Freelancer Going Limited - What You Actually Need From an Accountant
Going limited changes more than your tax bill. It changes who owns your contracts, what HMRC expects from you every year, and how you're allowed to take money out of your own business. Here's what actually happens when you switch, what you can do yourself, and where an accountant genuinely earns their fee.
Why freelancers make the switch
Sole trader and limited company are different legal setups, not just different tax forms. As a sole trader, you and the business are the same legal person, so if something goes wrong - a client dispute, an unpaid supplier, a lawsuit - your personal assets are technically on the line. A limited company is a separate legal entity, so the company carries that risk instead of you personally. For most freelancers this rarely gets tested, but it's the underlying reason the structure exists.
There's also a more everyday reason: some agencies and larger clients won't contract with a sole trader at all, especially on longer engagements, because their procurement rules require a registered company. On tax, a limited company pays corporation tax on its profits rather than you paying income tax and National Insurance on everything you earn, and you then choose how much to take out as salary versus dividends. For many freelancers past a certain income level this ends up more tax efficient overall, though the gap has narrowed as dividend tax rules have tightened in recent years - it depends on your own numbers, not a fixed rule of thumb that applies to everyone.
What has to happen once you incorporate
Incorporating itself is a short process: register the company at Companies House with a director, a shareholder (usually you, for both), a registered office address, and a SIC code describing what the business does. You'll also need a business bank account in the company's name, since business banking rules mean you can't keep running everything through your personal account once the company exists, and you'll want to pick an accounting reference date, which sets the company's year end and doesn't have to match the tax year.
The part people underestimate is what happens to work already in progress. Any live contract, retainer, or purchase order is between the client and you as an individual, so it needs to be reissued or amended to name the company before you can invoice through it. Agencies in particular will often ask for a fresh contract and updated bank details before they'll pay the company instead of you personally, so it's worth flagging the switch to active clients a few weeks ahead of the date you incorporate, not on the day itself.
Where an accountant earns their fee
The Companies House registration is genuinely something you can do yourself in an afternoon for a small filing fee. Where an accountant's advice starts to matter is the decisions that are cheap to get right early and expensive to unpick later: whether and when to register for VAT, how to split your income between salary and dividends without triggering a bigger tax bill than necessary, and setting an accounting reference date that fits your income pattern, not just the default Companies House assigns you.
Then there's the ongoing admin a sole trader never had to think about: a confirmation statement, annual accounts, and a corporation tax return (CT600), each with its own deadline, plus payroll if you pay yourself a salary. Miss one and Companies House or HMRC will issue a penalty regardless of whether you meant to file it. A good accountant keeps track of these dates on your behalf, so a filing doesn't slip through unnoticed.
If you work through agencies or take on contract-style engagements, it's also worth getting your IR35 status checked early. Whether an engagement counts as inside or outside IR35 changes how you're allowed to pay yourself from the company, and getting it wrong after the fact is far more painful than having it reviewed before you start invoicing.
When the switch is worth making
There's no official income threshold that tells you it's time to incorporate. The case gets stronger as your profit grows past what you need to live on, because money left inside the company isn't taxed on you personally until you actually draw it out - a sole trader has no equivalent way to defer tax on money they haven't spent yet.
The other factor is less about tax and more about readiness. Once you incorporate, the company's money stops being automatically your money: every pound you take out has to go through payroll, a dividend, or a director's loan, each taxed differently. It's worth switching when you can handle a short adjustment period while you and your accountant bed in the new mechanics, not mid-way through a cash crunch.
Frequently asked questions
Will going limited actually reduce my tax bill?
For many freelancers earning comfortably above what they need to live on, yes, though the gap has narrowed as dividend tax rules have changed in recent years, so it's worth someone running your actual numbers instead of assuming a flat saving. It's also worth weighing the extra cost: annual accounts, a corporation tax return, and ongoing accountancy fees are real costs a sole trader doesn't have, and below a certain income the admin and fees can outweigh what you save in tax. Incorporating just because you've heard limited companies pay less tax, without checking whether that holds at your income level, is the most common mistake freelancers make here.
What happens to my sole trader business when I incorporate?
It doesn't just disappear. You still need to file a final self-assessment tax return covering the period you traded as a sole trader, up to the date you stopped, and formally tell HMRC you've ceased self-employment. Keep your sole trader invoices, receipts, and bank records too - HMRC's retention rules still apply to that period even though you're no longer trading under it. Most freelancers run the sole trader wind-down alongside the new company's first months, not as a clean cutover on a single date.
Can I set up the company myself, or do I need an accountant to do it?
You can register the company yourself directly through Companies House for a small fee, and plenty of freelancers do exactly that. Where it usually makes sense to bring an accountant in is everything around the registration: choosing the right accounting reference date, deciding when to register for VAT, and setting up salary and dividends correctly from the first payment, since fixing a bad setup later costs more than doing it properly the first time. Most accountants fold the company setup into their ongoing fee instead of billing it separately, so it's worth asking before you pay someone else to register it too.