The short answer
If you take all the profit out, you keep more as a sole trader than as a one-person limited company at almost every profit level in England, Wales and Northern Ireland on 2026/27 rates: £1,406.25 more at £50,000. A company can come out ahead if you leave money in it, or in Scotland between about £49,600 and £86,100.
Sole trader or limited company is mostly a tax question, and on 2026/27 rates the answer is not the one many guides give. We worked the sums for one person running a trade either way, from HMRC's published rates. If you take all the profit out each year, a sole trader keeps more at nearly every profit level in England, Wales and Northern Ireland. A company starts to pay its way when you can leave money in it, or when you live in Scotland and your profit falls in the bands shown below.
The rest of the decision is paperwork, risk and the way you get paid: CIS, a van, insurance, Making Tax Digital and what your website and invoices must show. Each is covered below from gov.uk and the legislation, read on 1 October 2026. This is a guide to the sums and the rules, not advice for your business. An accountant who knows your figures should check them before you switch.
What each keeps from the same profit in 2026/27
| Profit | Sole trader | Limited company | Company against sole trader |
|---|---|---|---|
| £20,000 | £18,068 | £17,174 | £894 less |
| £30,000 | £25,468 | £24,403 | £1,065 less |
| £40,000 | £32,868 | £31,633 | £1,235 less |
| £50,000 | £40,268 | £38,862 | £1,406 less |
| £60,000 | £46,111 | £46,091 | £20 less |
| £70,000 | £51,911 | £51,042 | £869 less |
| £80,000 | £57,711 | £55,765 | £1,946 less |
| £90,000 | £63,511 | £60,487 | £3,024 less |
| £100,000 | £69,311 | £65,210 | £4,101 less |
How we worked it out. The sole trader pays income tax and Class 4 National Insurance on the profit, using the same sums as our self-employed tax calculator. The company pays its owner a salary of £12,570, the most you can be paid before income tax or employee National Insurance starts. It pays employer National Insurance of 15% on the salary above £5,000, pays Corporation Tax on what is left, and pays the rest out as dividends in the same tax year. A company whose one director is its only employee cannot claim the Employment Allowance, so that National Insurance is paid in full. The owner has no other income and pays nothing into a pension, and neither side counts accountancy or other running costs.
On those terms the company leaves you worse off at every row of the table. We checked every £100 of profit up to £300,000, and the only place a company comes out ahead is between £60,200 and £60,500, by up to £12 a year. That cuts against the rule of thumb on several of the pages that rank for this question, which put the point where a company starts to save tax somewhere between £20,000 and £60,000 of profit. On 2026/27 rates, with all the profit taken out, we found no such point.
Rates have also moved against companies. Dividend tax went up on 6 April 2026: the basic rate from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. Corporation Tax has not been a single flat rate since April 2023, whatever some older guides still say.
The sums at £50,000 of profit
As a sole trader:
- Income tax at 20% on £37,430, the profit above your £12,570 Personal Allowance: £7,486
- Class 4 National Insurance at 6% on the same £37,430: £2,245.80
- You keep £40,268.20
As a one-person limited company:
- A salary of £12,570, with no income tax or employee National Insurance on it
- Employer National Insurance at 15% on the £7,570 of salary above £5,000: £1,135.50
- Corporation Tax at 19% on the £36,294.50 of profit left: £6,895.96
- Dividends of £29,398.54: the first £500 is tax free, then 10.75% on £28,898.54: £3,106.59
- You keep £38,861.95
The company route costs £11,138.05 in tax and National Insurance, against the sole trader's £9,731.80. Most of the £1,406.25 gap is the employer National Insurance. Corporation Tax and dividend tax together come to £10,002.55, only £270.75 more than the sole trader's income tax and Class 4.
In Scotland
A sole trader in Scotland pays Scottish income tax on profit, with a higher rate of 42% from £43,663 and an advanced rate of 45% from £75,001. Dividends are taxed at the same rates as the rest of the UK wherever you live, so a company's dividends escape those Scottish rates. That changes the answer. The company keeps more from about £49,600 to £86,100 of profit, up to about £1,768 more at £60,300, and again from about £104,800 to £145,000.
| Profit | Sole trader | Limited company | Company against sole trader |
|---|---|---|---|
| £20,000 | £18,108 | £17,174 | £934 less |
| £30,000 | £25,503 | £24,403 | £1,100 less |
| £40,000 | £32,803 | £31,633 | £1,170 less |
| £50,000 | £38,772 | £38,862 | £90 more |
| £60,000 | £44,361 | £46,091 | £1,730 more |
| £70,000 | £49,961 | £51,042 | £1,081 more |
| £80,000 | £55,411 | £55,765 | £354 more |
| £90,000 | £60,711 | £60,487 | £224 less |
| £100,000 | £66,011 | £65,210 | £801 less |
You pay Scottish income tax if you live in Scotland. If you have a home in Scotland and another elsewhere in the UK, what counts is your main home, which is usually where you live and spend most of your time.
