The pros and cons of incorporating in 2025
If you’re currently operating as a sole trader, you’ve probably asked yourself at some point:
“Should I set up a limited company?”
With the new tax year underway and a fresh set of changes to allowances and thresholds, 2025 might be the year to explore that question more seriously. But incorporating isn’t the right move for everyone — and it’s important to understand the benefits and potential drawbacks before making the leap.
Here’s a balanced look at what becoming a limited company could mean for your business.
The Pros of Going Limited
- Tax efficiency
As a sole trader, your profits are taxed as personal income — which can mean a hefty tax bill as your business grows. Limited companies pay Corporation Tax (currently 25% for profits over £50,000), and you can often reduce your personal tax liability by paying yourself a combination of salary and dividends. - Limited liability
One of the biggest advantages is in the name: limited liability. As a sole trader, your personal assets are at risk if the business runs into trouble. A limited company is its own legal entity, meaning your personal finances are (in most cases) protected. - Professional image
Operating as a limited company can make your business appear more established or credible — particularly if you’re working with larger clients, bidding for contracts, or looking to raise finance. - Business continuity and structure
It’s easier to bring in shareholders, appoint directors, and scale your operations under a limited structure. It also gives you more flexibility when it comes to succession planning or selling the business.
The Cons to Consider
- More admin and responsibility
Limited companies must comply with strict filing requirements:
- Annual accounts
- Confirmation statements
- Corporation Tax returns
- Payroll and dividend records
There’s more paperwork and more rules — and getting it wrong can lead to penalties.
- Less privacy
Company accounts and director details are publicly available via Companies House. If privacy is a concern, this may be something to weigh up. - Less flexibility with profits
Sole traders can draw from business profits as needed. Limited company directors need to follow certain rules when taking income — for example, setting up PAYE, paying dividends from post-tax profits, and keeping accurate records of everything. - Professional fees may increase
Accountancy fees are typically higher for limited companies due to the extra compliance and reporting obligations. However, many business owners feel this is balanced out by tax savings and added protection.
Is 2025 the right time?
With ongoing changes to tax thresholds, dividend allowances, and reporting rules, it’s worth revisiting your business structure each year. Incorporating can be a strategic move — but it depends on your profits, goals, risk appetite, and plans for the future.
If your profits are growing, or if you want to reduce personal liability, 2025 could be the year to go limited. But it’s essential to get tailored advice based on your situation.
Not sure if you’re ready to incorporate just yet? Start by reviewing your current setup:
What the 2025/26 tax changes mean for you
How your 2024/25 performance can guide smarter decisions
Let’s talk it through
At Kingston Burrowes, we help business owners weigh up the pros and cons of incorporation, run the numbers, and guide them through the setup if they decide to go ahead. We can also ensure you’re compliant from day one — and help you get the most from your new structure.
Thinking of going limited this year?
Let’s book a chat and make sure it’s the right move for you.
