Every freelancer forum, every 'should I go limited' blog post, every accountant's marketing email says roughly the same thing: incorporate, and you'll pay less tax, look more credible to clients, and generally level up. So a lot of sole traders go limited expecting a fairly dramatic shift. A year into running as a limited company after years as a sole trader, the honest verdict is more mixed than the advice suggests — some of it was true, and a surprising amount of it wasn't.
The bit that was genuinely true: the tax
This is the part the advice gets right, and it's the main reason to bother with the extra admin at all. Structuring income as a small salary plus dividends, rather than taking everything as sole-trader profit subject to Income Tax and Class 4 National Insurance, does reduce the overall tax and National Insurance bill for most people once profits clear a certain level — commonly cited as somewhere around £30,000-£40,000 profit, though the exact break-even point moves with each Budget and depends on personal circumstances. Below that level, the saving is often too small to justify the extra accountancy cost and admin. It's worth an accountant running the actual numbers for your situation rather than trusting a rule of thumb from a forum post.
A worked example: £60,000 of profit, both ways
Here is the comparison at 2026/27 rates, on £60,000 of annual profit before the owner takes anything out. As a sole trader, the personal allowance covers the first £12,570, leaving £47,430 taxable: £37,700 at the 20% basic rate is £7,540, and the remaining £9,730 at 40% is £3,892 — £11,432 of income tax. Class 4 National Insurance adds 6% on the £37,700 between £12,570 and £50,270, which is £2,262, plus 2% on the £9,730 above it, another £195. Total tax and National Insurance: £13,889. You keep £46,111.
Now the limited company, using the standard structure of a £12,570 salary topped up with dividends. The salary triggers employer's National Insurance at 15% on everything above the £5,000 secondary threshold — £1,136 — and a sole director who is the company's only employee cannot claim the £10,500 Employment Allowance to offset it. Salary and employer's NI are both deductible, so £46,295 of profit remains, taxed at the 19% small profits rate: £8,796 of corporation tax. That leaves £37,499 to pay out as dividends. The £500 dividend allowance covers the first slice and the rest is taxed at 10.75%, the basic dividend rate since 6 April 2026 — £3,977.
Add it up and the company route costs £13,909 in employer's National Insurance, corporation tax and dividend tax, against £13,889 as a sole trader. The sole trader is £20 better off. Before accountancy fees.
That result would have looked very different two years ago, and it is the single most useful thing on this page. The basic dividend rate rose from 8.75% to 10.75% on 6 April 2026, the dividend allowance has been stuck at £500 throughout, and employer's National Insurance now starts at £5,000 rather than the £9,100 it used to — three changes that between them have taken most of the salary-and-dividends advantage out of the middle of the range. Where a company still wins clearly is when you do not need all the money: profits left in the business are taxed once at corporation tax rates and nothing further falls due until you draw them, which no sole trader can replicate. But 'go limited and save a fortune' stopped being true around £60,000 of profit if you are drawing all of it, and any break-even figure you read that predates the Autumn 2025 Budget is describing a different tax system.
The bit that was oversold: instant credibility
The idea that clients suddenly take you more seriously because there's an 'Ltd' after your name turned out to be mostly wishful thinking. Corporate procurement teams and larger clients sometimes do have a policy preference for contracting with limited companies rather than individuals, which is real and worth knowing about. But the freelancers and small clients who make up most people's book of work never asked, never checked, and never cared. The credibility that actually moved the needle came from the same things it always does: a decent portfolio, clear communication, and turning up on time — not three letters after the business name.
Nobody has ever hired me because I was a limited company. Plenty of people have hired me because I answered the email quickly and the quote was clear. The letters after the name were never the thing.
The bit nobody warns you about: the admin steps up a gear
This is the trade-off that gets glossed over in the 'go limited and save tax' pitch. A limited company means separate business bank accounts, annual accounts filed at Companies House, a corporation tax return, payroll for even a single director's salary, and considerably more structure around what counts as a business expense versus personal spending. None of it is difficult once it's set up properly, and a decent accountant handles most of the technical filing — but it is genuinely more admin than sole-trader Self Assessment, and anyone expecting incorporation to simplify their life is in for a surprise.
The bit that quietly mattered more than expected: separation
The part of going limited that turned out to matter more than the tax saving was the psychological and practical separation it forced between 'the business's money' and 'my money'. As a sole trader it's easy to let those blur — pulling money out whenever cash allows, without a clear sense of what's actually profit versus what's owed to HMRC come January. Running a proper business account, paying yourself a defined salary and dividends rather than an ad hoc draw, and seeing the company's numbers as genuinely separate from personal finances turned out to be a better forcing function for financial discipline than any budgeting spreadsheet had ever been.