Where a limited company comes out ahead
Taking every pound of profit out each year is the worst case for a company. Four things change the picture.
Money you leave in the company. Say £10,000 of a year's profit stays in the company. It pays Corporation Tax of £1,900 on it at 19%, or £2,650 at 26.5% if the company's profits are between £50,000 and £250,000. As a sole trader, the same £10,000 would cost £2,600 in income tax and Class 4 at the basic rate, or £4,200 at the higher rate. The catch is that the money is not yours yet: dividend tax is due when it comes out, on top of the dividends you already take. Where the company wins is profit you would have paid the higher rate on as a sole trader, taken out later in a year when you are a basic rate taxpayer: £3,440.13 in all, against £4,200. Taken out at the higher rate instead, it costs £5,277.63, more than the sole trader pays. At the basic rate both ways, the company costs £2,770.75 against £2,600. So a company suits a business with good and quiet years, or an owner who does not need all the profit every year.
Living in Scotland, for the reason shown above.
Limited liability. A company is legally separate from the people who own it, and its owners are responsible for its debts only up to the money they put in. A sole trader is personally responsible for all of the business's debts. It is not a free pass. gov.uk says you may need business insurance either way, and directors who do not meet their legal duties can be fined, prosecuted or disqualified.
A company number. Some checks ask for one. Google's Local Services Ads, for example, accept a VAT number or a Companies House number as proof that a UK business is registered, so a sole trader who is not registered for VAT has neither. Our Local Services Ads guide covers that gap.
If none of that applies to you, the tax case for switching is weak on 2026/27 rates.
The difference between a sole trader and a limited company
| Sole trader | Limited company | |
|---|---|---|
| In law | You and the business are the same | A separate legal person, run by at least one director |
| Debts | You are personally responsible for all of them | Owners are responsible only up to what they put in |
| Paying yourself | You keep the profit after tax | A salary through a payroll, dividends from profits, or a director's loan, each with its own rules |
| Tax on profit | Income tax and Class 4 National Insurance through Self Assessment | Corporation Tax on the company's profit, then your own tax on what you take out |
| Every year | A Self Assessment tax return | Accounts, a Company Tax Return, a confirmation statement and the payroll |
| Public record | Nothing on a public register | Your name, a service address and the registered office, on the Companies House register |
| Starting | Start straight away, and register for Self Assessment once you earn more than £1,000 in a tax year | Register with Companies House before you trade: £100 online |
CIS as a sole trader or a limited company
A company can work under the Construction Industry Scheme just as a sole trader can. It registers as a subcontractor with its Company Registration Number and its UTR, and contractors take 20% off its labour in the same way. What changes is how the deductions come back.
- As a sole trader, the deductions go on your Self Assessment tax return. HMRC takes them off the tax you owe and repays anything over.
- As a limited company, the deductions go through the payroll. Each time the company sends its payroll report, it also sends an Employer Payment Summary showing the year's CIS deductions so far, and HMRC takes them off what the company owes in PAYE and National Insurance. Anything left over carries forward within the same tax year, and you claim the rest back as a refund after the year ends. gov.uk warns against using the Corporation Tax return for this: you may get a penalty if you do.
That timing matters for a one-person company. With a £12,570 salary, its whole payroll bill for the year is the £1,135.50 of employer National Insurance. Say contractors pay it £30,000 for labour over the year and deduct £6,000. Only £1,135.50 of that can be used during the year, and £4,864.50 waits for a refund after the tax year ends. Our CIS tax rebate calculator works out a sole trader's refund.
With gross payment status, contractors pay you in full and you pay the tax later. To qualify, HMRC looks at your turnover for the last 12 months, ignoring VAT and the cost of materials. A sole trader needs at least £30,000. A company needs £30,000 for each director or £100,000 in all, and if 5 people or fewer control it, £30,000 for each of them. So a one-person company faces the same £30,000 test as a sole trader. Either way you also need to have paid your tax on time and to run the business through a bank account.
