Sole Trader vs Limited Company: Which Is Better?

The main difference between a sole trader and a limited company is that a limited company is a separate legal person: it owns the business, pays Corporation Tax on its profits and protects your personal assets, while a sole trader is the business and is personally liable for every debt. Sole traders are simpler and cheaper to run. Limited companies cost more to administer and put the directors on the public register, but limit liability, protect the company name and can be more tax-efficient once profits rise.

Sole Trader vs Limited Company: Side by Side

	Sole trader	Limited company
Legal status	You and the business are the same person	The company is a separate legal person
Liability for debts	Unlimited: your personal assets are at risk	Limited to what you paid for your shares, in most cases
Setting up	Register for Self Assessment with HMRC; no fee	Register with Companies House; £100 fee online
Tax on profits	Income Tax (20%, 40%, 45%) plus Class 4 National Insurance (6%, 2%)	Corporation Tax (19% to 25%), then Income Tax on salary or dividends you take
Taking money out	All profit is yours to draw	Salary through payroll, dividends from profits, or a director’s loan
Yearly paperwork	Self Assessment tax return	Confirmation statement, annual accounts, Company Tax Return, personal tax return
Public information	Nothing on a public register	Company, directors and PSCs on the Companies House register
Identity verification	Not needed	Every director and PSC must verify with Companies House
Name protection	None: anyone can trade under the same name	No other company can register the same name
Credibility	Some larger clients prefer not to contract with sole traders	Often expected by larger clients, agencies and some banks

Liability: Who Pays if the Business Fails?

As a sole trader you have unlimited liability. If the business cannot pay a supplier, a loan or a claim, creditors can pursue your personal savings and property.

A limited company is responsible for its own debts. Shareholders risk only what they paid, or agreed to pay, for their shares. That protection has limits: lenders often ask directors for a personal guarantee, and directors can become personally liable for wrongful trading or certain unpaid taxes. The rules directors must follow are in what a company director does.

How Are Sole Traders and Companies Taxed?

Rates below are for the 2026 to 2027 tax year in England, Wales and Northern Ireland (Scotland has different Income Tax bands).

Sole trader

Income Tax on all your profit: 0% up to £12,570, 20% to £50,270, 40% to £125,140 and 45% above.
Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% above.
One Self Assessment return a year. You must register once you earn more than £1,000 from self-employment in a tax year.

Limited company

Corporation Tax on company profits: 19% up to £50,000, 25% above £250,000, with marginal relief in between.
You then pay personal tax on what you take out. Salary goes through payroll (Income Tax and National Insurance, plus employer’s National Insurance). Dividends have a £500 tax-free allowance, then 10.75% (basic rate), 35.75% (higher) and 39.35% (additional).
Many director-shareholders take a small salary and the rest as dividends. Whether that beats sole trader tax depends on your profit, other income and pension plans.

Because the answer depends on your figures, ask an accountant to run both scenarios before you decide. CorpAssist does not give tax advice.

Paperwork and Running Costs

A sole trader keeps records and files one Self Assessment return a year. A limited company adds:

A confirmation statement every year (£50 Companies House fee).
Annual accounts at Companies House and a Company Tax Return at HMRC.
Payroll if the company pays a salary, and VAT returns if it is VAT registered.
Company records: registers, minutes, dividend vouchers.

All the deadlines are in annual filing requirements. For set-up costs, see how much it costs to set up a limited company.

Privacy: What Becomes Public?

Sole traders are not on a public register. A limited company is: its registered office, directors, PSCs and shareholders appear on the Companies House register, and accounts are published. If you use your home address, it becomes public. A registered office and a director service address keep it off the register.

Directors and PSCs must also verify their identity with Companies House. Sole traders do not; see identity verification for sole traders.

When Does a Limited Company Make Sense?

Profits are high enough that Corporation Tax plus dividends cost less than Income Tax and National Insurance.
The business carries real risk: stock, staff, premises, loans or contracts with large liabilities.
Clients or agencies only contract with companies, which is common for contractors.
You want to bring in co-owners or investors, which shares make easy (see shares and shareholders).
You live outside the UK and want a UK business: a company can be formed and run from abroad.

Staying a sole trader often makes sense while you test an idea, profits are modest, or you value simplicity.

How to Switch From Sole Trader to Limited Company

Check the name is free with our company name checker.
Form the company. Directors verify their identity first; Companies House usually registers the company within 24 hours. See how to set up a limited company.
Move the business across: open a business bank account, move contracts and transfer equipment or stock. See do I need a business bank account.
Tell HMRC you have stopped trading as a sole trader and register the company for Corporation Tax.
Register for VAT and PAYE if needed. If you were VAT registered as a sole trader, ask an adviser whether to transfer the registration.

Ready to Form Your Limited Company?

CorpAssist forms your company and handles the Companies House steps:

Essential formation for £159.99, including the £100 Companies House fee
Privacy package for £199.99 with a London registered office and director service address for 12 months
International package for £249.99 if you live outside the UK, with identity verification included
Director identity verification arranged in the same order, through our Companies House-registered ACSP partner
Every application checked by a person before it is filed

Form my company — £199.99 Compare packages

Frequently Asked Questions

Is it better to be a sole trader or a limited company?

It depends on your profit, risk and plans. A sole trader is simpler and cheaper to run and suits low profits or testing an idea. A limited company protects personal assets, can be more tax-efficient once profits are higher, and looks more established to some clients, but has more paperwork and public disclosure.

At what profit is a limited company worth it?

There is no single figure, because it depends on how you take money out, your other income and the extra accountancy cost. Many accountants start the conversation when profits are comfortably above the higher-rate threshold (£50,270 in 2026 to 2027), but get advice on your own numbers before switching.

Can a sole trader become a limited company later?

Yes. You register a new company, move the business into it (contracts, bank account, assets), tell HMRC you have stopped trading as a sole trader and file a final Self Assessment for that business. Your customers then contract with the company.

Do sole traders have to verify their identity with Companies House?

No. Sole traders are not on the Companies House register, so the identity verification rules do not apply to them. If you become a company director or a PSC, you must verify then.

Is my information public as a limited company director?

Your name, month and year of birth, nationality, occupation and a service address are public. Your home address and full date of birth stay private if you use a different service address. A sole trader’s details are not on a public register.

Which costs more to run?

A limited company. Expect a £100 formation fee, a £50 confirmation statement fee each year, and usually higher accountancy fees because of annual accounts and the company tax return. A sole trader has no registration fees and one tax return.

Official comparison: set up a business on GOV.UK.

Tax rates for the 2026 to 2027 tax year, checked on GOV.UK on 30 October 2026. This guide is general information, not tax advice.