Admin: what you'll need to do

Real-world worked examples (2025/26, with accountant fees)

This flips only once you're earning more, reinvesting profit, or using company pension contributions to reduce tax.

Should you switch structures?

Stick with sole trader if:

• You earn under £50k profit
• You want to avoid complexity
• You're just starting out
• You're cost-conscious and want flexibility

Consider limited if:

• You make £70k+ profit
• You want to build up money inside the business
• You plan to pay into a pension
• You want the professional image or limited liability

Why this decision matters for 2025/26

Two April-2025 rule changes reshape the old advice that "incorporation always saves tax":

1. Corporation Tax now stays at 19% only if profits are ≤ £50k; it's 25% above £250k, with marginal relief in between.
2. The tax-free dividend allowance is just £500 (it was £1,000 last year and £2,000 the year before).

Meanwhile, self-employed Class 4 NIC fell to 6% on profits up to £50,270, softening the sole-trader bill.

Beyond tax: five strategic factors

1. Limited liability – shields personal assets if a client sues.
2. Professional image – some corporates prefer to contract with companies.
3. Pensions – a company can pay employer contributions straight from pre-tax profits.
4. Admin load & cost – annual accounts + payroll can run £1,000–£2,000 in fees.
5. Funding & grants – R&D relief and some grants are company-only.

Final verdict: Sole trader vs limited company in 2025/26

2025 is the year the maths changed.

Going limited used to save most freelancers thousands. But with:

• Corporation Tax now 25%
• Dividend tax starting after just £500
• Accountancy costs up to £3k a year

…the case for going limited only makes sense at higher income levels or if you're building long-term.

If you want simplicity and value — especially under £60k — sole trader is usually the smarter route. If you want control, tax deferral, and you're earning more — then going limited can still work, but you'll need to plan properly.

Taxo can help — either way

Whether you're a sole trader or limited company, Taxo is your all-in-one AI tax assistant.

• Sole trader? Capture expenses, create invoices, and submit your Self Assessment — all via WhatsApp.
• Limited company? Sync your bank, track income, calculate Corporation Tax and get human-reviewed submissions.

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Key takeaways

• The tax gap between sole traders and companies is now thin below ~£45k profit, thanks to steeper Corporation Tax and a tiny £500 dividend allowance.
• Class 4 NIC cuts further favour sole traders at modest profit levels.
• Limited companies still win on liability, pension flexibility and retaining profits, but pure tax savings only re-emerge at higher profits when you don't need to draw all the cash.
• Always run the maths each year as HMRC keeps moving the goalposts.

Need a personalised projection? Taxo's advisers can crunch your exact numbers—book a free call today.