What I'd tell someone deciding now
Go limited for the tax efficiency once the numbers genuinely support it, and go in expecting the extra admin as the honest cost of that saving — not as a mild inconvenience that disappears once you're set up. Don't go limited expecting it to change how clients see you; that work is still done by the actual work. And budget for a proper accountant rather than trying to handle company filings solo, because the admin gap between sole trader and limited company is bigger than most 'five reasons to go limited' articles let on. If you're still weighing it up, our guide to voluntary VAT registration is worth reading alongside this one — it's a similar 'the maths matters more than the mood' decision.
The timing question that mattered more than expected
One thing that genuinely surprised me: when you incorporate matters almost as much as whether you do. Switching mid-tax-year meant splitting income between sole-trader Self Assessment for part of the year and company accounts for the rest, which was more fiddly than either option on its own would have been. Doing it cleanly at the start of a tax year, or at least at the start of an accounting period that made sense for the business, would have saved a genuinely annoying few months of overlapping paperwork. If you're weighing it up, ask an accountant not just whether to go limited, but when — the answer to the second question saves real hassle.
What I'd do differently with hindsight
If I were starting again, I'd have the salary-and-dividend split modelled properly before incorporating, rather than guessing and adjusting after the fact — a rough plan drawn up in month one that turned out to be wrong by month six, purely because nobody had actually run the numbers against my real client mix. I'd also set up separate savings for corporation tax from the very first invoice, the same discipline I'd been applying to Self Assessment tax as a sole trader, rather than assuming the new structure would somehow make that habit less necessary. It didn't. The tax still has to be put aside; the label on the bill just changed.
Common questions
At what profit does going limited actually save tax in 2026/27?
Higher than it used to be, because the April 2026 dividend tax rise moved the break-even point up sharply. Ordinary dividend rates went up by two percentage points on 6 April 2026, to 10.75% basic and 35.75% higher rate, while the dividend allowance stayed pinned at £500 and employer's National Insurance stayed at 15% above a £5,000 secondary threshold. Those three things together have squeezed most of the traditional salary-plus-dividends saving out of the middle of the range: at around £60,000 of profit the two structures now land within a few pounds of each other, before accountancy fees. Have someone model your actual numbers rather than trusting a break-even figure written before the Autumn 2025 Budget.
How much more does an accountant cost for a limited company?
More than sole-trader Self Assessment, because there is genuinely more to do: annual accounts in statutory format for Companies House, a CT600 corporation tax return, PAYE registration and monthly RTI submissions for the director's salary, a confirmation statement, and your personal Self Assessment on top of all of it. We are not going to quote a price, because it varies enormously by firm and by how tidy your bookkeeping is. The useful move is to get quotes before you incorporate rather than after, and set the annual difference next to the tax saving your accountant has modelled. If the fee difference swallows most of the saving, that is your answer, and it is a respectable one.
Can I go back to being a sole trader if it doesn't work out?
Yes, and it is more straightforward than people fear, but it is neither free nor instant. You stop trading through the company, register as self-employed with HMRC again, and then close the company — either by applying to strike it off using form DS01, which currently costs £13 online at Companies House, or through a members' voluntary liquidation if there is real value left to extract. Before either route, the company's tax affairs must be settled, final accounts and a CT600 filed, the PAYE scheme closed and any VAT registration cancelled. Take advice on how you extract the remaining cash: the tax treatment of a final dividend and a capital distribution differ substantially.
Does going limited protect me personally if the business fails?
Mostly, with two significant holes in it. Limited liability means the company's debts are the company's, so creditors cannot generally pursue your personal assets — but anything you have personally guaranteed sits entirely outside that protection, and lenders and commercial landlords routinely ask new companies for a guarantee. The second hole is your own conduct as a director: if you keep trading and running up debts when you knew, or ought to have known, there was no reasonable prospect of avoiding insolvent liquidation, the wrongful trading rules can make you contribute personally. Take insolvency advice early rather than late. The protection turns on when you stop, not on the letters after the business name.
Do I have to take a salary as a director?
No. There is no legal requirement for a director to be paid at all, and some owners take dividends only. It is usually worth taking something, for two reasons. A salary is a deductible expense for the company, so it reduces the corporation tax bill in a way dividends never do, and earnings at or above the Lower Earnings Limit — £6,708 a year for 2026/27 — protect your National Insurance record for the state pension, which dividends do not. The other constraint is that dividends can only be paid out of distributable profits. Pay one when the company has not made a profit and you create an overdrawn director's loan account and a tax charge on the company.
