UK business structures in 2026: pick the right one for what you do

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You are starting or moving a business to the UK, and you need to pick a structure. This guide compares the main UK legal forms in 2026, shows what each costs in tax, and flags the traps for owners who live abroad.

United Kingdom legal forms of business in 2026: the key figures

Is this guide for you?

Read on if you…

• freelance or consult and wonder whether a Ltd is worth it
• are a founder choosing between an LLP, a Ltd and a foreign company
• live outside the UK but want a UK company for clients or credibility

Probably not your case if you…

• need a regulated structure, such as a bank, insurer or fund – that needs specialist advice
• run a charity – charitable incorporated organisations follow separate rules

What are the main UK business structures?

Sole trader

You and the business are the same person. You register with HMRC for Self Assessment by 5 October after your first tax year. Profits are taxed as your income at 20%, 40% or 45%, plus Class 4 National Insurance at 6% and 2%. No registration fee, no accounts filed publicly. But your liability is unlimited.

Partnership and LLP

An ordinary partnership is two or more sole traders working together, with unlimited liability. A limited liability partnership (LLP) is registered at Companies House. It shields members from business debts but is taxed like a partnership: each member pays income tax on their share. You need at least two designated members.

Private limited company (Ltd)

A Ltd is a separate legal person under the Companies Act 2006. Your liability is limited to your share capital. The company pays corporation tax on profits. You then take a salary, dividends or both. You need at least one director who is a natural person, a registered office in the UK and a registered email address.

Public limited company (PLC)

A PLC can offer shares to the public. It needs £50,000 of share capital, 25% paid up, two directors and a qualified company secretary. Rarely the right choice for a solo business.

Which structure fits what you do? The comparison matrix

Honestly? For most solo freelancers under £50,000 profit, a sole trader is cheaper and simpler. A Ltd starts to pay off when you can leave profits in the company.

How much tax do you really pay: sole trader vs Ltd?

As a sole trader, every pound of profit is taxed as income in the year you earn it. In a Ltd, profit is taxed at corporation tax rates first. You pay personal tax only on what you take out.

Here's the catch. From April 2026, dividend tax rose by 2 points in the basic and higher bands. Taking all profit out of a Ltd can now cost more than staying a sole trader. The saving comes from retaining profits, pension contributions paid by the company and timing.

For which costs you can deduct, see our UK business expenses guide. Larger companies should also check the specific taxes in the UK, such as VAT and stamp duty.

Can you run a UK company from abroad?

Yes. There is no nationality or residence rule for directors or shareholders. You need a UK registered office, often a service address, and identity verification through Companies House or an authorised agent.

But two tax rules can bite.

Management and control

A UK-incorporated company is always UK tax resident. If you, the sole director, live and decide everything in another country, that country may also treat the company as resident. This is central management and control – basically where the key decisions are taken. The tax treaty then decides, often by where effective management sits.

Permanent establishment

The reverse also applies. If you live in the UK and run a foreign company from your laptop, the UK may say that company has a permanent establishment – a taxable presence – here. It can even become UK resident. Our UK international tax treaties guide explains the treaty rules.

If you are setting up in the UK or abroad, Heavnn's business setup service can check the structure before you register.

How do you register a UK company, step by step?

1. Choose a company name and check it is available on Companies House.
2. Verify your identity, and that of every director and person with significant control.
3. Prepare the memorandum and articles – the model articles work for most small companies.
4. Register online with Companies House; you get a certificate of incorporation, usually within 24 hours.
5. Register for corporation tax with HMRC within 3 months of starting to trade.
6. Register for VAT if turnover passes £90,000, and for PAYE if you pay salaries.

Common mistakes (and what they cost)

• Forming a Ltd too early → admin and accountancy fees exceed the tax saved below about £40,000–£50,000 of profit.
• Taking all profit as dividends → since April 2026, full extraction often costs more tax than a sole trader.
• Running a UK Ltd from abroad without a plan → the company can become resident in your new country, creating double tax.
• Skipping identity verification → directors who fail to verify can be fined and the company's filings blocked.
• Treating company money as yours → an overdrawn director's loan account triggers a temporary company tax charge, set at the upper dividend rate, if not repaid within 9 months of year end.

Frequently asked questions

Is a sole trader or a limited company better in the UK?

It depends on your profit and needs. A sole trader is cheaper and simpler, and often better below about £50,000 profit. A Ltd gives limited liability and lets you retain profits at corporation tax rates. Since April 2026, higher dividend tax has narrowed the gap for owners who take everything out.

How much does it cost to set up a UK limited company?

Registering online with Companies House costs about £100 after the February 2026 fee increase. You also file an annual confirmation statement for a fee, plus annual accounts and a corporation tax return. Most owners pay an accountant between £1,000 and £3,000 a year, depending on complexity.

Can a non-resident be a director of a UK company?

Yes. There is no residence or nationality requirement. You must verify your identity with Companies House and provide a UK registered office. Opening a UK business bank account can be harder, so many non-residents use digital banks. Watch where you take key decisions, as it affects where the company is taxed.

Do I pay tax twice with a limited company?

In a sense, yes. The company pays corporation tax on its profit, then you pay dividend tax on what you take out. Dividend rates are set lower than income tax rates to reflect this. Salary, pension contributions and retained profits change the balance.

What is the difference between an LLP and a Ltd?

Both give limited liability and file public accounts. An LLP is tax transparent: each member pays income tax on their share of profit, whether or not it is drawn. A Ltd pays corporation tax and you are taxed only on what you take out. LLPs suit professional partnerships; a Ltd suits most solo founders.

Related guides

• UK business expenses guide
• Specific taxes in the UK
• UK international tax treaties
• UK tax landscape overview
• Legal forms of business in Ireland
• Legal forms of business in Canada
• All country tax guides

Sources

• GOV.UK – Set up a business
• GOV.UK – Set up a limited company
• Companies House
• GOV.UK – Corporation Tax rates and reliefs
• Companies Act 2006
• GOV.UK – VAT registration

This guide is general information, not personalised tax advice. See how we research and review.