Sole trader: simple and flexible

You and the business are the same legal person. Profits are taxed through Self Assessment with Income Tax and Class 4 National Insurance. Setting up takes minutes, the admin is light and you can take money out whenever you like. The trade-off: you are personally liable for business debts.

Limited company: separate and structured

The company is its own legal entity. It pays Corporation Tax on profits — 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between. Directors usually take a mix of salary and dividends. Your personal liability is generally limited to what you invest.

What changes the decision

• Profit level: at lower profits, the tax saving from a company is often small or disappears once extra costs are counted.
• Dividend tax: from April 2026 the ordinary and upper dividend rates rose to 10.75% and 35.75%, which narrows the gap for some owners.
• Risk: if you sign leases, employ staff or take on large contracts, limited liability matters more.
• Clients: some larger customers prefer or require working with a company.
• Admin: companies file annual accounts and a confirmation statement at Companies House, a Corporation Tax return and usually run payroll. Directors also need to verify their identity with Companies House.

A practical approach

Many owners start as sole traders and incorporate once profits are steady and they don’t need all the money they make. The right moment is a numbers question, not a feeling.

How we help

We model your likely profit under both structures, include every cost and compare the money you would keep. If a company makes sense, we form it, register it for tax and set up payroll.

This article is general guidance based on the rules for the 2026/27 tax year. It isn’t personal advice — talk to us before you act on it.

The 2026/27 numbers that matter

• Personal Allowance: £12,570, frozen until April 2031.
• Employer National Insurance: 15% on salary above £5,000 a year.
• Employee National Insurance: 8% on earnings above £12,570.
• Dividend Allowance: £500.
• Dividend tax: 10.75% basic rate, 35.75% higher rate and 39.35% additional rate.

Why a small salary helps

A salary is a business expense, so it reduces Corporation Tax, and it can count towards your State Pension record. Many directors set salary around the National Insurance thresholds. The best level depends on whether your company can claim Employment Allowance — a company where the director is the only employee usually can’t.

How dividends work

Dividends are paid from profits after Corporation Tax. You can only pay them if the company has enough retained profit, and each one should be backed by board minutes and a dividend voucher. They aren’t subject to National Insurance, which is where the saving usually comes from.

Things to plan for

• Personal tax on dividends is paid through Self Assessment, often months later. Put money aside as you go.
• The higher dividend rates from April 2026 mean last year’s plan may no longer be the best one.
• Pension contributions paid by the company can be an efficient alternative for money you don’t need now.

How we help

We work out your salary and dividend mix at the start of each tax year, run the director’s payroll, prepare the dividend paperwork and tell you how much to save for your tax bill.

This article is general guidance based on the rules for the 2026/27 tax year. It isn’t personal advice — talk to us before you act on it.

The minimum periods

• Sole traders and partnerships: at least five years after the 31 January submission deadline for the tax year.
• Limited companies: at least six years from the end of the financial year the records relate to.
• VAT-registered businesses: VAT records for at least six years.
• Employers: payroll records for at least three years after the end of the tax year.

Keep them longer if a return is late, under enquiry, or if an asset you own will be sold in future.

What counts as a record

• Sales invoices, receipts and till records.
• Purchase invoices and receipts for expenses.
• Bank statements for every business account.
• Loan agreements, leases and hire-purchase paperwork.
• Payroll, pension and dividend paperwork for companies.
• Mileage logs if you claim vehicle costs.

Paper or digital?

Digital records are fine, as long as they are clear, complete and readable. For Making Tax Digital, many businesses must keep records in compatible software anyway. A clear photo of a receipt, stored against the transaction in your bookkeeping app, is enough.

A simple routine

• Use one business bank account and connect it to your software.
• Match receipts to transactions weekly, not annually.
• Back up your files, and keep a list of where older years are stored.

How we help

We set up cloud bookkeeping with bank feeds and receipt capture, and review your records each month so year-end accounts become a formality.

This article is general guidance based on the rules for the 2026/27 tax year. It isn’t personal advice — talk to us before you act on it.

Set it up

• Open a spreadsheet with 13 columns, one for each week.
• Start with today’s bank balance.
• List money coming in, in the week you expect it to arrive — not the week you invoice.
• List money going out: wages, rent, suppliers, loan repayments, subscriptions and tax.
• Work out the closing balance for each week. It becomes next week’s opening balance.

Don’t forget the tax dates

• PAYE and National Insurance: by the 22nd of each month if you pay electronically.
• VAT: one month and seven days after the end of each VAT quarter.
• Corporation Tax: nine months and one day after the company’s year end for most small companies.
• Self Assessment: 31 January and 31 July for payments on account.

Read the results

Look for weeks where the balance dips low or turns negative. That is your early warning. Common fixes include chasing overdue invoices, agreeing shorter payment terms with customers, spacing out supplier payments, or asking HMRC about a Time to Pay arrangement before a deadline, not after it.

Keep it rolling

Update the forecast every week: replace estimates with actual figures and add a new week at the end. Ten minutes a week is usually enough once the structure exists.

How we help

We build your first forecast from your bookkeeping data, connect it to your tax calendar and review it with you monthly — so cash decisions are made with numbers, not nerves.

This article is general guidance based on the rules for the 2026/27 tax year. It isn’t personal advice — talk to us before you act on it.