Sole Trader (UK) vs Limited Company (UK)
Side-by-side comparison, when-to-use-each guide, and instant conversion. Reviewed for 2026.
Income under £30k/year, simple business, no employees, want minimal admin.
Income over £40k/year, liability protection needed, planning to hire, want to retain profits in the company.
| Aspect | Sole Trader (UK) | Limited Company (UK) |
|---|---|---|
| Setup | Free, instant | ~£12 + Companies House filings |
| Liability | Unlimited personal | Limited to share capital |
| Tax (2026) | Up to 45% income tax + NI | Corp tax 19-25% + personal on dividends |
| Pension contributions | Personal | Can be paid by company (more tax-efficient) |
| Reporting | Annual self-assessment | Annual accounts + Confirmation Statement |
Frequently asked
At what income should I go limited?
Rough rule: profits over £40-50k/year often save tax through a limited company in 2026, though the changing corporation tax bands mean the calculation has shifted. An accountant's £200-500 review pays for itself many times over.
Can I switch later?
Yes — many sole traders incorporate as their business grows. You can transfer assets and trade name to a new company. Get tax advice before the switch — there are timing implications for the financial year.
Frequently asked questions
At what income should I go limited?
Rough rule: profits over £40-50k/year often save tax through a limited company in 2026, though the changing corporation tax bands mean the calculation has shifted. An accountant's £200-500 review pays for itself many times over.
Can I switch later?
Yes — many sole traders incorporate as their business grows. You can transfer assets and trade name to a new company. Get tax advice before the switch — there are timing implications for the financial year.