Making Tax Digital for Income Tax: sole traders, not companies
Making Tax Digital for Income Tax applies to sole traders and landlords registered for Self Assessment, once their qualifying income is over £50,000 from April 2026, then over £30,000 from April 2027 and over £20,000 from April 2028. Qualifying income is your turnover before expenses, not your profit. A limited company does not pay income tax, so it is not in the scheme, and gov.uk lists dividends from your own company and pay through PAYE among the income that does not count. At least one page in the top results says limited companies must keep digital records under it too; gov.uk's own pages do not say that.
If you switch and have no other self-employment or property income, tell HMRC that your self-employment has stopped before the next tax year starts. gov.uk says that otherwise HMRC signs you up for Making Tax Digital on the information it has.
What running a company adds
A company is more work and more cost, most of it every year.
- Setting up. Registering with Companies House costs £100 online and is usually done within 24 hours, or £124 by post, which takes 8 to 10 days. You need a registered office in the part of the UK the company is registered in. It is public, so if you work from home you can use an accountant's or solicitor's address with their permission, or an agent's. A PO Box is not allowed.
- Identity checks. Since 18 November 2025 directors and people with significant control have had to verify their identity with Companies House. It is free through GOV.UK One Login, and a company cannot file its confirmation statement unless all its directors are verified.
- Every year. Annual accounts, a Company Tax Return and Corporation Tax, and a confirmation statement, which costs £50 filed online. Directors stay legally responsible for the records and accounts even when an accountant does them.
- A payroll for your own salary. To pay you a salary, the company must register as an employer and run payroll, even if you are its only director.
- Dividend paperwork. Each dividend needs a directors' meeting with minutes, even if you are the only director, and a dividend voucher. A company can only pay dividends out of profits it has available, and you must report dividends above your unused Personal Allowance and dividend allowance to HMRC.
- Director's loans. Money you take out that is not salary, dividends or repaid expenses is a director's loan. It must be recorded, and if it is not repaid within 9 months of the end of the company's accounting period, the company pays extra Corporation Tax on it.
- Your details on the public register. Your name and a service address are public. If you give your home address as the service address, you can ask Companies House to remove it.
A van in the company's name
If the company owns the van and you use it privately, it is a taxable benefit. The standard value on gov.uk is £4,170 a year, plus £798 if the company pays for private fuel. The company reports it on a P11D and pays Class 1A National Insurance on it at 15%: £625.50 a year on the van and £119.70 on the fuel. The same value counts as your income, so at 20% you pay £834 a year in income tax on the van alone.
Nothing is due if the van is only used for business journeys, or if private use is insignificant: gov.uk's example is a slight detour to pick up a newspaper on the way to work. A zero emission van is valued at £0. As a sole trader you claim the business share of the van's costs instead, as our self-employed expenses guide explains.
Employers' liability insurance
A company that pays you a salary is an employer, but the law makes an exception. A company whose only employee owns at least 50% of its shares does not need employers' liability insurance, under a 2004 amendment to the regulations that cover England, Scotland and Wales, and HSE's guide for employers lists the same exemption. The day the company takes on anyone else, it needs cover of at least £5 million from an authorised insurer, and it can be fined up to £2,500 for every day without it.
Public liability insurance is a different policy, for claims by customers and the public. HSE's guide describes it as generally voluntary, unlike employers' liability.
IR35
If you work through your own company for a client who would be your employer if you worked for them directly, the off-payroll working rules, known as IR35, can apply. They are there to make you pay broadly the same income tax and National Insurance as an employee would. Usually the client decides whether they apply; when the client is a small business outside the public sector, your own company decides.
Switching from sole trader to limited company
gov.uk says it is usually easier to move from sole trader to limited company than the other way round. In order:
- Verify your identity with Companies House through GOV.UK One Login, if you have not already. It is free.
- Register the company for £100 online. You will usually be set up for Corporation Tax at the same time, and the same service can register the company for PAYE, including for you as its only director.
- Register the company for CIS if you work in construction: gov.uk asks for its Company Registration Number and UTR.
- Move your VAT registration if you have one. Either keep your VAT number by sending HMRC form VAT68 and registering the company, or cancel your registration and register the company afresh.
