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This case study is based on genuine client work carried out by our practice. Names, figures and identifying details have been changed to protect confidentiality, and the numbers shown are representative of the situation rather than the exact amounts. Your own position will differ.
The scenario
A sole trader is making about £70,000 profit and everyone keeps telling them to incorporate. They want to know whether it is actually worth it, or whether it is just something people say.
Where the saving comes from, and where it does not
As a sole trader, all £70,000 is taxed on you whether you spend it or not. Income tax plus Class 4 National Insurance at 6% and 2%. Above £50,270 you are into 40% territory, and the effective rate on the top slice is 42%.
Through a company, the company pays corporation tax on profit, and you are taxed only on what you actually take out. That last part is the real advantage and it is the one people miss: you control the timing.
If you need every penny of the £70,000 to live on, incorporating saves considerably less than the headlines suggest, because you have to extract it all anyway and dividend rates rose in April 2026. If you can leave £20,000 in the business, the picture changes, because that money is not taxed on you at all this year.
What incorporating actually costs you
The comparisons you read almost always ignore this side of the ledger.
Your accounts become public. Anyone, including your competitors and your customers, can look up your filings at Companies House. Some people mind this a great deal.
More filing. A confirmation statement, annual accounts, a corporation tax return, and probably payroll. Accountancy fees go up accordingly, and that cost is real and recurring.
Directors duties. Legal obligations that a sole trader simply does not have.
Money is no longer yours to take. Taking cash out becomes a director loan unless it is properly declared as salary or a dividend, and that catches people out constantly.
Losses behave differently. Early trade loss relief against other income is a sole trader thing. Company losses are stuck in the company.
The transition itself
The bit that surprises people: incorporating is a disposal of your business for capital gains tax. Goodwill, equipment, the lot. There are reliefs, incorporation relief and holdover relief, but they have conditions and they are not automatic.
Your VAT registration does not simply follow you either. It can be transferred, or you register the company afresh, and each has consequences.
Your year end changes. Your bank account changes. Your contracts need to be with the company, not you, and customers may need to be told.
The point of this example
Incorporation is a genuinely good move for a lot of businesses at this profit level, and a poor one for others at exactly the same profit. The deciding factors are usually how much you need to draw, whether you mind public accounts, and whether you will keep up with the extra admin.
Anyone who tells you the answer before asking how much you need to live on is not doing the calculation. If you want yours worked out properly, get in touch.
Wondering if you should go limited?
We model both structures on your numbers and show you the real difference in pounds. If it pays, we handle the whole switch cleanly.