Set Up a Limited Company in 2026? Run the Numbers First
You can set up a limited company in about an hour. Companies House charges £100 online, approves most applications within 24 hours, and asks for a company name, a UK registered office address, one director, one shareholder, a SIC code and the details of anyone holding more than 25% of the shares. No solicitor, no accountant, no minimum capital beyond a single £1 share. That part is genuinely easy, and every guide on this page of Google will walk you through it.
The harder question is whether you should, and the answer changed in April 2026. Dividend tax went up. The gap between a sole trader and a limited company narrowed, and the extra cost of running a company now eats a larger share of what is left. Most comparison articles still quote a break-even figure from before that change.
Key Takeaways
- Registration is £100 and takes a day. The recurring cost is what decides this, not the fee.
- Dividend rates rose in April 2026 to 10.75%, 35.75% and 39.35%, narrowing the tax advantage of incorporating.
- A limited company accountant costs £500 to £1,500 a year against £150 to £600 for a sole trader. That gap is real money against a thin tax saving.
- Corporation tax is 19% to £50,000 profit and 25% above £250,000, with marginal relief tapering between.
- Limited liability and client requirements are often better reasons to incorporate than the tax arithmetic.
What the rates actually are in 2026/27
Two tax systems, and they do not line up neatly. A sole trader pays income tax and Class 4 National Insurance on every pound of profit. A limited company pays corporation tax on its profit first, and then you pay personal tax again on whatever you take out as salary or dividends.
| Band | Sole trader | Limited company |
|---|---|---|
| Profit up to £12,570 | 0% — personal allowance | 19% corporation tax, then personal tax on extraction |
| £12,571 – £50,270 | 26% (20% income tax + 6% Class 4 NI) | 19% corporation tax, dividends at 10.75% above the £500 allowance |
| £50,271 – £125,140 | 42% (40% income tax + 2% NI) | 19% corporation tax to £50k profit, dividends at 35.75% |
| Company profit £50,001 – £250,000 | n/a | Marginal relief tapers the effective rate from 19% toward 25% |
| Company profit above £250,000 | n/a | 25% main rate |
The marginal relief band deserves a word, because it catches people who assume there are only two corporation tax rates. Between £50,000 and £250,000 of company profit the effective rate climbs gradually from 19% toward 25% rather than jumping. It is calculated with a standard fraction of 3/200, which your accounting software handles, but the practical effect is that profit in that band is taxed at an effective marginal rate well above 19%.
Why April 2026 changed the answer
Dividend tax rates rose to 10.75% in the basic band, 35.75% in the higher band and 39.35% in the additional band, with the tax-free dividend allowance at £500. The classic small-salary-plus-dividends structure still works. It simply returns less than it did a year ago.
Here is the mechanism, because the conclusion depends on it. The standard approach is to pay yourself a salary up to the National Insurance threshold, which is deductible against corporation tax, then take the rest as dividends from post-tax profit. You pay 19% corporation tax on the profit, then dividend tax on what comes out. Stack those two and compare against a sole trader's 26% effective marginal rate in the basic band, and the company used to come out comfortably ahead. The April rise pushed the combined figure up and squeezed that margin.
How much it squeezed depends entirely on your numbers: profit level, how much you need to withdraw, whether you can leave money in the company, pension contributions, whether a partner can hold shares. Published comparisons that give you a single break-even figure are compressing all of that into one assumption, usually an unstated one. Treat the figure you find in an article, this one included, as a signal to do your own sum rather than an answer.
The cost nobody puts in the comparison
Tax comparisons tend to stop at the tax. But a limited company costs more to run, every year, regardless of what it earns.
| Sole trader | Limited company | |
|---|---|---|
| Registration | £0 | £100 online, £124 by post |
| Accountancy, per year | £150 – £600 | £500 – £1,500, compliance-only from ~£1,000 |
| Annual filing | Self-assessment | Accounts, confirmation statement, CT600 |
| Filed publicly | Nothing | Accounts and directors on the public register |
| If you did not trade | Nothing to file | Dormant accounts still due |
Call the accountancy gap £500 to £1,000 a year. If your projected tax saving from incorporating is £800, you have not saved anything. That is the sum worth doing before you register, and it is the one the £100 registration fee distracts from.
