Sole Trader vs Limited Company: UK Comparison 2026/27

The short comparison

The main differences are liability, how profits are taxed, and how much paperwork you file. The table below summarizes GOV.UK's business legal structures guidance and the rates for the 2026/27 tax year.

Liability

This is the clearest legal difference. GOV.UK says a sole trader is "personally responsible for all of the debts of the business". If the business cannot pay a supplier, a landlord or a court award, your personal savings and property can be used to pay it.

A limited company is a separate legal person. It owns its assets and owes its own debts, so shareholders' liability is limited to what they invested. The protection has limits in practice: lenders and landlords often ask directors for personal guarantees, and directors who act wrongfully can become personally liable. For work with real risk of claims, insurance matters under either structure.

Tax: how each structure is taxed in 2026/27

Sole trader

Your profit is added to any other income and taxed through Self Assessment. For 2026/27, in England, Wales and Northern Ireland:

• Income Tax: a £12,570 personal allowance, then 20% on the next £37,700, 40% up to £125,140 and 45% above, per HMRC's 2026 to 2027 rates and thresholds. Scotland has its own Income Tax bands.
• Class 4 NIC: 6% on profits between £12,570 and £50,270, then 2% above, per GOV.UK's self-employed National Insurance rates.
• Class 2 NIC: treated as paid if profits are £7,105 or more, so there is nothing to pay at that level. Below it you can pay voluntarily at £3.65 a week.

Limited company

The company pays Corporation Tax on its profits. You then pay personal tax on what you take out.

• Corporation Tax: 19% on profits up to £50,000, 25% above £250,000, and marginal relief in between, according to the Corporation Tax rates page.
• Salary: taxed like any employee. Employee NIC is 8% above £12,570; employer NIC is 15% above £5,000. The £10,500 Employment Allowance cannot be claimed where a director is the only employee paid above the secondary threshold, per HMRC's single-director guidance.
• Dividends: the first £500 is tax-free, then 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above, per GOV.UK's tax on dividends.

Salary and employer NIC reduce the company's taxable profit. Dividends do not: they are paid from profit that has already borne Corporation Tax.

Worked example (illustrative only)

In this example the sole trader keeps about £1,406 more, before the company's extra accountancy costs. That surprises people who remember older advice. Higher dividend rates and 15% employer NIC have narrowed the gap.

The picture can change when you do not need all the profit personally. Profit left in the company has borne only Corporation Tax, and dividend tax is due only when you take it out. Pension contributions paid by the company, the split between salary and dividends, and profits near the £50,000 or £250,000 Corporation Tax limits also change the result. An accountant can model your own numbers.

Admin and filings

A sole trader's core job is one tax return a year. A limited company has several separate deadlines with two bodies, Companies House and HMRC.

Sole trader

• Register for Self Assessment by 5 October after the tax year you start, once trading income is over £1,000, per set up as a sole trader.
• File online by 31 January and pay by 31 January, with payments on account on 31 January and 31 July, per Self Assessment deadlines. Late filing starts at a £100 penalty.
• Making Tax Digital for Income Tax applies from 6 April 2026 if qualifying income is over £50,000, from 6 April 2027 over £30,000 and from 6 April 2028 over £20,000, per HMRC's MTD eligibility guidance. That means quarterly updates from software.

Limited company

• A confirmation statement at least once every 12 months, £50 online.
• Annual accounts to Companies House: first accounts 21 months after incorporation, then 9 months after the year end, per Life of a company. Late penalties start at £150.
• A CT600 Company Tax Return 12 months after the period end, with tax paid 9 months and 1 day after it, per Company Tax Returns. Late filing now costs £200, then another £200 at 3 months.
• Commercial software for the CT600, because HMRC's free filing service closed on 31 March 2026.
• Payroll through RTI if you pay a salary that needs a PAYE scheme.
• Identity verification with Companies House for every director and PSC.
• Often a Self Assessment return for yourself as well, for example to report dividend income.

Costs

Government fees are small. The ongoing cost of a company is mostly time and accountancy.

Fee source: the Companies House fees list. From 1 April 2028 all company accounts must be filed through commercial software, according to Companies House's April 2028 announcement.

Privacy

A sole trader appears on no public register. A limited company does. Directors' names and service addresses are public, and so are the registered office, people with significant control and the filed accounts, as GOV.UK explains in appoint directors. Your home address stays private if you give a separate service address and registered office. A registered office service and a director service address keep your home off the record.

Credibility and contracts

Some clients, agencies and larger buyers prefer to contract with a limited company, and "Ltd" after a name signals that the business is registered. Neither structure affects VAT: both use the same £90,000 VAT registration threshold. See our VAT threshold guide.

When to switch from sole trader to limited company

Consider switching when the protection or flexibility is worth the extra admin. Common triggers:

• You take on contracts, staff or premises that carry real financial risk.
• Profits are well above what you need to live on, so leaving money in a company is attractive.
• A client or platform will only contract with a company.
• You plan to bring in a co-owner or investor, which is easier with shares.

Switching means forming a company, then moving contracts, bank accounts and assets into it. Your self-employed income up to the switch still goes on your Self Assessment return. Transferring assets or goodwill can have tax effects, so speak to an accountant or registered tax adviser before you move. Our company registration guide covers the Companies House steps, and registering as a sole trader covers the other route.

If you decide on a company, we prepare and submit the incorporation, then handle the Corporation Tax registration, confirmation statement and CT600 reminders. Each director verifies their identity free through GOV.UK One Login.

Sources

• GOV.UK: Business legal structures
• GOV.UK: Set up as a sole trader
• GOV.UK: Rates and thresholds for employers 2026 to 2027
• GOV.UK: Self-employed National Insurance rates
• GOV.UK: Corporation Tax rates
• GOV.UK: Tax on dividends
• GOV.UK: Single-director companies and Employment Allowance
• GOV.UK: Self Assessment deadlines
• GOV.UK: Check if you're eligible for Making Tax Digital for Income Tax
• GOV.UK: Life of a company, part 1 accounts
• GOV.UK: Company Tax Returns
• GOV.UK: Closure of the service to file company accounts and tax return
• GOV.UK: Companies House fees
• GOV.UK: Changes to accounts filing from April 2028
• GOV.UK: Appoint directors and company secretaries
• GOV.UK: Increasing the VAT registration threshold
• GOV.UK: Choose your business name (sole trader)

Fees, deadlines and rules on this page were last checked on 27 September 2026.