Limited company
A limited company is a separate legal entity registered at Companies House, owned by shareholders and run by directors. Its debts are its own, its profits are taxed under corporation tax, and its accounts are on public record.
Also known as: private limited company, Ltd
How it works
The defining feature is separation. The company owns its money, signs its contracts and owes its own debts. A shareholder's liability is limited to the amount unpaid on their shares, which is usually nothing. That protection is real but not absolute — personal guarantees to lenders and landlords, and wrongful trading while insolvent, both cut through it.
Tax works differently from being a sole trader. The company pays corporation tax at 19% up to £50,000 of profit and 25% above £250,000, with marginal relief between. You then pay personal tax only on what you take out: salary through PAYE, or dividends taxed at 10.75%, 35.75% and 39.35% after the £500 dividend allowance. Profit left in the company is not taxed on you at all until it is drawn.
The cost is admission to a compliance regime: annual accounts, a corporation tax return, a confirmation statement, payroll if anyone is paid, VAT once turnover passes £90,000, and director identity verification under the Economic Crime and Corporate Transparency Act. Your accounts and your registered office are public.
Incorporating suits businesses with sustained profit, a need for credibility with larger customers, or plans to bring in investors. At low or unpredictable profit, the extra admin often outweighs the tax saving.
Who this affects
- Sole traders whose profits have grown enough for the tax difference to outweigh the admin
- Contractors whose clients will only engage a limited company
- Founders raising investment, who need share capital and a cap table
- Landlords weighing a property company against personal ownership
Common mistakes
- Treating the company bank account as a personal one, creating a director's loan
- Incorporating before the profits justify the extra filings and fees
- Assuming limited liability survives a personal guarantee
Frequently asked questions
What is a limited company?
A separate legal entity registered at Companies House, owned by shareholders and managed by directors, which pays corporation tax on its own profits.
How much profit makes incorporating worthwhile?
It depends on how much you need to draw. The advantage grows when profit exceeds what you take personally, because retained profit is taxed only at corporation tax rates.
What does a limited company have to file?
Annual accounts, a corporation tax return, a confirmation statement, and payroll or VAT returns where they apply. Directors must also verify their identity at Companies House.
Is my information public?
Yes. Directors' names, the registered office, shareholders and the filed accounts are all on the public register, though a service address can keep your home address off it.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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