- You don’t convert a sole trader business, you incorporate a new limited company and move the business into it.
- Registering for corporation tax within three months of trading, and handling VAT correctly, are the two steps that catch people out.
- Incorporating isn’t automatically better for tax; the benefit depends on your profit level and how you draw money out.
To change from sole trader to limited company in the UK, you don’t convert your existing business. You incorporate a brand new limited company at Companies House, then move your business activity, assets and clients into it, and wind down the sole trader position with HMRC.
It’s a sequence of separate jobs across Companies House, HMRC, your bank and your contracts. Get the order right and it’s smooth. Get VAT or corporation tax wrong and it’s expensive. Sleek’s company formation service handles the whole switch, but you can do plenty of it yourself, and this guide walks through every step.
You don’t convert a sole trader business, you move it into a new company
There’s no button that turns a sole trader into a limited company. The two are legally different, and understanding that is the single most useful thing before you start.
As a sole trader, you and the business are the same legal person. A limited company is a separate legal entity with its own registration number, its own bank account and its own tax obligations. So you’re not upgrading one into the other. You’re creating a new company and transferring the business into it.
That framing matters because it shapes everything that follows. Your sole trader VAT registration, your contracts, your bank account and your insurance were all in your name. Each one has to be recreated or transferred to the company. Nothing carries over automatically just because it’s “the same business” to you and your customers.
When does incorporating actually make sense?
Incorporating tends to make sense once your profits are high enough that the tax and liability position shifts in the company’s favour, but it’s never automatic. The honest answer is that it depends on your numbers and how you take money out.
A few things usually tip the decision:
- Profit level: once profits climb, the mix of salary and dividends a company allows can be more efficient than sole trader income tax, though the size of that gap moves with current rates.
- Liability: a limited company gives you limited liability, so your personal assets are generally protected if the business runs into trouble.
- Client requirements: some clients, agencies and public sector bodies will only contract with limited companies.
- Credibility: “Ltd” after the name carries weight with certain customers and lenders.
Here’s the honest bit the brief and most guides skip. Incorporating adds admin: annual accounts, a confirmation statement, a corporation tax return and often a separate director’s return. Below a certain profit level, that extra cost and hassle can outweigh the tax saving. Run the numbers for your actual situation first, and if you want the detail, read the tax comparison between the two structures rather than guessing.
A quick word of caution: nobody should tell you incorporating always reduces your tax bill. It doesn’t. It can, in the right circumstances, and it can also just add cost.
Can you be a sole trader and a company director at the same time?
Yes, you can run a limited company and stay self-employed for other work at the same time, and plenty of people do exactly that. The two are reported separately, so it’s less complicated than it sounds.
Say you incorporate for your main contracting work but keep doing occasional freelance jobs on the side. The company handles its own income and files its own corporation tax return. Your separate self-employed work still goes on your personal Self Assessment as sole trader income. They don’t merge.
The key is keeping the money and the records clean. Company income goes through the company. Sole trader income stays personal. If you’re wearing both hats, it helps to understand how the reporting splits, and whether you can be employed and self-employed at once covers the wider status question.
So the reassuring answer to Sophia’s worry is simple. You don’t have to give up freelancing to run a company. You just report each stream where it belongs.
A short step-by-step overview of how to change from Sole Trader to Limited Company
You don't convert a sole trader business. You incorporate a new company and move the business into it. Here's the order of play.
- 1Register the companyIncorporate at Companies House: name, registered office, directors, PSCs, share structure and SIC code. Digital incorporation costs £100.
- 2Register for corporation taxTell HMRC within three months of the company starting to trade. This is a separate step from incorporation.
- 3Open a company bank accountThe company's money is legally separate from yours. Stop routing income through your personal account from day one.
- 4Sort out VATGets missed mostTransfer your existing VAT number with form VAT68, or register the company fresh. Nothing carries over automatically.
- 5Set up PAYE if you're paying yourselfRegister as an employer before the first payday if you'll draw a salary or employ anyone. As a director you're an employee of your own company.
