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Guide

Sole trader or limited company?

A sole trader and a limited company are taxed differently. A sole trader pays Income Tax and National Insurance on profit. A company pays Corporation Tax on its profit, and you pay tax again when you take salary or dividends.

Step by step

  1. 1Compare the profit you expect with the extra admin of a company
  2. 2Remember a company is a separate legal person, with its own books
  3. 3Budget for accounts, a confirmation statement and Corporation Tax
  4. 4Check the current rates on GOV.UK before you decide

Common mistakes

  • Assuming a company always means less tax
  • Mixing company money with personal money
  • Forgetting the cost of accounts and filings

Related guides

Last checked against GOV.UK: 28 October 2026. Tax year 2026/27.

Not affiliated with HMRC. General information, not professional tax advice. Check GOV.UK or speak to a qualified adviser for your situation.