Sole Trader vs Limited Company for Tradesmen (2026 Guide)
Most tradesmen start as sole traders because it's easy - register with HMRC, do a self-assessment, done. But at some point, you'll wonder if going limited would save you money. Here's the honest answer.
Sole trader: the basics
- Setup: Free. Register with HMRC as self-employed. Takes 10 minutes.
- Tax: You pay income tax on all your profits. 20% on £12,571–£50,270, 40% above that. Plus Class 2 and Class 4 National Insurance.
- Admin: Minimal. One self-assessment tax return per year. Keep records of income and expenses.
- Liability: You're personally liable for business debts. Your house, car, and savings are on the line if something goes badly wrong.
Limited company: the basics
- Setup: Register with Companies House (£12 online). Need a registered office address and at least one director.
- Tax: The company pays corporation tax (25%) on profits. You pay yourself a salary (usually £12,570 to use the tax-free allowance) and take the rest as dividends (8.75% up to the basic rate band, 33.75% above).
- Admin: More work. Annual accounts, corporation tax return, payroll (even if it's just you), and Companies House filing.
- Liability: Limited. The company is a separate legal entity. Your personal assets are protected (in most cases).
When does going limited save money?
The crossover point is roughly £40,000–£50,000 profit per year. Below that, the extra accountant fees (£800–£1,500/year for a limited company vs £200–£500 for sole trader) eat into any tax savings.
Above £50k profit, the dividend route typically saves you £2,000–£5,000+ per year in tax compared to sole trader.
Other reasons to go limited
- Credibility - some commercial clients and main contractors prefer dealing with limited companies
- CIS - if you work as a subcontractor, being limited can simplify CIS deductions
- Liability protection - if you're doing high-value work or working on properties, the limited liability is worth having
- Selling the business - a limited company is easier to sell than a sole trader setup
Our recommendation
If you're earning under £40k profit: stay sole trader. Keep it simple.
If you're earning £40k–£50k: talk to an accountant. Run the numbers for your specific situation.
If you're earning over £50k: going limited will almost certainly save you money.
Either way, keep your quotes and invoices organised from day one. Jobnix works for sole traders and limited companies - professional quotes, tracked invoices, and clear records for your tax return.