When to switch from sole trader to limited company (2026 guide)

Going limited too early adds admin. Waiting too long costs thousands. Here’s how to decide with real numbers.

Rule of thumb

• If taxable profit > £60k, incorporation usually saves £1k–£3k/year through salary + dividends.
• If you’re taking on commercial contracts that demand liability cover, go limited even earlier.

Checklist

1. Profit projection – Use Toolfy reports (Revenue – Costs) to forecast next 12 months.
2. VAT position – If you’re near the £90k threshold, you’ll register regardless of structure.
3. Risk – Do you need personal liability protection (e.g., high-value installs)?
4. Growth plans – Adding partners/investors? Limited company makes shareholding easier.

Salary/dividend comparison (2026 bands)

| Profit | Sole trader tax | Limited company tax | | --- | --- | --- | | £45k | ~£7.5k | ~£7.2k (similar) | | £75k | ~£17k | ~£13k (save ~£4k) | | £110k | ~£32k | ~£26k (save ~£6k) |

Assumes £12,570 salary + dividends + 19% corp tax.

How Toolfy helps

• Export profit & loss to share with your accountant
• Tag jobs/customers so you can split revenue streams (domestic vs commercial)
• Store incorporation paperwork in Documents section for quick reference

Timeline to switch

1. Month 0 – Talk to accountant, reserve company name
2. Month 1 – Incorporate via Companies House (£12)
3. Month 2 – Open business bank account, update Stripe/Twilio with new legal entity
4. Month 3 – Move Toolfy billing + team contracts to the company

Don’t forget

• Update insurance policies to the company name
• Reissue contracts/quotes with the new legal entity
• Tell HMRC you’ve ceased sole trader trading (avoid double tax)

Still unsure? Share your Toolfy revenue export with your accountant—they can run the exact calculation based on your mix of salaries, dividends, and retained profits.