Sole trader or limited company? An honest guide for the trades

Published July 2026 · 8 min read

Every tradesperson has heard it in the cabin: “you want to go limited, mate — pay less tax.” The truth is messier. The right structure depends on your profit, your risk, your appetite for admin and your plans. Here’s the balanced version — and a straight declaration up front: SubReady is built for the self-employed (sole traders, CIS and non-CIS, and landlords), so if you do go limited you’ll need company accounting software and, realistically, an accountant.

Sole trader: the default for good reason

• Simple. Register once, do a Self Assessment each year (quarterly MTD updates if your turnover is over the MTD thresholds), and the profit is yours.
• Cheap to run. No Companies House filings, no statutory accounts, no corporation tax return. Many sole traders manage with light-touch accountant input.
• CIS is straightforward. Deductions offset your own tax bill directly, and refunds come back through your own return — see how CIS refunds work.
• The catch: unlimited liability. Business debts are your debts. Good insurance matters.

Limited company: power tools, more maintenance

• Limited liability. The company’s debts are (usually) the company’s, not yours — valuable on bigger contracts.
• Tax planning options. Profits face corporation tax, and you choose how to extract money (salary, dividends, pension). At higher profits this can beat sole-trader tax — but the gap has narrowed over the years and depends heavily on your numbers.
• Perception. Some main contractors and commercial clients prefer dealing with a company.
• The catch: admin and cost. Statutory accounts, Companies House filings, corporation tax returns, payroll if you take a salary, a separate bank account, and accountancy fees that are typically several times a sole trader’s. Your accounts are also publicly visible. CIS gets more complex too: the company’s deductions are offset through payroll rather than simply landing on your personal return.

The honest rules of thumb

• At modest profits — roughly up to the higher-rate threshold (£50,270) — the tax saving from incorporating is often small or nil once extra accountancy costs are paid, and the admin is real.
• The case strengthens with consistently high profits, money you can afford to leave in the company, meaningful contract risk, or clients who require it.
• It’s a personal calculation. Get an accountant to model your actual figures before deciding — this article is general information, not advice.

If you stay a sole trader (most readers will)

Make the simple structure genuinely simple:

• Capture receipts and expenses as they happen — photo on WhatsApp, done.
• Track CIS statements so deductions turn into refunds, not lost paper.
• Watch your MTD obligations as thresholds fall to £30k (2027) and £20k (2028).
• Keep a live tax estimate so the 31 January bill (and payments on account) never ambush you.

That’s exactly the job SubReady does for £8.99/month — records on WhatsApp, accountant-ready output, 14-day free trial.

Questions from the cabin

“My mate pays less tax as a limited company — why wouldn’t I?”

Maybe he does — at his profit level, with his accountant’s fees, leaving money in the company. Copy the decision without copying the circumstances and you can end up worse off after costs. Model your own numbers.

Can I switch back if I don’t like it?

You can close a company and return to sole trading, but it’s paperwork, cost and potentially tax consequences on the way out. Treat incorporation as a one-way door you open deliberately, not an experiment.

Does CIS still apply to a limited company?

Yes — companies doing construction work for contractors are still within CIS. The difference is mechanical: deductions are recovered through the company’s payroll scheme rather than your personal return, which is one more reason the admin needs an accountant.

What about IR35?

If you’d be working through your own company for what looks like employment, off-payroll rules can bite. Genuine multi-client subcontracting is usually fine, but it belongs on the list of things to check before incorporating, not after.

If you do go limited

Do it properly: appoint an accountant before incorporating, set up payroll and a company bank account, understand director responsibilities, and re-register for CIS as a company. And talk to your accountant about timing — mid-tax-year switches create two sets of filings in one year.

Either way, the winner isn’t the structure with the best pub-talk tax rate — it’s the one whose numbers you actually understand. Get the books tight first; the structure question gets much easier.