- 6Move assets and equipment acrossEquipment, stock and goodwill stay yours until you formally transfer them. Valuation has tax consequences, so get professional input.
- 7Update contracts, clients and insuranceReissue anything in your sole trader name into the company's name: contracts, suppliers, insurance, bank mandates and domains.
- 8Close off your sole trader positionTell HMRC you've stopped trading as self-employed and file a final Self Assessment for the period up to the date you stopped.
Step 1: Register the company
The first real step is incorporating the company at Companies House, which you can do online, usually within 24 hours. As of 1 February 2026, digital incorporation costs £100, the same-day software service costs £156, and paper incorporation costs £124.
To register, you’ll decide on a few things:
- Company name: it must be unique and not too similar to an existing name.
- Registered office: a UK address that goes on the public record.
- Directors: at least one, responsible for running the company.
- People with significant control (PSCs): anyone who owns or controls more than 25% of shares or voting rights.
- Share structure: how many shares, who holds them and at what value.
- SIC code: a code describing what your business does.
On shares, this is where people bring in a spouse or business partner. One UK business owner described setting up their wife as a 50% shareholder at incorporation, which is common, but it has tax and legal consequences worth thinking through before you file.
You can register directly with Companies House yourself, and for a straightforward single-director company that’s a genuine option. Where it gets fiddly is matching the share structure and SIC code to your plans, and that’s where Sleek’s company formation service tends to earn its place.
Since 18 November 2025, identity verification is mandatory for new directors and PSCs. Sort it before you file, or your incorporation can stall.
Step 2: Register for corporation tax
Once your company starts trading, you must register for corporation tax with HMRC within three months. This is a separate step from incorporation, and missing it is one of the most common early mistakes.
The three-month clock starts from when the company becomes active, not from the incorporation date. “Active” means trading, invoicing, advertising, buying stock, renting premises or earning any income. Writing a business plan or just opening a bank account doesn’t count on its own.
Companies House notifies HMRC when you incorporate, and HMRC posts your company’s Unique Taxpayer Reference to the registered office, usually within a couple of weeks. But that notification doesn’t register you for corporation tax. You still have to do that yourself through your Government Gateway account.
When you register, you give HMRC your company registration number, your trading start date and your accounting reference date. HMRC then sets your filing and payment deadlines. If you’d rather not track this yourself, here’s the full walk-through on registering for corporation tax.
Step 3: Open a company bank account
A limited company needs its own bank account, because the company’s money is legally separate from yours. This isn’t optional or a nice-to-have. It’s how you keep the corporate structure intact.
The moment your company is trading, stop routing income through your personal account. Every payment from a client should land in the company account, and company expenses should come out of it. Mixing the two is one of the fastest ways to create a mess your accountant then has to unpick.
Opening the account is usually quick once you have your certificate of incorporation and company details to hand. If you’ve only ever banked as a sole trader, opening a business bank account explains what you’ll need and what the providers ask for.
Step 4: Sort out VAT (the step that goes wrong most often)
VAT is the step that causes the most damage when it’s handled wrong, so slow down here. What happens to your VAT depends on whether you were VAT-registered as a sole trader, and whether you want to keep the same number.
If you weren’t VAT-registered as a sole trader, you simply register the company for VAT if and when it needs to, once its taxable turnover crosses the £90,000 threshold or you choose to register voluntarily.
Keeping your existing VAT number
If you were VAT-registered as a sole trader and want the company to keep the same number, you use form VAT68 to transfer the registration. HMRC treats this as a change of legal entity, and it lets the business carry the same VAT number across from you to the company.
To do it, you print, fill in and post form VAT68 to HMRC, and register the company for VAT under its new legal status. HMRC treats the VAT68 as the cancellation of your sole trader registration and the transfer to the company, so you don’t file a separate cancellation form.
