Set your annual profit and the page works out both structures in full, income tax, National Insurance, corporation tax, dividend tax and the accountant, then tells you which leaves you more.
A self-employed individual trading in their own name or under a trading name. There is no separate legal entity, in law you and the business are one. You register for Self Assessment with HMRC, normally by 5 October after the tax year you began trading, keep records of income and expenses, and file a return each January.
That is the whole regulatory footprint, and it explains why roughly 56% of UK businesses are sole proprietorships. For freelancers, tradespeople and side-hustlers it is the obvious starting point.
Tax is income tax on profit after the personal allowance, frozen at £12,570 through 2028: 20% to £50,270, 40% to £125,140, 45% above. The allowance tapers by £1 for every £2 of income over £100,000, creating a 60% effective marginal rate between £100,000 and £125,140. Class 4 NI adds 6% between £12,570 and £50,270 and 2% above; Class 2 was abolished for most in April 2024.
A private company limited by shares, incorporated at Companies House with directors who run it and shareholders who own it, usually the same person for a solo founder. Liability is limited to what has been paid or agreed for the shares; the company bears its own debts.
Incorporation is £100 standard or £156 same-day, and usually completes within 24 hours. From there the annual cycle is accounts, a CT600, a confirmation statement and a director's personal return, with automatic penalties from £150 for lateness.
Corporation tax is 19% up to £50,000, 25% above £250,000, and tapered between with an effective 26.5% marginal rate in that band. The efficient extraction pattern is a modest director's salary plus dividends, though the April 2025 employer NI changes, a £5,000 secondary threshold at 15%, have made that salary genuinely costly for the first time.
Start as a sole trader. Incorporate once profit is consistently past £55,000, or the day you take on real liability.
Registering with HMRC costs nothing and the admin is an afternoon a year. Track monthly profit, and when the annual figure clears the crossover with the trend still rising, incorporate: the tax saving covers the accountant several times over and the liability protection starts to matter as contracts get larger.
Two exceptions. If you are raising investment or shipping a product with liability exposure, incorporate on day one regardless of profit. And if you expect losses in year one, staying a sole trader lets you set them against other personal income, a Ltd can only carry them forward.
Four things move the answer and none of them fit on a slider.
If you are not tied to the UK, the same profit can face a very different bill in Estonia, Ireland or a UAE free zone.
