Trading as a sole trader in the UK costs nothing to set up beyond telling HMRC you exist. Forming a limited company is not much harder, and Companies House clears most online applications the same day. Here's how the process actually runs in 2026.
1. Sole trader, partnership, or limited company
Almost every new UK business falls into one of three categories.
- Sole trader. Legally indistinguishable from the business itself. No registration fee, just a notification to HMRC that you're self-employed. It's the cheapest and least paperwork-heavy option, but every debt is yours personally, and all profit is taxed at your personal Income Tax rate.
- Business partnership. Two or more people running the business jointly, with liability normally shared between the partners.
- Limited company (Ltd). A legal entity distinct from its directors and shareholders. That separation gives you limited liability, and Corporation Tax rates tend to undercut the higher bands of personal Income Tax.
Profit is usually what settles the question. Once it consistently clears somewhere around £30,000 to £35,000 a year, the Corporation Tax saving typically starts to outweigh the extra admin that comes with running a company; below that, sole trader status is usually simpler and cheaper.
2. Registering the business
Sole traders
No fee changes hands here. What matters is registering for Self Assessment with HMRC, generally by 5 October following the tax year you started trading, so that HMRC is expecting a return from you. Trading under a different name is fine without any separate registration, provided the name isn't offensive or too close to one already in use.
Limited companies
Registration happens online through Companies House. It costs £100 online, £124 by post, or £156 if you need same-day software filing, and online submissions are usually approved within 24 hours. You'll need a unique name ending in "Limited" or "Ltd," a UK registered office address, at least one director and one shareholder (the same person can fill both roles), and a SIC code identifying what your business actually does. As of November 2025, every director must also pass identity verification with Companies House before the appointment goes through. Filing online tends to set up Corporation Tax with HMRC automatically as part of that same process, sparing you a separate errand down the line.
3. Getting your UTR
Your Unique Taxpayer Reference (UTR) is the 10-digit number HMRC uses to track you for tax purposes, and it costs nothing to obtain. Sole traders get theirs on registering for Self Assessment. Limited companies get one automatically on registering for Corporation Tax, either as part of the online incorporation itself or, if not, separately within three months of trading starting, since Companies House incorporation on its own doesn't tell HMRC your company exists.
4. Licenses and permits
There's no blanket national business license in the UK. What applies to you hinges on your industry and your local council: certain trades and premises need council-level licensing (food businesses, alcohol sales, street trading among them), regulated professions answer to their own authorization body, and some sectors carry further national permits on top of that. Confirm the specifics with your local council and the relevant industry regulator.
5. Income Tax, Corporation Tax, and VAT
Sole traders pay Income Tax on profit above the £12,570 Personal Allowance: 20% up to £50,270, 40% up to £125,140, and 45% beyond that. Alongside Income Tax comes Class 4 National Insurance, 6% on profits between £12,570 and £50,270, then 2% above that band. Compulsory Class 2 National Insurance was scrapped from April 2024, though paying it voluntarily is still an option if your profits sit below the Small Profits Threshold and you want to protect your State Pension record.
Limited companies pay Corporation Tax in place of Income Tax: 19% on profits up to £50,000, a tapered marginal rate between £50,000 and £250,000, and 25% once profits pass £250,000. Directors commonly take a combination of salary and dividends, since dividend tax rates generally sit below the Income Tax rates that apply to salary.
VAT registration kicks in once taxable turnover passes £90,000 in any rolling 12-month period, at which point the standard 20% rate applies, alongside reduced rates for particular goods and services.
6. Staying compliant
Companies House expects a Confirmation Statement once a year from every limited company, confirming that your company details are still accurate, for a £34 fee. Separately, a CT600 Corporation Tax return is due within 12 months of your year end, with the tax bill itself payable 9 months and 1 day after year end, and annual accounts also go to Companies House. Directors drawing salary or dividends will additionally file a personal Self Assessment return by 31 January each year, the same deadline that applies to sole traders filing their own return.
United Kingdom business costs at a glance
| Item | Cost |
|---|---|
| Sole trader registration | Free (register for Self Assessment) |
| Limited company incorporation | £100 online / £124 post / £156 same-day |
| Confirmation statement (every year) | £34 |
| UTR | Free |
| Corporation tax (profits up to £50,000) | 19% |
| Corporation tax (profits above £250,000) | 25% |
| VAT registration threshold | £90,000 turnover |
| VAT (standard rate) | 20% |
Frequently asked questions
How much does it cost to register a limited company in the UK?
£100 online through Companies House (£124 by post, £156 for same-day filing), plus a £34 Confirmation Statement due every year to stay in good standing.
Do I need a UK address to register a company?
Yes. Every limited company needs a UK registered office address. A sole trader doesn't need one to register, only once actually trading under a business address.
What's the corporation tax rate in the UK?
19% on profits up to £50,000, tapering through marginal relief to 25% on profits above £250,000.
When do I need to register for VAT in the UK?
Once taxable turnover exceeds £90,000 in any rolling 12-month period. The standard VAT rate is 20%.
Is a sole trader or limited company better for a small UK business?
Sole trader is cheaper and simpler below roughly £30,000 to £35,000 in annual profit. Above that range, the lower Corporation Tax rate compared to higher-rate Income Tax usually makes the extra admin of a limited company worthwhile.
Fees and rates above come from Companies House and HMRC as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to a UK-qualified accountant or solicitor about your specific situation.