Updated 15 October 2026 · Uses 2026/27 tax rates for England, Wales and Northern Ireland
Sole trader vs limited company: the main differences
| Topic | Sole trader | Limited company |
|---|---|---|
| Personal liability | You're personally responsible for business debts. | The company is a separate legal person. Your personal risk is usually limited. |
| Tax | Income tax and Class 4 National Insurance on all profit. | Corporation tax on profit, then tax on the salary and dividends you take out. |
| Paperwork | One self assessment return a year. | Annual accounts, a corporation tax return, a confirmation statement, payroll and your own tax return. |
| Privacy | Your accounts stay private. | Basic accounts and directors' details are public at Companies House. |
| Getting money out | The profit is yours to take. | Money belongs to the company. You take it as salary, dividends or pension contributions. |
Sole trader vs limited company: pros and cons
Sole trader
- Pros: quick to set up by registering with HMRC, less paperwork and lower accountancy fees, and your accounts stay private. The profit is yours to take whenever you like.
- Cons: you're personally responsible for business debts, and all your profit is taxed at income tax rates, even money you leave in the business.
Limited company
- Pros: your personal risk is usually limited, profit left in the company is taxed at corporation tax rates of 19% to 25%, and it's easy to share ownership or pay into a pension through the company.
- Cons: more admin and higher running costs, legal duties as a director, accounts on the public register, and rules on how you take money out through salary, dividends or a director's loan.
What changed on tax
Two changes have made going limited less attractive at lower profit levels:
- Employer National Insurance rose to 15% from April 2025, and now starts on salary above £5,000 a year.
- Dividend tax rose by 2 percentage points from 6 April 2026, to 10.75% for basic rate and 35.75% for higher rate taxpayers.
When a limited company can still make sense
- You don't need all the profit. Profit left in the company is only taxed at corporation tax rates until you take it out.
- Your profits are higher, especially once you're paying higher rate tax as a sole trader.
- You want to limit personal risk, for example if you take on large contracts.
- Customers require it. Some contractors and larger clients only work with limited companies.
- Company pension contributions can be a tax-efficient way to extract profit.
What running a company involves
- Annual accounts to Companies House, normally within 9 months of the year end.
- Corporation tax paid 9 months and 1 day after the year end, with the return due within 12 months.
- A confirmation statement every year.
- Running payroll if you pay yourself a salary.
- Legal duties as a director, including keeping proper records.
Common questions
Is it better to be a sole trader or a limited company in the UK?
It depends on your profit, how much you take out and how much risk you carry. In 2026/27, if you take all the profit out, a sole trader usually keeps more. A company can still save tax if you leave profit in the business or pay into a pension.
At what profit should I go limited?
There's no single figure any more. Higher dividend tax and employer National Insurance mean the answer depends mainly on how much profit you leave in the company, not just how much you make.
What are the pros and cons of a limited company?
Pros: limited personal liability, lower tax on profit left in the business, and it can look more established to some customers. Cons: more paperwork and cost, public accounts at Companies House, and rules on how you take money out.
Is there a sole trader vs limited company calculator?
Yes. Our free calculator compares take-home pay as a sole trader and as a company director using 2026/27 rates.
Our advice
Don't decide on tax alone. Look at what you'll actually take out, your plans for the next few years, and how much admin you're happy with. In a free review call we'll run your real numbers and give you a straight answer.
Sources: GOV.UK, Tax on dividends and Set up a business. General information only, not advice for your situation.