Sole trader or limited company? A plain English guide for tradespeople

Most tradespeople start as sole traders because it is simple. The limited company question usually appears when profits grow, a commercial client asks for it, or your accountant mentions tax savings. This guide compares both without the jargon.

Sole trader — in plain English

• You and the business are the same legal entity
• You keep profits after tax
• You pay income tax and National Insurance on profits
• You file Self Assessment and, from 2026, MTD quarterly updates if in scope
• Registration takes about 10 minutes on HMRC's website
• Your personal assets can be at risk if the business owes money

Limited company — in plain English

• The company is separate from you legally
• The company pays corporation tax on profits (19–25% depending on level)
• You pay yourself via salary (PAYE) and dividends
• Annual accounts, corporation tax return, confirmation statement, VAT if registered, payroll RTI every month
• Companies House registration costs about £15
• Limited liability protects personal assets in most cases

Tax comparison (illustrative 2026/27)

Figures are rounded examples for discussion — your situation depends on pension contributions, other income, and how you take money out.

• £40,000 profit: sole trader roughly £7,500 tax; limited company roughly £6,800 with salary plus dividends — saving about £700, often not worth extra admin
• £60,000 profit: sole trader roughly £14,000; limited roughly £11,500 — saving about £2,500
• £80,000 profit: sole trader roughly £21,000; limited roughly £16,000 — saving about £5,000

Limited company savings usually assume a low salary (often £12,570) and the rest as dividends. That only works if you do not need every penny as monthly income.

The admin difference

Sole trader: Self Assessment yearly plus MTD quarterly when required.

Limited company: accounts, CT600, confirmation statement, monthly payroll, VAT quarters if registered, plus personal Self Assessment on dividends. Most directors use an accountant (£1,000–£3,000 per year).

When to stay sole trader

• Earning under £50,000 consistently
• You want simplicity
• Domestic customers only
• You do not need limited liability protection

When to consider limited

• Earning over £60,000 consistently
• Commercial contracts that require a limited company
• You want liability protection
• You are happy to pay for professional accountancy

CIS consideration

Subcontractors under CIS face extra complexity as a limited company — deductions, payroll, and reclaiming tax through the company. Read our CIS tracking guide before switching structure purely for tax.

VAT registration is another fork — see VAT for sole trader tradespeople for thresholds and schemes.

How Billdr fits

Billdr is built for sole traders today — quotes, invoices, expenses, mileage, MTD filing support, and accountant packs. Limited company features (payroll tracking, dividends, corporation tax, Companies House deadlines) are on the roadmap. If you switch later, your day-to-day trade workflow stays in one place.

Try Billdr free for 30 days — no card required. Use code 3MONTHSFREE for 3 months free when you continue. Start at www.billdr.co.uk.