It is one of the most common questions we get asked, and one of the most important. The honest answer is that it depends on your profits, your plans and your appetite for admin. Here is how the two really compare.

Being a sole trader

As a sole trader, you and the business are legally the same thing. You register for Self Assessment, pay income tax and National Insurance on your profits, and keep what is left.

  • Simple to start and run. One tax return a year, and from April 2026 quarterly updates under Making Tax Digital for Income Tax if your gross income is over £50,000.
  • Privacy. Your accounts are between you and HMRC, not on a public register.
  • The catch. You are personally liable for business debts, and once profits grow, income tax and National Insurance can take a bigger bite than the company route would.

Running a limited company

A limited company is a separate legal entity. The company pays corporation tax on its profits, currently 19 per cent on profits up to £50,000, rising in stages to 25 per cent, and you typically pay yourself through a mix of salary and dividends.

  • Limited liability. With normal trading, your personal assets are separate from the company’s debts.
  • Credibility. Some customers and contracts, especially larger ones, prefer or require a limited company.
  • Tax planning options. The salary and dividend mix, pension contributions and timing of income give you levers a sole trader does not have. Worth knowing: dividend tax rates rose in April 2026, so the sums deserve a fresh look rather than an old rule of thumb.
  • The catch. More admin. Annual accounts and a confirmation statement to Companies House, a corporation tax return, payroll, and directors’ filings. Some of your company information also becomes public.

So when does a company make sense?

There is no single magic number, and the recent dividend tax changes have moved the goalposts. As a rough guide, the case for a company builds as profits climb well into five figures, and it strengthens further if you want to leave profits in the business, take on investment, or protect yourself on bigger contracts.

Equally, plenty of people incorporate too early and end up paying for admin they did not need. If your profits are modest and you value simplicity, staying a sole trader can be the smarter choice.

Get the sums done properly

The right answer comes from your actual numbers, not a blog post. We run the comparison on your real figures, tell you plainly which structure wins and by how much, and handle the whole setup or switch if you decide to change, including the Companies House side.

Either way, you will know your costs up front. Get your instant quote as a sole trader or a limited company and see your fixed monthly fee in under a minute.