One important consequence: when you transfer the registration, the company is treated as having run the business before incorporation too. So your sole trader turnover counts towards the threshold, and you can’t reclaim input tax as the old sole trader entity after the transfer.
Getting a fresh number instead
If you’d rather the company start with a new VAT number, you cancel your sole trader registration and register the company from scratch. Some people prefer the clean break; others want continuity for customers and suppliers. There’s no single right answer, and VAT registration covers the mechanics of registering the company either way.
The assumption that trips people up is thinking the VAT number carries over automatically. It doesn’t. Nothing happens with your VAT unless you actively file the paperwork, so this is worth getting right or getting help with.
Step 5: Set up PAYE if you’re paying yourself
If you’re going to pay yourself a salary or employ anyone, you register the company as an employer for PAYE with HMRC. As a sole trader you took drawings; as a company director you’re an employee of your own company, which is a different setup.
You’ll usually run a small salary through PAYE and take the rest as dividends, which is where a lot of the tax efficiency of a company comes from. You register for PAYE before the first payday, and then you’re running payroll, even if it’s just for yourself.
If you plan to take a mix of salary and dividends, it’s worth understanding how to take money out of your company tax-efficiently before you set the salary level, because the split affects your overall bill.
Step 6: Move assets and equipment into the company
Once the company exists, you transfer your business assets into it, and this needs more care than people expect. Equipment, stock, goodwill and any intellectual property were all owned by you as a sole trader, and they don’t belong to the company until you formally move them across.
The mechanics matter because transferring assets can have tax consequences for both you and the company. Selling goodwill or equipment into the company at a value creates potential tax points, and getting the valuation wrong causes problems later.
This is genuinely a get-professional-input step. Asset valuation and goodwill figures aren’t something to guess at, and the right treatment depends on your specific position. Flag it with an accountant rather than picking a number that feels reasonable.
Step 7: Update contracts, clients and insurance
Every agreement that names you as a sole trader has to be updated to name the company instead, because those contracts are legally with you, not the new entity. Miss this and you can end up with income landing in the wrong place or liability sitting with the wrong party.
Work through the list methodically:
- Client contracts: reissue or novate agreements so they’re with the company.
- Suppliers: update accounts and any credit terms into the company name.
- Insurance: transfer or re-take policies in the company’s name; sole trader cover won’t protect the company.
- Bank mandates and direct debits: move recurring payments to the company account.
- Domain and online accounts: update ownership and billing details.
The mistake here is invoicing clients personally out of habit after the company is live. Every invoice from the trading start date should come from the company, in the company’s name, paid into the company account.
Step 8: Close off your sole trader position properly
Once the business is running through the company, you formally wind down your sole trader status with HMRC, and the main job is your final Self Assessment. You tell HMRC you’ve stopped trading as self-employed, and you file one last sole trader return covering the period up to the date you stopped.
If you were registered for Class 2 National Insurance as self-employed, telling HMRC you’ve ceased trading also stops that. Leaving the sole trader registration open when you’ve actually stopped can generate confusing notices and expectations of returns you no longer owe.
Don’t rush to deregister everything the day you incorporate, though. If you’re keeping some genuinely separate freelance work going, your self-employment continues for that, and only the incorporated part moves across. Close what’s actually finished, not what’s still live.
What changes once you’re a limited company
Running a limited company means more filing obligations than sole trader life, so it’s worth knowing what you’re signing up for. The company itself now has its own annual cycle, and you keep a personal one alongside it.
Obligation | Who files it | Rough timing |
Annual accounts | Company, to Companies House | First set due 21 months after incorporation, then 9 months after each year end |
Confirmation statement | Company, to Companies House | At least once a year, £50 to file digitally |
Corporation tax return (CT600) | Company, to HMRC | Within 12 months of the accounting period end |
Corporation tax payment | Company, to HMRC | 9 months and 1 day after the accounting period end |
Self Assessment | You, personally, to HMRC | Each tax year, if you’re a director drawing income |
The other big change is how you get paid. Instead of taking drawings whenever you like, you draw a salary through PAYE and dividends from company profit, and both have their own rules. It’s more structure, but it’s also where the planning opportunities sit.
