Last reviewed: November 2026
Most people starting out are best as a sole trader, and switching to a limited company usually starts to pay once profits are consistently above about £50,000 a year and you don’t need to take all of the money out. Below that, the extra cost and paperwork of a company often outweigh the tax saving. Higher dividend tax since April 2026 has narrowed the gap further.
The main differences
| Sole trader | Limited company | |
|---|---|---|
| Tax on profits | Income tax (20% / 40% / 45%; Scottish rates differ) plus Class 4 NIC (6% / 2%) | Corporation tax (19% up to £50,000, 25% over £250,000, marginal rate in between) |
| Taking money out | All profit is yours and taxed as earned | Salary and dividends; dividends taxed at 10.75% / 35.75% / 39.35% |
| Personal liability | You are personally liable for business debts | Limited to what you put in, in most cases |
| Paperwork | Self Assessment return (MTD from £30,000 turnover in 2027) | Annual accounts, corporation tax return, confirmation statement, payroll |
| Privacy | Nothing published | Accounts and directors listed at Companies House |
| Typical accountancy cost with us | From £50 a month | From £165 a month |
When a limited company makes sense
- Profits are regularly above about £50,000 and you can leave some money in the company.
- You want to limit personal risk, for example in construction or property development.
- Customers or contractors expect to deal with a company.
- You want to bring in a partner or shareholder later.
When to stay a sole trader
- You are just starting out or profits are below about £30,000.
- You need every pound of profit to live on.
- You want the simplest, cheapest setup.
The right answer depends on your profit, how much you take out, and your other income. We’ll run the numbers on both options for you, free of charge, before you decide. Get in touch, or see our sole trader and limited company packages.
Rates shown are for 2026/27. Scottish income tax rates differ from the rest of the UK; we’ll use the right ones in your comparison.