- Tell HMRC you have stopped as a sole trader and send a final Self Assessment return, with your capital allowances and any balancing charges on equipment you have sold. If you were registered for CIS, gov.uk says to call the CIS helpline as soon as possible.
- Change your details everywhere customers see them: your website, quotes, invoices and letters, and anywhere else people find you, such as your Google Business Profile.
What your website and invoices must show
As a sole trader, put your own name and any business name on invoices and letters. If you trade under a business name, add an address where legal documents can reach you. Your business name cannot include "Limited" or "Ltd".
As a limited company, show the registered name on your website, invoices, letters and all other business documents. On the website, business letters and order forms, also show:
- the company's registered number
- its registered office address
- the part of the UK it is registered in: England and Wales, Scotland or Northern Ireland
If you name any directors on letters or invoices, name all of them. If you show the share capital, it must be the paid-up figure. On invoices, use the full company name exactly as it appears on the certificate of incorporation.
For businesses that provide services online, the Electronic Commerce Regulations 2002 also ask for your name, the address you trade from, an email address, your VAT number if you have one, and for a company, the register it is on and its number.
Our guide to what a trade website should include covers the rest of the page.
Who pays more tax, sole trader or limited company?
On 2026/27 rates, a one-person limited company that pays out all its profit pays more tax and National Insurance than a sole trader at almost every profit level in England, Wales and Northern Ireland. At £50,000 of profit the company route costs £11,138.05 against the sole trader's £9,731.80, and £1,135.50 of the difference is employer National Insurance on the director's salary. In Scotland the company pays less between about £49,600 and £86,100 of profit, because dividends are taxed at UK rates, not Scottish ones.
At what point should a sole trader become a limited company?
On 2026/27 rates there is no profit level in England, Wales or Northern Ireland at which a one-person company that pays out all its profit leaves you clearly better off. We checked every £100 of profit up to £300,000, and the best the company does is £12 more, between £60,200 and £60,500. The case for switching rests on leaving profit in the company to take out in a year when your income is lower, on limited liability, or on living in Scotland with a profit between about £49,600 and £86,100. Have an accountant run your own figures before you switch.
What are the downsides of having a limited company?
More paperwork, more cost and less privacy. Every year the company files accounts, a Company Tax Return and a confirmation statement, which costs £50 filed online. It runs a payroll for your salary and needs minutes and a voucher for each dividend. Your name and a service address go on the public register. Directors stay legally responsible for the records and accounts even when an accountant does them, and can be fined, prosecuted or disqualified if they fall short. And on 2026/27 rates, taking all the profit out costs more tax and National Insurance than trading as a sole trader in England, Wales and Northern Ireland.
How much money do you need to set up a limited company?
Registering online with Companies House costs £100 and is usually done within 24 hours. A paper application costs £124 and takes 8 to 10 days. Verifying your identity for Companies House through GOV.UK One Login is free. After that, the company pays £50 a year with its confirmation statement filed online (Companies House fees, checked 1 October 2026). An accountant's fees, if you use one, come on top.
Does it matter if you put Ltd or limited?
Either is allowed when you register: Companies House says a company name must usually end in 'Limited' or 'Ltd', or 'Cyfyngedig' or 'Cyf' for a company registered in Wales. After that, put the full name exactly as it appears on the certificate of incorporation on your invoices, and the registered name on your website and other documents. A sole trader's business name must not include 'Limited' or 'Ltd' at all.
How much tax do I pay if I own a limited company?
Two layers. The company pays Corporation Tax on its profit after your salary and the employer National Insurance on it: 19% up to £50,000, 25% from £250,000, and 26.5% on each extra pound in between once marginal relief is worked out. You then pay income tax on dividends above any Personal Allowance your salary has not used and the £500 dividend allowance: 10.75% in the basic rate band and 35.75% in the higher rate band for 2026/27. Dividends carry no National Insurance. With a £12,570 salary and £50,000 of profit, the total comes to £11,138.05, including £1,135.50 of employer National Insurance.
Can a limited company work under CIS?
Yes. A company registers for CIS as a subcontractor with its Company Registration Number and UTR, and contractors deduct 20% from its labour as they do for a registered sole trader. The difference is how the money comes back: through the company's payroll, by entering the deductions on an Employer Payment Summary, never on the Corporation Tax return. A one-person company's payroll bill is small, so most of the deductions wait for a refund after the tax year ends.
Written by Janusz Wozniak, Founder & Lead Developer. Guides are updated when prices or platforms change; the dates above say when.