Working as a sole trader
As a sole trader, you and your business are legally the same. You register for Self Assessment with HMRC, keep records and pay Income Tax and National Insurance on your profits through your tax return.
- Quick and free to set up, with less paperwork.
- You keep all the profits after tax.
- You are personally responsible for business debts and liabilities.
- From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must use Making Tax Digital for Income Tax, with the threshold falling to £30,000 from April 2027 and £20,000 from April 2028.
Working through a limited company
A limited company is a separate legal entity. You register it with Companies House, become a director (and usually shareholder), and the company contracts with your clients.
- Limited liability: the company, not you personally, is usually responsible for its debts.
- The company pays Corporation Tax on its profits. Small profits up to £50,000 are taxed at 19%, profits over £250,000 at 25%, with marginal relief in between.
- You pay yourself through salary and dividends, which can be tax-efficient, but the rules are detailed.
- More admin: annual accounts, a confirmation statement, Corporation Tax returns and director duties.
- The off-payroll working rules (IR35) apply when you work through your company.
What construction clients expect
Many main contractors and agencies engage freelance professionals through limited companies, and some will only work that way. Others pay sole traders under the Construction Industry Scheme (CIS). Ask your likely clients early, because it can affect how you are paid and what paperwork they need from you.
How to decide
- Estimate your annual profit and talk it through with an accountant: the tax difference depends on your numbers.
- Ask your main clients and agencies how they prefer to engage freelancers.
- Think about risk: limited liability matters more if your work carries significant financial exposure (you will still need suitable insurance).
- Be honest about admin: a limited company takes more time, or more accountancy fees.
You can start as a sole trader and incorporate later. Whatever you choose, keep your invoices, expenses and mileage organised from day one.
This guide is general information for UK freelancers, checked against the official sources below on the review date. It is not tax, legal or financial advice. Rules change, so check the sources or speak to a qualified adviser about your own situation.