Sole Trader vs Limited Company for a UK SaaS (2026-27)

Short answer: Start as a sole trader if you are a UK solo founder with a small or pre-revenue SaaS and you plan to take out most of what it earns. On 2026-27 rates that is often the cheaper option as well as the simpler one. Form a limited company when liability, retained profit or a future sale matters more than paperwork.

Every rate, fee and threshold below comes from gov.uk, Companies House or Apple, checked on 9 Nov 2026. The analysis in between is ours and is marked as such. This is general information, not tax or legal advice: talk to an accountant before you decide.

TL;DR#

• Sole trader: start trading without registering first, Income Tax plus Class 4 NI at 6% (then 2%) on profits (gov.uk). You are personally liable for business debts.
• Limited company: £100 to incorporate online (Companies House fees), Corporation Tax at 19% to 25%, dividends taxed again at 10.75% or 35.75% from 6 April 2026 (gov.uk). Liability is limited.
• Tax: in our worked example, taking out all profit, the sole trader keeps more at both £30,000 and £50,000 profit.
• Admin: a company means director ID verification, a yearly confirmation statement, public filings and annual accounts.
• Both: VAT at £90,000 taxable turnover. Making Tax Digital for Income Tax hits sole traders, not companies.

Disclosure: ZeroRaised is a launch site for bootstrapped products. We have no relationship with HMRC, Companies House, any accountant or any formation agent, and earn nothing from your choice. Facts come from the linked sources as checked on 9 Nov 2026.

Sole trader vs limited company at a glance#

Sources: Set up a business, Become a sole trader, Register your company, Companies House.

How each structure is taxed in 2026-27#

Sole trader#

Your SaaS profit is added to your other income and taxed through Self Assessment. For 2026-27 the standard Personal Allowance is £12,570, the basic rate is 20% up to £50,270, the higher rate is 40% up to £125,140 and the additional rate is 45% above that (Income Tax rates). The allowance shrinks by £1 for every £2 of adjusted net income above £100,000.

On top of that you pay Class 4 National Insurance: "6% on profits over £12,570 up to £50,270; 2% on profits over £50,270" for 2026-27 (self-employed NI rates).

Class 2 has changed. If your profits are £7,105 or more, Class 2 contributions "are treated as having been paid to protect your National Insurance record", so you do not pay them. Below that you can choose to pay voluntary Class 2 at £3.65 a week.

Limited company#

The company pays Corporation Tax on its profit. The small profits rate is 19% for profits of £50,000 or less, the main rate is 25% above £250,000, and marginal relief applies in between (Corporation Tax rates). Those limits are divided between associated companies, so if you run two SaaS companies they share the thresholds (marginal relief guidance).

Then you pay personal tax when you take the money out. From 6 April 2026 to 5 April 2027, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band, after a £500 dividend allowance (Tax on dividends).

Most solo directors take a small salary plus dividends. We cover that mechanic, and a full worked pay example, in how to pay yourself as a solo founder, so we will not repeat it here. The short version: a salary at or below the £5,000 employer secondary threshold avoids employer NI (employer rates 2026-27), and the rest comes out as dividends.

Worked example: £30,000 and £50,000 profit#

This is an illustration using the 2026-27 rates cited above, not advice. It assumes a single founder with no other income, a full Personal Allowance, a company with no associated companies, a £5,000 director salary (no employer or employee NI, as it sits below both thresholds) and all remaining post-tax profit paid out as dividends. It ignores pension contributions, student loans, accountant fees, the Companies House fees, allowable expense differences and the State Pension effect of a low salary.

How we got there, at £30,000: the sole trader pays 20% tax and 6% Class 4 on £17,430. The company pays 19% on £25,000 (profit after salary), then pays out £20,250 in dividends; £7,570 uses the rest of the Personal Allowance, £500 is the dividend allowance, and £12,180 is taxed at 10.75%. The £50,000 row follows the same steps.

Our read: at these profit levels the sole trader keeps about £1,500 to £1,900 more. The reason is simple arithmetic: in the basic rate band, a sole trader pays 26% (20% tax plus 6% Class 4) on each extra pound, while a company pays 19% Corporation Tax and then 10.75% on the dividend, which works out at roughly 27.7%.

Where the company does win is retained profit. Money left in the company is taxed only at Corporation Tax rates (19% to 25%), while a sole trader pays personal rates on all profit, spent or not. Into the higher rate band, that gap (40% plus 2% vs 19% to 25%) is real, though dividend tax still applies when you take the money out later. Run your own numbers with an accountant, including pensions.

Costs and admin#

Sole trader. gov.uk says "You can start trading straight away without registering", but you must register for Self Assessment "if you earn more than £1,000 in a tax year" (Become a sole trader). For the 2025-26 tax year the deadline to tell HMRC was 5 October 2026, and "If you tell HMRC after 5 October 2026, you could get a penalty" (Register for Self Assessment). Our reading: if you started trading in 2026-27, the same rule points to 5 October 2027.

