Facts checked on GOV.UK on . Tax rules change, so check the dates before you act on them.
The legal difference
A limited company is legally separate from the people who own it. GOV.UK says owners are responsible for business debts only up to the value of their financial investment, which can give protection if things go wrong. A sole trader and the business are the same legal person.
The filing difference
A sole trader files a Self Assessment return. A limited company has to prepare annual accounts, complete a Company Tax Return, file both and pay Corporation Tax, and the director is still legally responsible for them even when an accountant does the work. Accounts are due at Companies House 9 months after the financial year end.
The tax difference
- Sole trader
- Income Tax on profit after allowable expenses. For 2026 to 2027: nothing on the first £12,570 (the Personal Allowance), then 20% up to £50,270, 40% up to £125,140 and 45% above that.
- Limited company
- Corporation Tax on company profit: 19% up to £50,000, 25% over £250,000, with marginal relief between. You then take money out as salary or dividends. Dividend allowance £500 for 2026 to 2027, then 10.75%, 35.75% or 39.35% depending on your band.
Because the company pays its own tax and you pay tax again on what you take out, the comparison depends on how much profit you keep in the business, how much you draw and your other income. That is a calculation to do with real numbers, not a rule of thumb.
Questions that decide it
- How much profit do you expect, and how much do you need to draw?
- Could a customer or supplier claim against you personally if something went wrong?
- Do you mind the extra filing and record keeping that a company brings?
- Do you need to take on staff or investors?
What to do next
JT Accountancy says the answer depends on profit, risk, admin and tax position, and that Jordan will talk through the pros and cons before you decide. Ask about starting up.
Sources: GOV.UK: set up a private limited company, GOV.UK: Income Tax rates, GOV.UK: Corporation Tax rates, GOV.UK: tax on dividends, GOV.UK: prepare and file annual accounts. This guide is general information published by Hull Accountant, not advice for your situation.