Sole trader vs limited company: which is right for a tradesperson in 2026?

"Should I go limited?" is probably the most-asked question at any tradesperson’s kitchen table. It’s asked more than it’s answered well. The honest answer: it depends on how much you earn and how much hassle you’ll tolerate for an extra couple of grand a year.

Sole trader — what it actually means

You and the business are one entity. Your tax is a Self Assessment return every year. You pay Income Tax and Class 2 & 4 National Insurance on your profit (not your turnover). You’re personally liable if the business gets sued.

Setup takes 5 minutes on gov.uk. Admin is a tax return every January plus (from April 2026) quarterly MTD submissions if you’re over £50k.

Limited company — what it actually means

The company is its own legal entity. You’re a director and shareholder. The company pays Corporation Tax (currently 19-25%). You pay yourself a salary + dividends, which are taxed separately on your personal Self Assessment.

Setup is a few forms at Companies House, about £12. Ongoing: annual accounts filed at Companies House, corporation tax return, confirmation statement, PAYE if you run payroll, Self Assessment for you as a director. Roughly 3x the admin of a sole trader.

The tax difference

A sole trader on £50,000 profit pays roughly £11,500 in Income Tax + NI.

A limited company on £50,000 profit, paying out £12,570 salary + £37,430 dividends, pays roughly:

• Corporation Tax: ~£7,000
• Dividend tax (after allowance): ~£3,000
• Employer NI on salary (above threshold): minimal
• Total: ~£10,000

Saving: ~£1,500/year at £50k. At £80k the gap widens to ~£3,000. At £120k it’s ~£6,000. But these numbers assume your spouse is a shareholder and you’re smart about dividend timing — solo earner with no spouse? Halve the saving.

What you’re trading for that saving

• Admin time. Filing accounts, PAYE, CT600. An hour a month at minimum; more if you do it yourself.
• Accountant fees. Limited company accounts cost more — typically £1,000-£2,000/year vs £300-£600 for a sole trader.
• Separated money. You can’t just spend from the business. Director’s loans are awkward; illegal loans attract tax.
• Public records. Your accounts are public on Companies House. Competitors and customers can see them.

For a tradesperson clearing less than £60k profit, the saving often disappears into accountant fees and lost evenings.

When limited makes sense

• You’re clearing £70k+ profit consistently.
• You’ve got a spouse you can make a shareholder (doubles the dividend allowance).
• You’re bidding for commercial contracts where "Ltd" after the name matters.
• The work carries real liability — property damage, injury risk, six-figure project exposure.
• You want to build sellable business value over 5+ years.

When sole trader wins

• You’re under £50k profit.
• Most of your customers are homeowners.
• You hate paperwork more than you love tax efficiency.
• You want to go on holiday with the money in your account, not faff with dividend timing.

The honest bottom line

Under £50k profit: stay sole trader. Between £50k and £70k: break-even, probably stay sole trader unless liability drives it. Over £70k: look at it properly with your accountant. Over £100k: you’re almost certainly leaving money on the table as a sole trader.

Whichever you pick, Holdfort handles both. Voice-note in, invoice out, clean CSV for your accountant at year-end. See how it works.

The transition mechanics — what actually happens when you switch

If you decide to move from sole trader to limited company, the practical steps over a typical week:

1. Day 1. Incorporate via Companies House (online, £12, 24 hours). Choose company name, directors, shareholding. Register for Corporation Tax within 3 months of starting to trade.
2. Day 2. Open a business bank account in the company name. Most high-street banks take 1-3 weeks; app-based banks (Starling, Tide, Monzo Business) are typically 24-48 hours.
3. Week 1. Notify customers of the change — invoices from the new company trading name only, from your chosen cutover date. Update your letterhead, email signature, van signage over time.
4. Week 1-2. Close the sole-trader VAT registration (if applicable) and re-register the limited company for VAT. There’s a HMRC form VAT7 for the closure. Your quarterly cycle resets.
5. Month 1. Register as PAYE employer if you’ll draw a director’s salary (most do, to preserve state pension qualifying years).
6. Year-end. File the final Self Assessment for the sole-trader period, covering income up to the cutover date.

Break-even at different revenue levels — real numbers

Assuming no spouse shareholder, no pension contributions, 2025-26 tax rates:

Profit	Sole trader tax	Ltd total tax	Saving
£30,000	£5,000	£5,300	—
£50,000	£11,500	£10,000	£1,500
£80,000	£24,000	£21,000	£3,000
£120,000	£43,000	£37,000	£6,000

Subtract typical additional accountant fees (£800/year more for Ltd than sole trader) and the break-even point lands around £60-65k profit. Under that, you’re paying to do more paperwork.

The spouse shareholder angle

If you have a spouse with low other income, making them a shareholder (often 50/50) and paying dividends to both of you lets each partner use their own Dividend Allowance (£500 each as of 2025-26) and personal allowance. Done right, it can double the Ltd saving at any given profit level.

HMRC’s "settlements legislation" prevents you from paying a completely non-working spouse solely to shift tax, but the practical reality is: if they do any real work in the business (bookkeeping, phone answering, van paperwork) and hold ordinary shares with full voting rights, it’s fine.

The under-rated downside: public accounts

Limited company accounts are filed at Companies House and publicly viewable. Your competitors, suppliers, and customers can see your turnover, profit, and director’s salary. Many sole-trader tradespeople don’t love that. Small companies file abbreviated accounts (no P&L), but the balance sheet still shows retained profit.