Why should you use a Limited Company as your trading vehicle?

16 June 2026

If you are purely interested in paying the least amount of tax a year, then you trade as an unincorporated business at all levels of profit under the current 2025/2026 tax system.  You would be better off as a sole trader, assuming that, in comparison, if you were to trade as a Limited Company, then every penny of available profit is extracted.

It is unlikely to be the case that every penny of profit is extracted and therefore the following should be considered when making the decision of how you will trade.

Using a Limited Company (LC):

• An LC is a separate legal entity and therefore the veil of incorporation protects your personal assets.  As a sole trader you and the business are one and liable for any debts the business incurs.

• An LC pays corporation tax on its profits, but you can leave these after-tax profits in the company to extract when you require the cash personally.  Corporation tax rates will usually be less than personal tax rates with 25% being the current rate of tax for profits over £50,000 and 19% payable by small companies with profits under £50,000.

• You can pay certain costs through an LC and get tax relief for corporation tax, and there is no benefit in kind on the director.  Corporate pension contributions are a good method of tax planning in your LC.

• You can put costs through your LC by having a contract in a company name which will get corporation tax relief.  You will suffer a benefit in kind on these costs but will only be taxed at your marginal rate of tax.  Costs such as health insurance would fall into this category.  Were you to pay these personally, the whole cost would be paid from taxed income.

• Family members can have shares in your LC so you can pay dividends directly to them

• An LC does not die with the owner like a sole trade business.  A successful LC can be sold or passed down to a family.

It is always advisable to take advice when starting a business as to how you are going to trade.

If you require any assistance setting up a limited company, do get in touch with the Same-Day Company Services team.