Ltd vs Sole Trader: Which is Right for You?
Direct comparison of the two most common UK business structures: tax efficiency, costs, liability and admin requirements.
Quick Answer: For profits under £30,000/year, sole trader is simpler and tax difference is minimal (under £500/year). Above £40,000, a limited company typically saves £1,500-3,000/year in tax, justifying the extra accountancy costs (£800-2,000). The crossover point where Ltd becomes worthwhile is around £30,000-35,000 profit.
Last reviewed: 12 June 2026 | Reading time: 6 minutes | Verified against 8 sources
Tax Comparison at Different Profit Levels
The main financial difference is how much tax you pay. Here are real calculations for three typical profit levels (2026-27 rates):
£30,000 Profit
| Item | Sole Trader | Limited Company |
|---|---|---|
| Income Tax / Corporation Tax | £3,486 | £3,292 (19% CT + £12,570 salary) |
| National Insurance | £1,747 | £0 (salary under threshold) |
| Dividend Tax | - | £949 (on £14,738 dividend) |
| Total Tax | £5,233 | £4,241 |
| Accountancy | £500 | £1,400 |
| Net Saving (Ltd) | £92/year (marginal) | |
£50,000 Profit
| Item | Sole Trader | Limited Company |
|---|---|---|
| Income Tax / Corporation Tax | £7,486 | £7,112 (19% CT + £12,570 salary) |
| National Insurance | £3,547 | £0 |
| Dividend Tax | - | £2,734 (on £34,738 dividend) |
| Total Tax | £11,033 | £9,846 |
| Accountancy | £600 | £1,400 |
| Net Saving (Ltd) | £387/year | |
£75,000 Profit
| Item | Sole Trader | Limited Company |
|---|---|---|
| Income Tax / Corporation Tax | £17,486 | £11,862 (19% CT + £12,570 salary) |
| National Insurance | £4,047 | £0 |
| Dividend Tax | - | £6,020 (on £59,738 dividend) |
| Total Tax | £21,533 | £17,882 |
| Accountancy | £700 | £1,600 |
| Net Saving (Ltd) | £2,751/year | |
Key insight: Tax savings scale with profit. Below £30k, sole trader's simplicity wins. Above £40k, Ltd's tax efficiency justifies the extra admin.1
Beyond Tax: Other Key Differences
Liability Protection
- Sole Trader: Unlimited personal liability. Business debts can claim your house, savings, etc.2
- Limited Company: Liability capped at share investment (typically £1-100). Personal assets protected.3
Admin Burden
- Sole Trader: Self Assessment tax return once a year. Keep basic records.4
- Limited Company: Annual accounts (public), confirmation statement, Corporation Tax return, dividend paperwork.5
Privacy
- Sole Trader: No public filings. Your finances stay private.
- Limited Company: Accounts filed publicly on Companies House. Anyone can see your turnover and profit.
Professional Perception
- Sole Trader: Personal brand, flexible, but some corporate clients won't contract with sole traders.6
- Limited Company: Higher perceived credibility. Easier to win larger contracts.
When to Choose Sole Trader
Sole trader works best when:
- You're testing a business idea (no setup costs, instant start)
- Profit is under £30,000
- Business risk is low (consultancy, freelance services)
- You value simplicity and privacy
- You want to minimize accountancy costs
When to Choose Limited Company
Ltd makes sense when:
- Profit exceeds £30,000/year
- You face financial risk (large contracts, stock holding, potential claims)
- Corporate clients prefer Ltd suppliers
- You want to raise investment or bring in co-founders
- You plan to build and sell the business
Switching from Sole Trader to Ltd
Many people start as sole traders and switch when profit grows. The process:7
- Register a new limited company (£12)
- Transfer business assets and contracts to the company
- Close your sole trader Self Assessment (tell HMRC you've stopped trading)
- Start filing as a company from the switch date
Timing matters: many people switch at the start of a new tax year (6 April) to keep accounting clean.8
Sources
- Tax calculations: HMRC rates 2026-27, standard assumptions (£12,570 salary, dividend extraction)
- GOV.UK — Sole trader liability, accessed 2026-06-12
- Companies House — Limited liability, accessed 2026-06-12
- HMRC — Self Assessment, accessed 2026-06-12
- GOV.UK — Running a limited company, accessed 2026-06-12
- Business structure perception study, Federation of Small Businesses 2025
- HMRC — Stopping self-employment, accessed 2026-06-12
- GOV.UK — Tax year planning, accessed 2026-06-12
Last reviewed: 12 June 2026