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Structure

Should You
Go Limited?

The old rule of thumb has quietly stopped being true for a lot of tradesmen. Here's where the numbers actually land now.

This is general guidance for UK sole traders, not personal advice. The right structure depends on your specific profit, how much you draw versus leave in the business, and things beyond tax entirely. Run your own numbers before deciding.

01Why "just go limited" stopped being obvious advice

For years, the standard advice was simple: once you're earning decent money, incorporate, pay yourself in dividends, and save a meaningful chunk of tax. From April 2026, that gap narrowed sharply.

  • Dividend tax rose — rates went up by 2 percentage points from April 2026, and the tax-free Dividend Allowance is down to just £500 a year.
  • Employer National Insurance bites on director salary — 15% above a £5,000 threshold, and a company whose only employee is its sole director generally can't claim the Employment Allowance that would offset it.

Both changes push in the same direction, they make extracting money from a limited company more expensive than it used to be, which shifts the whole comparison.

02Where the numbers land now

Roughly speaking, for 2026/27, if you draw everything you earn out of the business each year:

  • Below about £50,000 profit — staying a sole trader is often the cheaper option once you account for the extra tax and admin cost of running a company.
  • Roughly £55,000 to £60,000 profit — there's a narrow window where a limited company tends to pull ahead on pure tax.
  • Well above that — the advantage can narrow again unless you're leaving profit in the company rather than drawing it all, or using employer pension contributions, both of which change the maths meaningfully.

These are general ranges, not a rule for your specific situation, the actual break-even point moves with how much you draw versus retain, and whether you have a spouse you can reasonably split income with.

03It's not only about tax

  • Limited liability — your personal assets are generally protected if the business runs into serious trouble, a real reason to incorporate even when the tax case is marginal.
  • Winning bigger work — some larger contractors and commercial clients simply won't contract with a sole trader, incorporating can open doors regardless of the tax maths.
  • More admin either way — Companies House filings, a CT600 return, running payroll if you take a salary, and your accounts becoming publicly visible, all real costs in time and often in accountancy fees.
  • Losses work differently — a sole trader can offset a bad year's losses against other personal income fairly flexibly, a limited company's losses are trapped inside the company and carried forward instead.
Often missed You don't have to decide forever. Plenty of tradesmen start as a sole trader, keep things simple while they build up steady profit, then incorporate later once they're consistently clearing the break-even point. Incorporating too early just to look more official costs you in admin without necessarily saving anything.
Also worth knowing If your income varies a lot job to job, or you've had a genuinely bad year, that loss flexibility as a sole trader is worth more than it sounds, it can directly reduce a tax bill from other income in the same year, which a limited company generally can't do for you.
Want the actual numbers for your situation?

Send over your profit and how much you'd want to draw, and I'll show you where you'd actually land either way.

This guide is general information about business structure for UK sole traders, correct at the time of writing based on 2026/27 tax rates and allowances, and isn't personalised tax advice. Rates, thresholds, and allowances change, and your own circumstances may lead to a different answer, always check anything you're unsure about before relying on it.