Sole trader to company, without the costume

General information, dated 28 October 2026. Ontarictensor does not prepare returns. Rules and thresholds change. Read the current GOV.UK page, and pay an accountant or tax adviser before you incorporate or register for VAT.

Start with the status you already have

If you sell goods or services on your own account, you are trading, whether or not you feel like a business. A sole trader is not a separate legal person. You and the activity are the same person. That is why the setup is lighter, and why the liability is yours.

The trading allowance exempts up to £1,000 of gross trading income in a tax year. At or under that line, many people do not have to register. Over it, you generally need to tell HMRC and complete Self Assessment. The usual deadline to register is 5 October after the end of the tax year in which you started to need a return. A tax year runs from 6 April to 5 April. Online returns are due the following 31 January, and that is also when balancing payments are typically due. If those sentences feel abstract, put the dates in a calendar the week you cross £1,000. Missing the registration window is a dull way to meet a penalty.

You can claim the allowance or you can claim allowable expenses. You cannot do both on the same income. If your costs are tiny, the allowance is simple. If your costs are real, recording them usually beats the allowance. Keep the records either way: receipts, a note of mileage, and a list of what you were paid. HMRC’s general guide is to keep records for at least five years after the 31 January submission deadline for the tax year they belong to.

Separate the bank account before you separate the company

A sole trader is not required to hold a business bank account in the way a company is expected to keep its money distinct. Open one anyway, as soon as the activity is more than a one-off. Name it for the work. Pay the costs from it. Pay yourself a transfer to the household account on a chosen day, after the costs, not before. That single habit does more for the “this is a business” feeling than a logo.

If you take card payments at a stall, have the reader settle into that account. Cash goes in the same week, counted, not “roughly what was in the pouch”.

Income tax if you live in Scotland

Personal Allowance for 2026/27 is widely published at £12,570, and it tapers once adjusted net income is over £100,000. Income tax rates and bands for Scottish taxpayers are set by the Scottish Parliament and are not the same as the bands used in England and Northern Ireland. A reader in Livingston should model take-home pay on the Scottish rates on GOV.UK, not on a London blog’s 20/40/45 sketch alone. Your other job’s salary already uses part of the allowance and the bands. A side hustle stacks on top. That is why a modest profit can be taxed at a higher rate than a new trader expects.

National Insurance for the self-employed is a UK matter. For 2026/27, published guides describe Class 4 National Insurance at 6 percent on profits between £12,570 and £50,270, and 2 percent above that. Profits under £7,105 do not create a Class 2 charge; at the published small-profits line, Class 2 is treated as paid so the contribution record can still be protected, and below it a person can choose voluntary Class 2. Check the current figures before you rely on a pound amount. Class 2 and Class 4 are not a substitute for a conversation about your state pension record if you have patchy years.

Making Tax Digital is already a calendar item

Making Tax Digital for Income Tax requires digital records and quarterly updates through compatible software for sole traders and landlords whose qualifying income crosses the relevant line. It is based on gross self-employment and property income, not on profit, and not on the same test as VAT.

Quarterly updates are described as due by 7 August, 7 November, 7 February, and 7 May. Some people can be exempt, including where they are digitally excluded, but they still have filing duties. If HMRC has written to you, read that letter. It outranks a blog.

A limited company’s profits are dealt with through Corporation Tax, so they are not the same as sole-trade qualifying income. Moving to a company does not delete admin. It changes its shape: accounts, a confirmation statement, Corporation Tax, and usually payroll or dividends if you want the money in your own pocket. If you keep a sole trade or a rental alongside the company, MTD can still apply to that personal income. “Incorporate to get out of MTD” is not a plan until someone has modelled what you would cease, what you would start, and what it costs to run.

VAT, briefly, because people mix the tests

Register for VAT if VAT-taxable turnover exceeds £90,000 in a rolling 12 months, or if you expect to exceed £90,000 in the next 30 days. There is also a deregistration threshold below that line; check it rather than guessing. Prices you have been charging to the public may need to absorb VAT or rise. Neither outcome is automatic wisdom. It is arithmetic.

When a limited company is the right conversation

A company is a separate legal person. It can own the lease, the stock, and the contracts. If the work starts to carry real risk, a shop unit, employees, a product that could harm someone, or a contract that is larger than your household can absorb, limited liability is a serious reason to talk to an accountant and, where the risk is unusual, a solicitor. Tax can be another reason, once profits are high enough that salary-and-dividend arithmetic beats income tax and Class 4, after you have paid accountancy fees and accepted the extra filings. There is no universal turnover at which this flips. Anyone who quotes you one number without asking about your other income, your plans to hire, and how much money you need to live on is selling a template.

If you do incorporate, the public duties are not mysterious, just persistent:

• Register the company at Companies House and keep the registered office and the people with significant control records accurate.
• Tell HMRC the company is active for Corporation Tax, generally within three months of starting to do business.
• File accounts and a confirmation statement every year, even in a quiet year.
• Run payroll if you pay yourself a salary, and keep dividends legal: they come from distributable profits, properly documented, not from a hopeful bank balance.
• Keep company money in the company. The “director’s loan because it is all mine really” habit is how small companies get into arguments with their own records.

Small-profits Corporation Tax has for several years sat at 19 percent, with a main rate of 25 percent and marginal relief between the bands. Confirm the current bands and rates on GOV.UK before anyone builds a spreadsheet you intend to live by. Associated companies and the way you extract money both change the picture.

The other registrations people forget

If you handle personal information as a business and no exemption applies, you may need to pay the Information Commissioner’s data protection fee. A stall that only takes a payment and does not keep a mailing list is a different case from a studio that stores customer addresses, measurements, and card receipts in a folder. Read the ICO’s self-assessment rather than assuming you are either invisible or in trouble.

Planning, waste, food, cosmetics, alcohol, and street trading each have their own permissions in different councils. West Lothian Council will not have the same street-trading setup as a London borough. Ask the council that covers the pavement you want to stand on.

Insurance was covered in the clients note. Repeat it here because a unit on an estate changes the policy: stock, tools, public footfall, and sometimes a landlord who wants to be named.

A month that counts as the transition

1. Open the second account and move this month’s takings into it.
2. List income for the tax year to date. If it is over £1,000, diary the Self Assessment registration date.
3. Start a rolling VAT total, even if you are nowhere near £90,000. The habit matters more than the threat.
4. Put prices, deposits, and payment terms on one page and use them for the next three jobs.
5. Only then book the conversation about a company, with the list of risks and the rough profit in front of you.