Sole Trader vs Limited Company

Choosing the right business structure is one of the first decisions you will make. This table compares the two most common options in the UK.

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Feature	Sole Trader	Limited Company
Personal liability	Unlimited — you are personally liable for debts	Limited to investment — personal assets protected
Setup cost	Free (register with HMRC)	£12 online via Companies House
Tax	Income Tax + Class 2/4 NI	Corporation Tax (25%) + personal tax on dividends/salary
Annual accounts	Self Assessment tax return	Annual accounts + confirmation statement to Companies House
Public information	Name only	Directors, registered office, accounts on public register
Admin burden	Low	Higher — statutory duties, filings, potential audit
Credibility	Adequate for many small businesses	Often preferred by larger clients and investors
Annual filing requirements	Self Assessment tax return (SA103) by 31 January	Annual accounts + confirmation statement + CT600 to HMRC
Tax-free dividend allowance access	No dividends — all profit taxed as income	Yes — £500 dividend allowance (2025/26); can extract profit tax-efficiently

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Disclaimer

The information on this page was correct at the time of writing. Amounts, thresholds, and rules may change. Always check the latest official guidance.