Limited company guide
A straight comparison of sole trader and limited company for UK business owners, tax, liability, credibility, admin and the profit level where incorporating starts to pay.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityBelow roughly £30,000 to £40,000 of profit, a sole trader is usually simpler and the tax saving from incorporating is small. Above that, a limited company normally wins on tax, and the gap grows as profit rises, particularly if you leave money in the business.
The short answer
How each is taxed
What incorporating actually costs you
How to decide
Below roughly £30,000 to £40,000 of profit, a sole trader is usually simpler and the tax saving from incorporating is small. Above that, a limited company normally wins on tax, and the gap grows as profit rises, particularly if you leave money in the business.
Tax is only one part. Limited liability, client requirements, credibility and the ability to bring in shareholders often decide it before the numbers do.
A sole trader pays income tax on all profit at 20%, 40% and 45%, plus Class 4 National Insurance, whether or not the money is drawn. There is no separation between you and the business.
A limited company pays corporation tax at 19% up to £50,000 of profit and 25% above £250,000, with marginal relief between. You then pay yourself through a salary, which is deductible for the company, and dividends, which are not deductible but attract lower personal rates and no National Insurance.
The saving comes from the combination: a small salary, corporation tax on the remaining profit, and dividends taxed at 10.75%, 35.75% and 39.35% above the dividend allowance. Leaving profit in the company defers the personal layer entirely.
Accounts filed on the public record, a confirmation statement each year, RTI payroll for your own salary, potentially a separate bank account and higher accountancy fees, plus the discipline that company money is not your money.
A director loan account that goes overdrawn attracts a 35.75% charge if not cleared within nine months and a day of the year end. Sole traders simply draw; directors cannot.
Run your real numbers rather than a rule of thumb. Our sole trader against limited company calculator compares take home pay side by side for 2025/26 and 2026/27 using your profit, intended salary and the extra running cost of a company.
Then weigh liability, what your clients require, whether you want investors or a co-owner, and whether you will draw everything or reinvest. Those factors regularly outweigh a few hundred pounds of tax.
Local help
We work with company directors across London and Surrey from our office at 12 London Road, Morden, London SM4 5BQ. Pick your area, or send the form below and we will call you back.
Frequently asked
Most owner-managers find the tax saving becomes meaningful somewhere above £30,000 to £40,000 of profit, and clearly worthwhile above £50,000, especially if some profit stays in the business. Below that, the extra admin often cancels the benefit.
Yes. You incorporate, transfer the trade, register for the taxes the company needs and close the self-employment. Goodwill, stock and equipment transfers all have tax consequences, so the mechanics should be planned rather than improvised.
Mostly. It separates company debts from your personal assets, but lenders often ask directors for personal guarantees, and wrongful trading or unlawful dividends can still reach you personally.
Keep bank statements, sales and platform reports, purchase invoices, payroll records, VAT workings, finance agreements and Companies House correspondence. We confirm the exact list at onboarding and identify gaps before a filing deadline becomes urgent.
The fee depends on transaction volume, record quality, VAT and payroll requirements, historic catch-up and the level of reporting needed. We agree a fixed scope and price before technical work starts, with published packages available on our fees page.
Yes. We request professional clearance, collect the prior records and authorities, check the next Companies House and HMRC deadlines, and give you one clear handover list. The process is normally completed remotely.
Yes. We work through secure cloud records, scheduled reviews and digital approvals, while keeping a named team available by phone, video call and email. Clients can also visit our Morden office by appointment.
We regularly work with Xero, QuickBooks, FreeAgent, Sage and connected sales or expense apps. The right setup depends on transaction volume, integrations and the reports you need, not simply the software brand.
The relevant calendar may include annual accounts, Corporation Tax payment and return dates, confirmation statements, VAT returns, payroll submissions and Self Assessment. We map the dates from your company year end and registrations.
No. This page explains general UK rules and common accounting treatment. Your facts, contracts and wider tax position must be reviewed before you rely on a conclusion.
Included approach
Check the current rules
Deadlines, thresholds and filing rules change. GOV.UK and Companies House publish the current statutory position; advice should then be applied to your company’s circumstances.
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Share your next deadline, accounting problem or growth question. We will reply with a clear next step and quote any technical work before it begins.
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Pick a time that suits you and a qualified accountant will call you about your company, deadlines and fees.
Appointments run monday to friday, 9:00am to 5:30pm. Your confirmation is emailed straight away.