The reasons that have nothing to do with tax
Plenty of people incorporate for sound reasons that never appear in a tax calculation, and those reasons hold whatever the dividend rate does.
Limited liability. A company is a separate legal person. Its debts are its own, so a dispute or an insolvency generally stops at the company rather than reaching your house. A sole trader has no such line: the business is you. For anyone carrying contractual risk, holding stock or employing people, this alone can settle the question.
Then there is who will work with you. Agencies and larger clients frequently refuse to contract with sole traders, for their own employment-status reasons. If the work you want requires an incorporated supplier, the tax arithmetic is academic. The same applies to lenders and some suppliers who want to see filed accounts before extending credit.
Set against that, the public register cuts both ways. Your accounts and your directors are visible to anyone, competitors included, and small companies file less detail but still file. From 2026, Companies House identity verification applies to directors and people with significant control, which our guide to the real deadline covers in detail.
If you decide to go ahead
The registration itself is the short part. You will need a company name ending in Limited or Ltd that is not already taken, a UK registered office address that appears on the public record, at least one director and one shareholder, a SIC code for your activity, and the details of anyone with significant control. File online with Companies House for £100 and expect approval within 24 hours, or post form IN01 with £124 and wait eight to ten days.
Three things follow that people forget. Register for corporation tax with HMRC within three months of starting to trade. Open a business bank account, because company money is legally not your money and mixing them creates problems you will pay an accountant to unpick. And diarise the annual filings: accounts, the confirmation statement and the CT600, all due whether or not the company traded.
On the registered office address: it is published. Using your home puts your address on a public database that is indexed and scraped. A service address solves this, and is one of the reasons people use a formation agent rather than filing directly.
Set Up a Limited Company — FAQ
How much does it cost to set up a limited company?
Registering with Companies House costs £100 online, approved within 24 hours, or £124 by post on form IN01 with an eight to ten day wait. That is the whole state cost. The real expense is annual: a limited company accountant runs £500 to £1,500 a year for a small company, and compliance-only packages covering year-end accounts and the corporation tax return start around £1,000. A sole trader doing self-assessment pays £150 to £600. Budget the difference, not the £100.
Can I set up a limited company myself?
Yes. The Companies House online service takes most people under an hour, and you need a company name, a UK registered office address, at least one director, at least one shareholder (the same person is fine), a SIC code describing your activity, and details of anyone with significant control holding over 25%. Nothing requires a solicitor or an accountant. Formation agents exist to bundle the registered address and the follow-on filings, not to unlock anything you cannot do yourself.
Is it worth becoming a limited company?
On tax alone, less often than it used to be. Dividend rates rose in April 2026 to 10.75%, 35.75% and 39.35%, which narrowed the gap, and the extra accountancy cost of £500 to £1,000 a year eats a good part of what remains. The non-tax reasons are frequently the stronger ones: limited liability separating company debts from your personal assets, and clients or agencies who will only contract with an incorporated supplier.
Do you pay less tax as a limited company?
It depends on profit level and how you extract the money. A company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief tapering between the two. You then pay personal tax on what you take out. A sole trader pays income tax and Class 4 National Insurance on everything, giving an effective marginal rate of 26% in the basic band and 42% in the higher band. The company route wins when you can leave profit in the business or extract it efficiently; it wins by less than it did before April 2026.
How do I pay myself from a limited company?
The common pattern is a small salary up to the National Insurance threshold, which is deductible against corporation tax, topped up with dividends from post-tax profit. Dividends carry a £500 allowance and then 10.75%, 35.75% or 39.35% depending on your band. You cannot simply take money out: payments that are neither salary, dividend nor a documented expense become a director's loan, with its own tax consequences if not repaid in time.
What are the downsides of a limited company?
Your accounts and your directors are on the public register at Companies House, so turnover and the names behind the business are visible to anyone, competitors included. You file annually whether or not you traded. Money in the company is not yours to spend freely. And from 2026 Companies House identity verification applies to directors and people with significant control, adding a step that did not exist before.
Disclaimer: OpenEntity is a company formation service and does not provide tax or legal advice. Rates cited are those in force for 2026/27 at publication. Whether incorporating suits you depends on your profit, your withdrawal needs, your other income and your risk exposure. Put your own figures to a qualified accountant before deciding.
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