⚖️ Comparison · Updated for 2026

Sole Trader (UK) vs Limited Company (UK)

Side-by-side comparison, when-to-use-each guide, and instant conversion. Reviewed for 2026.

Quick answer: Sole trader: simplest, you and the business are one. All profit is your income, taxed via self-assessment (Income Tax + NI). Limited company: separate legal entity, pay yourself salary + dividends, often more tax-efficient over £40k profit. Corporation tax is 19-25% depending on profits (main rate 25% above £250,000), and dividend tax rates have risen, which has narrowed the gap.
Decision guide — when to use which
Use Sole Trader (UK) when…

Income under £30k/year, simple business, no employees, want minimal admin.

Use Limited Company (UK) when…

Income over £40k/year, liability protection needed, planning to hire, want to retain profits in the company.

📊 Side-by-side comparison
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

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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.

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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.

Reviewed for 2026. This comparison is general guidance based on publicly available information. Prices, rates, rules and specifications change, so check current details with the provider or an official source before making a decision. Built by a UK-based qualified primary teacher and FA Level 2 coach as part of 247QuickTools' free utility-tools project. We don't sell SEO links or accept paid placements in this content.

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.