Trading as a sole trader
You register with HMRC, keep records and file a Self Assessment return. Profits are taxed as your income, with Income Tax and Class 4 National Insurance. Admin is light, but you're personally liable for business debts.
Trading through a limited company
The company is a separate legal entity. It pays corporation tax on its profits: 19% up to £50,000 and 25% above £250,000, with marginal relief in between. You then take money out through salary and dividends.
There's more admin, including annual accounts at Companies House, a confirmation statement, a corporation tax return and usually payroll. But your personal assets are generally protected.
When does switching make sense?
There's no single profit figure where limited always wins. The factors that matter are:
- How much profit you make and how much you need to draw
- Whether you want to reinvest profits in the business
- Your exposure to business risk and contracts
- How clients and lenders view your business