Sole trader or limited company? A 2026 decision guide for UK small business owners

We get this question every month. The honest answer is: it depends on three things — your profit, your risk, and how much you want to take out of the business. Here's the framework we walk QGS clients through.

Rule of thumb: £30k profit

Below £30,000 of annual profit, sole trader is usually simpler and cheaper to run — lower accounting fees, no Companies House filings, less admin. Above £50,000, a limited company usually pays less tax overall once you take the salary-plus-dividend approach into account. The £30k–£50k zone is genuinely "depends on your situation."

Risk and limited liability

If your work could leave a client out of pocket — building, professional advice, manufacturing, anything contractual — a limited company puts a legal wall between business debts and your personal assets. For lower-risk freelance work, this matters less.

How much you draw matters

If you reinvest most of your profit into the business (R&D, equipment, hires), a limited company is more tax-efficient because retained profit only attracts corporation tax. If you draw everything out as personal income each year, the gap narrows. The actual number we model for each client uses their forecast drawdown.

What it costs to run

Sole trader: one self-assessment per year, from £150. Limited company: year-end accounts plus CT600 plus director's self-assessment, from £750-£950 in total. The tax savings have to outweigh the extra accounting and admin cost — hence the £30k rule of thumb.

Want us to model the numbers for your specific situation? Message us on WhatsApp 07517 757413 or email info@qgsaccountants.com. We do the comparison for free before quoting any conversion work.