The comparison at a glance
| Sole trader | Limited company | |
|---|---|---|
| Liability | Unlimited — personal assets exposed | Limited to the company (bar guarantees) |
| Tax | Income tax + NI on all profits, yearly | Corporation Tax; then tax when extracted — timing control |
| Admin | Self Assessment; MTD quarterly updates if over threshold | Accounts, CT600, confirmation statement, payroll |
| Privacy | Nothing public | Accounts, officers and PSCs on the public register |
| Perception | Fine for most trades | Preferred/required by many corporate clients and agencies |
How the tax actually differs
A sole trader pays income tax and National Insurance on all profits in the year they arise — whether or not the money is needed personally. A company pays Corporation Tax (19–25%) on profits, and the owner then pays tax only on what they extract as salary or dividends. That second layer is why a company isn’t automatically cheaper — but the control is the point: profit can be retained at Corporation Tax rates, taken in a lower-income year, or put into a pension with full relief.
The admin comparison — post-MTD
Sole traders’ admin is rising: MTD for Income Tax brings digital records and quarterly updates for those over the thresholds (£50,000 from April 2026, £30,000 from 2027, £20,000 from 2028). Companies were never in MTD for Income Tax but file more by default: statutory accounts, a CT600, a confirmation statement, and payroll if salary is taken. Either way, the era of one January tax return and nothing else is ending — the question is which set of obligations suits you.
Deciding for real
The honest method: project a year’s profit, decide how much you need to live on, and compare total tax + admin cost under each structure — then weigh liability and client expectations, which often decide it regardless of a small tax difference. We run this comparison with real numbers as part of company formation support, and we’ll tell you plainly if staying a sole trader is the better answer. Call 0114 327 1480.