If you want to size up the ongoing commitment before you commit, the cost of running a limited company breaks down what to budget for year on year.
Mistakes people make in the first three months
The transition trips people up in a handful of predictable ways, and they’re all avoidable once you know them. The first few months after incorporating are where the expensive errors happen.
- Still invoicing personally. Old habits mean income lands in your personal account instead of the company’s. Switch everything over from day one.
- Mixing personal and company money. Blurred accounts undo the whole point of a separate legal entity and make your accountant’s job harder.
- Missing the corporation tax registration. The three-month deadline catches new directors out constantly, and there’s a penalty for missing it.
- Forgetting the final Self Assessment. Your sole trader period still needs one last return, even though you’ve moved on.
- Assuming the VAT number carries over. It doesn’t. Without a VAT68 or a fresh registration, your VAT position is a mess.
None of these are complicated on their own. They cause damage because people don’t realise each one is a separate action they have to take.
How Sleek helps with changing from sole trader to limited company
Making the switch cleanly means incorporating the company, registering it for corporation tax, sorting VAT, and making sure nothing falls between your final sole trader year and the company’s first year. That’s a lot of moving parts, and the order matters.
Sleek does the whole thing with qualified, in-house accountants rather than an outsourced team. We incorporate the company, register it for corporation tax and take over the accounting, so the handover from sole trader to company is one continuous piece of work rather than a stack of separate jobs you’re juggling.
Where you can genuinely do a step yourself for free at HMRC or Companies House, we’ll tell you, and we’ll focus on the parts where getting it wrong is costly. If you want the numbers side handled too, that’s accounting for your new company from the first day it trades.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on changing from sole trader to limited company
How do I change from sole trader to a limited company?
You incorporate a new limited company at Companies House, then move your business into it. That means opening a company bank account, registering for corporation tax within three months of trading, sorting out VAT, updating contracts into the company name, and filing a final Self Assessment for your sole trader period. There’s no single “convert” button; it’s a sequence of steps.
Can I keep my VAT number when I incorporate?
Yes. If you were VAT-registered as a sole trader, you can transfer your existing VAT number to the new company using form VAT68. HMRC treats this as a change of legal entity and carries the registration across. Bear in mind your old sole trader turnover then counts as the company’s, and you can’t reclaim input tax as the sole trader after the transfer.
Do I need to tell HMRC I’ve stopped being a sole trader?
Yes, if you’ve genuinely stopped self-employed trading. You tell HMRC you’ve ceased as self-employed and file a final Self Assessment covering the period up to the date you stopped. This also stops your Class 2 National Insurance. If you’re keeping separate freelance work going alongside the company, that part of your self-employment continues.
Can I be self-employed and a director of a limited company?
Yes. You can run a limited company and remain self-employed for other work at the same time. The company reports its own income through corporation tax, and your separate sole trader income goes on your personal Self Assessment. The two are reported separately, so keep the money and records for each stream cleanly apart.
What happens to my business assets when I incorporate?
Your assets don’t move automatically. Equipment, stock, goodwill and intellectual property owned by you as a sole trader stay yours until you formally transfer them into the company. Transferring them can create tax consequences for both you and the company, so valuation matters. This is a step to get professional input on rather than guessing at figures.
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Does my limited company need an audit?
Usually yes. You file one final sole trader Self Assessment for the period up to when you stopped trading as self-employed. After that, most company directors still file a personal Self Assessment each year to report salary and dividends drawn from the company. So Self Assessment doesn’t disappear; it changes what you’re reporting.
How much does it cost to incorporate?
As of 1 February 2026, digital incorporation with Companies House costs £100. The same-day software service costs £156, and paper incorporation costs £124. On top of the statutory fee, budget for ongoing running costs like the annual confirmation statement, which is £50 to file digitally, plus accounting. Optional extras like a registered office or formation agent add to the total.
