he’ll face quarterly reporting, software costs, and more admin
If John incorporates:
- He can take a small salary + dividends (8.75% basic rate / 33.75% higher rate)
- He may save thousands in tax
- He protects his personal assets
- He looks more credible when bidding for contractors and commercial jobs
For John, it’s not just about money—it’s about reducing stress and increasing stability.
Why Hammond & Co Is the Right Partner
Switching to a limited company is a big decision, but with Hammond & Co, it’s a smooth and stress-free process.
Here’s how we support you:
✔ Complete Incorporation Service
We handle Companies House, HMRC registrations, and all legal setup.
✔ Seamless Software Integration
We set you up on Xero, Dext, Hubdoc, and SmartVault—with full training included.
✔ Ongoing Compliance and Support
We manage your deadlines, submissions, payroll, VAT, and HMRC communication.
✔ Tailored Tax Planning
Salary/dividend strategies, pension planning, director tax optimisation—reviewed quarterly or monthly.
✔ Hands-on Guidance
We don’t just send templates. We explain, support, and guide you every step of the way.
One of our clients, Denise Sims, said:
“I would definitely recommend Hammond & Co. Very professional and helpful. Joanne explained everything clearly and sorted out our Capital Gains Tax. Any problems and she was there straight away. Highly recommended.”
This level of support is what we offer to every client—whether you’re an established company or a sole trader ready for the next stage.
Conclusion – Is It Time to Go Limited?
The sole trader model isn’t disappearing, but the world around it has changed.
With MTDITSA, frozen thresholds, and increasing expectations from customers and lenders, the case for incorporation has never been stronger.
Switching to a limited company gives you:
- Personal asset protection
- A more professional image
- Better long-term planning
- More tax efficiency
- Simpler compliance in a digital-first system
At Hammond & Co, we specialise in helping sole traders transition confidently, clearly, and compliantly.
👉 Ready to explore whether going limited is right for you?
Book with Hammond & Co today.
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