Sole trader or limited company?

The short comparison

A sole trader is an individual who runs a business in their own name or a trading name. A limited company is a separate organisation owned by shareholders and run by directors. mygov.scot sets out the registration difference: sole traders register for Self Assessment, while a limited company registers with Companies House and is set up for Corporation Tax.

Rules and rates change, so confirm the figures that matter to you with HMRC, the council or an adviser.

Being a sole trader

According to GOV.UK sole trader guidance, a sole trader is self-employed and makes all the business decisions, either as their only job or alongside employment. The page states that sole traders have unlimited liability, so they are personally responsible for all business debts, and says business insurance may give extra protection.

The same page says you can start trading without registering. You must register for Self Assessment if you earn more than £1,000 in a tax year, which runs from 6 April to 5 April, and you can register earlier. You must keep records from the day you start trading, because they feed your profit or loss figure for the tax return.

One related point for food traders: the GOV.UK guidance on starting a food business tells self-employed food traders to register as self-employed with HMRC even if the work is part-time. If you sell food, confirm with HMRC whether your earnings fall under the £1,000 allowance before relying on it.

HMRC registration deadlines

The GOV.UK Self Assessment registration page says you must tell HMRC by 5 October following the end of the tax year in which you started trading, if you need to file a return. For the 2025 to 2026 tax year, which ran from 6 April 2025 to 5 April 2026, the page gives 5 October 2026. It warns of a penalty if you tell HMRC after that date.

The same rule applies to later years. A trader who starts in the 2026 to 2027 tax year would register by 5 October 2027. The GOV.UK registration steps page states that if you register on or before 5 October 2026, you must send your tax return and pay your tax by 11:59pm on 31 January 2027.

• Register online through HMRC's service, or post form CWF1.
• Your Unique Taxpayer Reference appears in your personal tax account within 72 hours of online registration, according to GOV.UK.
• By post, GOV.UK says the reference usually arrives within 15 working days, or 21 days from abroad.
• If you register after 5 October, HMRC will confirm your return deadline by email or letter.

The £1,000 trading allowance

According to GOV.UK guidance on tax-free trading income, individuals get up to £1,000 a year of tax-free trading income, available since 6 April 2017. If your gross trading income is £1,000 or less, you generally do not need to tell HMRC, although you must keep records. Gross income means the total before any expenses are taken off.

If your income is over £1,000, you can use the allowance in place of deducting expenses, up to £1,000 and never more than your income. You cannot claim the allowance and deduct other expenses. The page says that if your expenses are higher than your income, claiming expenses may be better. It also lists situations where the allowance is not available, including income from a company you or a connected person controls, and income from a partnership.

Note that sales over £1,000 mean you must register for Self Assessment even if you choose the allowance.

NABMA made the same point to seasonal traders in a November 2025 article supporting HMRC's Help for Hustles campaign. It stresses that the £1,000 covers all trading income combined, so £700 from a craft stall plus £400 from a food stall comes to £1,100 and means registering. NABMA's legal and policy advisor, Graham Wilson OBE, is quoted as urging first-time and pop-up traders to understand their tax responsibilities. The article describes making goods to sell, buying stock to resell at a profit and running a stall at a Christmas market as likely to count as trading.

Class 2 and Class 4 National Insurance

The GOV.UK self-employed National Insurance rates page for the 2026 to 2027 tax year lists the following. Class 2 is £3.65 a week. If your profits are £7,105 a year or more, Class 2 contributions are treated as paid to protect your National Insurance record, so you do not have to pay them. Below that level nothing is due, and you can choose to pay voluntary Class 2 contributions.

As an arithmetic example using those rates, a trader with £30,000 of profit pays Class 4 on £30,000 minus £12,570, which is £17,430. At 6% that is £1,045.80.

Income Tax rates and bands, 2026 to 2027

As of 6 November 2026, the GOV.UK Income Tax rates and bands page covers the tax year from 6 April 2026 to 5 April 2027. The bands below apply to England, Wales and Northern Ireland and assume the standard Personal Allowance. GOV.UK says the bands differ for people living in Scotland, and points to a separate Scottish rates page.

GOV.UK adds that the Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000, and is nil on income over £125,140. Sole traders pay these rates on profit after allowable expenses or the trading allowance. For a trader with £30,000 of profit and no other income, £30,000 minus the £12,570 allowance leaves £17,430, and 20% of that is £3,486 of Income Tax, on top of the £1,045.80 of Class 4 above. That is an illustration only, so ask HMRC or an accountant about your own position.

Being a limited company director

The GOV.UK limited company guidance says you must appoint a director, you do not have to appoint a company secretary, and you need at least one shareholder, who can also be a director. Anyone holding more than 25% of shares or voting rights is a person with significant control, which you confirm when you register.

The Companies House fees page on GOV.UK lists £100 to incorporate online and £124 on paper, with an annual confirmation statement at £50 online. It was last updated on 25 September 2026.

nibusinessinfo.co.uk says a company must register for Corporation Tax within three months of starting to trade, that buying, selling, advertising, renting premises and hiring staff all count as trading, and that late registration can bring a penalty. It also says a Company Tax Return is due every year, even if the company made a loss.

The GOV.UK Corporation Tax rates page lists the main rate at 25% and a small profits rate of 19% for profits of £50,000 or less. Profits between £50,000 and £250,000 may qualify for marginal relief.

On pay, mygov.scot notes that directors are also employees, so personal and business income are taxed separately. The GOV.UK tax on dividends page lists a £500 dividend allowance for 2026 to 2027, with dividend tax at 10.75% at the basic rate, 35.75% at the higher rate and 39.35% at the additional rate.

Making Tax Digital for Income Tax

Sole traders may face a further admin change. The GOV.UK Making Tax Digital guidance says people with qualifying income over £50,000 (judged on the 2024 to 2025 tax year) should have started on 6 April 2026. The threshold is £30,000 (judged on 2025 to 2026) from 6 April 2027 and £20,000 (judged on 2026 to 2027) from 6 April 2028. HMRC reviews your Self Assessment return each year and writes to confirm when you need to start.

Qualifying income is measured against its own rules, which GOV.UK describes separately. If your trading income is near any of the dates above, ask an adviser to check where you stand.

Which fits an event trader?

A sole trader set-up suits a lot of new traders: no formation fee, one HMRC registration and simple records. A limited company becomes worth discussing when profits are high enough that the Corporation Tax route could change what you keep, when liability worries you, or when a customer or organiser asks for a company. Questions to put to an accountant:

• At what profit level would a company save tax once the extra accounts and filings are counted?
• What does the company structure mean for my personal risk as a director?
• Do organisers and insurers need the pitch application and policy in a particular name?
• If I move from sole trader to company later, what happens to stock, kit and existing contracts?

Moving later is possible, so starting as a sole trader does not close the door.

Checklist

1. Estimate your first-year gross sales and profit.
2. If sales will pass £1,000, plan to register for Self Assessment by 5 October after the end of your first tax year.
3. Keep sales and expense records from the first pitch.
4. Check whether you can use the trading allowance or should claim expenses.
5. Decide on a company only after speaking to an accountant about your profit level.
6. Read our guide on whether to register for VAT if sales may reach the threshold.