This is the question we're asked most at first meetings, usually because someone's mate went limited and now swears by it. The truthful answer is that it depends on numbers, and the numbers have changed over the years, mostly against incorporation at lower profits.
What a company actually gets you
- Lower overall tax at higher profits, taken as a mix of small salary and dividends
- Limited liability: the company's debts aren't automatically yours
- Some doors open easier: certain contracts, agencies and lenders prefer dealing with a Ltd
- Flexibility about when you take income out, which matters if profits swing year to year
What it costs you
- Real admin: annual accounts, corporation tax return, confirmation statement, a director's tax return on top
- Higher accountancy fees, because there's genuinely more work
- Your accounts become public at Companies House
- Getting money out has rules. It isn't your bank account anymore, and treating it like one causes the problems we untangle most
Where the line roughly sits
At modest profits, the tax saving from incorporating is small and the extra cost and admin usually eat it. As profits climb well past the higher-rate threshold, the sums start favouring a company, sometimes strongly. There's no single magic number, because it depends on how much of the profit you need to live on. Someone leaving money in the business to buy a truck has a very different calculation from someone drawing every pound.
The MTD wrinkle
One genuinely new factor: MTD for Income Tax applies to sole traders, not to companies. We don't think restructuring your business to dodge quarterly updates is a good reason on its own, and we'd say that to your face. But if you were near the line anyway, it goes on the scales.
What we'd actually do
Bring us a year of figures and how much you draw to live on. It's a twenty-minute calculation, we do it at the free call stage, and if the answer is "stay a sole trader", that's the answer you'll get.