Sole trader vs limited company
A sole trader pays Income Tax and Class 4 National Insurance on all profits. A limited company pays Corporation Tax at 19% to 25%, and you pay personally only on what you withdraw. Since National Insurance was cut in 2024, a company only reliably wins on tax if you leave profit in the business.
The headline differences
| Sole trader | Limited company | |
|---|---|---|
| Tax on profit | Income Tax 20-45% plus Class 4 NI | Corporation Tax 19-25% |
| Tax on money you take | None. You are taxed on all profit | Dividend tax on withdrawals |
| Liability | Unlimited. Your personal assets are at risk | Limited to what you put in |
| Public filings | None | Accounts and officers public at Companies House |
| Accountancy cost | From £149 a year | From £599 a year |
| Admin | One tax return | Accounts, CT600, confirmation statement, payroll |
| Making Tax Digital | Yes, above the thresholds | No. MTD for Income Tax does not apply |
The crossover is not where people think
The received wisdom is "incorporate once profits hit £30,000 to £40,000". That advice is now out of date, and our own calculator demonstrates why.
Class 4 National Insurance fell from 9% to 6% in 2024. A sole trader at basic rate now pays about 26% on profit above the personal allowance. A company owner paying 19% Corporation Tax and then 8.75% dividend tax on everything they withdraw pays about 26.1%. The gap has essentially closed.
What actually decides it is whether you need the money. If you draw every pound out, a sole trader is usually ahead at any profit level once the extra £450 or so of accountancy is counted. If you leave profit in the business, the company wins, and wins clearly, because retained profit bears only Corporation Tax.
| Profit | Drawing it all out | Leaving half in |
|---|---|---|
| £30,000 | Sole trader ahead by ~£1,600 | Sole trader ahead by ~£750 |
| £50,000 | Sole trader ahead by ~£1,600 | Line ball |
| £120,000 | Sole trader ahead by ~£5,500 | Company ahead by ~£9,300 |
Run these figures on your own numbers with our sole trader vs limited company calculator. And remember a company is harder to leave than to join: closing one properly costs money and takes months.
Reasons that have nothing to do with tax
Limited liability genuinely matters if you carry stock, employ people, sign leases or do work that could go expensively wrong. For a freelance copywriter it is close to irrelevant.
Credibility matters in some sectors. Many larger clients and most public sector buyers will not contract with a sole trader at all.
Privacy runs the other way. Company accounts, your name, and your registered office address are public. Some people care about this a lot.
What incorporating does not do
It does not protect you from personal guarantees, which banks and landlords will ask for anyway. It does not protect directors from liability for their own negligence or for wrongful trading. And it does not make you harder to find.
This guide is general information, current at 9 November 2026. Tax rules change and depend on your circumstances. Please take advice before acting on it.