Company Structure UK: Sole Trader, Partnership or Limited Company?

Picking the right company structure in the UK affects how much tax you pay, how much paperwork you do and whether your personal savings are at risk if things go wrong. The main choices are sole trader, partnership, LLP and limited company. Here’s a simple guide to each company structure UK founders use, with the 2026/27 tax rules, so you can pick the right one.

Every Company Structure UK Founders Can Choose

	Sole trader	Partnership	LLP	Limited company
Setup	Register with HMRC, free	Register with HMRC, free	Register at Companies House	Register at Companies House
Personal liability	Unlimited	Unlimited	Limited	Limited
Tax on profits	Income tax and NI	Income tax and NI per partner	Income tax and NI per member	Corporation tax, then tax on what you take out
Paperwork	Low	Low	Medium	Higher
Privacy	Private	Private	Public records	Public records

Sole Trader

This is the simplest way to start. You register for Self Assessment, keep records and pay tax on your profits. You and the business are legally the same, so you’re personally responsible for any debts.

Sole traders pay income tax at 20%, 40% or 45% on profits above the £12,570 Personal Allowance, plus Class 4 National Insurance of 6% between £12,570 and £50,270 and 2% above that.

Partnership

A partnership is like being a sole trader with others. Each partner pays tax on their share of the profits. All partners are personally liable for the debts of the business, so trust is everything. Get a partnership agreement in writing.

Limited Liability Partnership

An LLP gives partners limited liability while being taxed like a partnership. It’s popular with professional firms like solicitors and accountants.

Limited Company

A limited company is a separate legal entity. It pays corporation tax on its profits, and you take money out as salary, dividends or pension contributions.

Corporation tax 2026/27	Rate
Profits up to £50,000	19%
Profits between £50,000 and £250,000	Marginal relief, effective rate between 19% and 25%
Profits over £250,000	25%

Dividends above the £500 dividend allowance are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate in 2026/27.

Pros of a Limited Company

• Limited liability, so your personal assets are usually protected.
• Can be more tax efficient once profits are higher.
• Can look more professional to some clients and lenders.
• Company pension contributions can be a very tax efficient way to take money out.

Cons of a Limited Company

• More paperwork, including annual accounts, a confirmation statement and a corporation tax return.
• Accountancy fees are usually higher.
• Your details appear on the public register, and directors now need to verify their identity with Companies House.

Sole Trader or Limited Company: Which Pays Less Tax?

At lower profits, the difference is small and being a sole trader is simpler. As profits rise, a limited company can save tax by paying a small salary and the rest as dividends, but the rise in dividend tax rates has narrowed the gap.

As a rough guide, many accountants suggest looking at a limited company once profits regularly top £40,000 to £50,000. Everyone’s situation is different, so it’s worth getting advice. For more ways to save, see how to pay less tax in the UK legally.

How to Choose the Right Company Structure

Step 1: Think About Risk

If your business could run up big debts or face legal claims, limited liability matters.

Step 2: Estimate Your Profits

Work out what you expect to earn in the next year or two. Higher profits often favour a limited company.

Step 3: Consider Your Plans

If you want to bring in investors or sell the business one day, a limited company makes that much easier. See our guide to raising seed and growth funding.

Step 4: Factor in Admin and Costs

Be honest about how much paperwork you want to deal with, and budget for an accountant.

Step 5: Get Advice

A good accountant can model the numbers for your exact situation and save you far more than they cost.

If you want to go further, take a look at Owning a Business and Freelancing UK.

Company Structure UK FAQs

Can I Switch From Sole Trader to Limited Company Later?

Yes. Lots of people start as a sole trader and incorporate once the business grows, so your first company structure UK choice doesn’t have to be forever.

Is a Limited Company Good for Buy to Let?

It can be, especially for higher rate taxpayers, because companies can deduct mortgage interest in full. Read our guide to limited company buy to let.

Do I Need a Business Bank Account?

Limited companies must keep their money separate, so yes. Sole traders don’t legally need one, but it makes your records much easier. For more help, see our finance tips for small businesses and our guide to small business loans.

Company Structure UK: Common Questions

Is a Sole Trader or Limited Company Cheaper?

It depends on your profit. A limited company pays Corporation Tax of 19% on profits up to £50,000, rising to 25% on profits over £250,000, according to GOV.UK. You then pay personal tax on what you take out. Running a company also costs more in admin and accountancy, so for smaller profits a sole trader is often simpler and similar on tax.

Can I Switch From Sole Trader to Limited Company Later?

Yes. Many people start as a sole trader and set up a company once profits grow. It is worth speaking to an accountant at that point, as the timing can affect your tax.

What Does Limited Liability Actually Mean?

It means the company is legally separate from you. So if the business owes money, your personal savings and home are usually protected. As a sole trader, there is no such separation.

Do I Need an Accountant for a Limited Company?

Not legally, but most directors use one. Companies have to file accounts and a Corporation Tax return every year, and mistakes can be costly.

Content on IceburgWealth.com is for general information only and is not financial advice. I am not a regulated financial adviser, and tax rules and figures can change. Always do your own research and consider speaking to a qualified adviser before making any financial decision.

This article is part of our Small Business Guide, where you will find every related article in one place.

Disclaimer: This article is for general information only and is not financial advice. I'm not a regulated financial adviser. Rules, rates and allowances can change, so check the latest details and speak to a qualified professional before making any decisions.