Should I Go Limited? Pros and Cons of Becoming a Limited Company in 2026

If you’re currently operating as a sole trader, you may be wondering whether it’s time to set up a limited company. This is one of the most common questions UK business owners ask, especially as profits grow and tax bills increase.

There’s no one-size-fits-all answer. Becoming a limited company can offer tax advantages and added credibility, but it also comes with extra responsibilities. This guide breaks down the pros and cons of going limited in 2026, so you can decide what’s right for your business.

What Does “Going Limited” Mean?

When you “go limited”, you set up a limited company (Ltd) that is legally separate from you as an individual. The company earns the income, pays Corporation Tax on its profits, and you then pay yourself through a combination of salary and dividends.

This is different from being a sole trader, where you and the business are legally the same entity.

The Pros of Becoming a Limited Company

1. You May Pay Less Tax as Profits Increase

One of the biggest reasons people go limited is tax efficiency.

As a sole trader, you pay:

• Income Tax

• Class 2 and Class 4 National Insurance

As a limited company, profits are taxed at Corporation Tax rates, and you can extract income using a tax-efficient mix of salary and dividends.

For many businesses, going limited starts to make sense when annual profits reach around £30,000–£50,000, depending on personal circumstances.

As a sole trader, you are personally liable for business debts. As a limited company, liability is generally limited to the company itself.

This means that your personal assets (such as your home) are usually protected if the business runs into trouble, provided you’ve acted properly and haven’t given personal guarantees.

3. Improved Professional Image

Many clients and suppliers see limited companies as:

• More established

• More credible

• More stable

In some industries, being a Ltd company can help you win contracts, work with larger organisations, or appear more “investable”.

4. More Flexibility with Income Planning

Limited companies allow for:

• Flexible dividend payments

• Pension contributions made directly by the company

• Better long-term tax planning

This flexibility is especially useful if your income fluctuates or you don’t need to withdraw all profits each year.

The Cons of Becoming a Limited Company

1. More Administration and Compliance

Running a limited company comes with additional responsibilities, including:

• Annual statutory accounts

• Corporation Tax returns

• Confirmation statements

• Payroll submissions if you pay yourself a salary

2. Your Finances Are Less Private

Limited company details are filed at Companies House and become public record. This includes:

• Company name and address

• Directors’ names

• Basic financial information

If privacy is important to you, this is worth considering.

3. Money in the Company Isn’t “Yours”

As a director, you can’t freely take money from the company like you can as a sole trader. All withdrawals must be:

• Salary

• Dividends

• Reimbursement of expenses

  OR

• Properly documented director’s loans

Taking money incorrectly can lead to tax problems.

4. Not Always Tax-Efficient at Lower Profits

If your profits are relatively low, the extra costs and admin of a limited company can outweigh the tax savings. In some cases, remaining a sole trader is simpler and cheaper.

Key Questions to Ask Before Going Limited

Before making the switch, ask yourself:

• How much profit does my business make each year?

• Do I want to reinvest profits or take them all personally?

• Am I comfortable with extra admin and compliance?

• Do I need limited liability protection?

• Do my clients expect me to be a Ltd company?

Your personal situation matters just as much as the numbers.

Can You Switch from Sole Trader to Limited Company?

Yes, and it’s very common. However, the transition needs to be handled carefully in order to avoid:

• Unexpected tax charges

• VAT issues

• Problems with contracts or clients

Getting advice before switching ensures the move is structured correctly and tax-efficiently.

Final Thoughts

Going limited can be a smart move, but only when the timing is right. For many business owners, it becomes beneficial as profits grow and long-term planning becomes more important.

At Highway 61, we help sole traders decide if and when becoming a limited company makes sense, and we handle the transition smoothly from start to finish.

Thinking about going limited? Get in touch with Highway 61 today for tailored advice based on your income, goals, and business plans.