Making Tax Digital for Income Tax now applies to sole traders. If your qualifying income was over £50,000 in 2024-25 you should have started from 6 April 2026; over £30,000 in 2025-26 means from 6 April 2027; over £20,000 in 2026-27 means from 6 April 2028 (MTD eligibility). Plan your bookkeeping software around it before you cross the threshold. A limited company is not in scope for MTD for Income Tax.

Limited company. Companies House charges £100 to incorporate online or through software (£156 same day via software) and £124 on paper (fees). Online registration is "usually registered within 24 hours" (Register your company). Then each year:

• Confirmation statement: at least one every 12 months (guidance), £50 online for the first in each 12 month period. Not filing can mean a fine of up to £5,000 and the company being struck off.
• Accounts: first accounts are due 21 months after registration, then 9 months after each financial year end (annual accounts).
• Identity verification: "Identity verification is now a legal requirement" for directors and people with significant control. Existing directors give their personal code in the next confirmation statement, and the company "will be unable to file its confirmation statement unless all its directors are verified" (ID verification).
• Public register: Companies House says it registers company information "and make[s] it available to the public" (Companies House). Competitors and customers can look up your filings.

You will also need a separate business bank account for a company, since the money is not yours. See our business bank account comparison.

VAT and selling abroad#

Both structures follow the same VAT rule: you must register if taxable turnover "for the last 12 months goes over £90,000", or if you expect to exceed it in the next 30 days (VAT registration). You can register voluntarily below that.

Selling to consumers abroad can trigger VAT or sales tax elsewhere whatever your UK structure. See sales tax for SaaS solo founders.

Liability and B2B contracts#

This is the non-tax reason to incorporate. gov.uk is blunt: as a sole trader, "You are personally responsible for all of the debts of the business". Company owners are responsible "only up to the value of their financial investment" (Set up a business).

Our read: for a self-serve SaaS with card payments and sensible terms, the debt risk is small. It grows with B2B contracts carrying indemnities or uptime commitments, leases, or hiring. Limited liability is not a blanket shield: directors can be "fined, prosecuted or disqualified" if they do not meet their responsibilities (Running a limited company).

App stores and selling later#

App stores. Apple lets you enrol as an individual or an organisation. As a sole proprietor "you must join as an individual and your legal name will appear as the seller", while organisations show the legal entity name and need a D-U-N-S Number (Apple enrollment). The programme is 99 USD per membership year (Apple). Our read: if you would rather not have your personal name on the App Store listing, that alone can push you to a company.

Selling. A sole trader sells the business assets (code, domain, contracts). A company owner can sell shares, which moves everything at once, liabilities included. Business Asset Disposal Relief can apply to either if its 2 year conditions are met (for shareholders, that includes holding at least 5%), at "18% on all gains on qualifying assets disposed of from 6 April 2026" (BADR).

Decision checklist#

Our editorial advice, not tax advice.

Lean sole trader if:

• You are pre-revenue or profit is under the higher rate band.
• You need to take out most of what the business makes.
• You sell self-serve subscriptions with low contractual risk.
• You want the least admin while you look for product-market fit.

Lean limited company if:

• You are signing B2B contracts with indemnities or liability clauses.
• Profit is into the higher rate band and you can leave some in the business.
• You want your personal name off the App Store and public invoices.
• You plan to sell, bring in a co-founder, or give someone shares.
• You are hiring and want the employer to be the company, not you.

If you are in the US, the equivalent decision is LLC vs C corp.

How to switch from sole trader to limited company#

gov.uk says "You can move from one business structure to another. It's usually easier to move from being a sole trader to a limited company" (Set up a business). Our order of steps:

1. Verify your identity with GOV.UK One Login and get your personal code.
2. Register the company at Companies House (£100 online).
3. Open a business bank account in the company's name.
4. Move the business into the company: domain, code and IP (assign them in writing), customer contracts, Stripe or merchant of record account, app store account.
5. Tell HMRC you have stopped self-employment and send a final tax return. If you are VAT registered, gov.uk says you must cancel that registration as a sole trader (Stop being self-employed). Ask an accountant how to handle VAT for the new company and the transfer of the business.
6. Update your terms of service, privacy policy and invoices with the company name and number.

Our read: switch at a quiet point, not mid-launch.

Frequently asked questions#

Should a UK SaaS founder be a sole trader or a limited company?#

If you are pre-revenue or small and plan to take out most of the profit, a sole trader is simpler and, on 2026-27 rates, often cheaper. Choose a limited company if you need limited liability for B2B contracts, want to leave profit in the business, or plan to sell the company. This is general information, not tax advice.

Is a limited company more tax efficient in 2026-27?#

Not automatically. With dividend rates at 10.75% and 35.75% from 6 April 2026 and Corporation Tax at 19% to 25%, our illustration found a sole trader kept more at £30,000 and £50,000 profit when all profit is taken out. A company helps when profit is retained, which defers personal tax.

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

Companies House charges £100 to incorporate online or through software and £124 by post. The confirmation statement costs £50 online for the first statement in each 12 month period. Every director must verify their identity with GOV.UK One Login.

When do I need to register as a sole trader?#

gov.uk says you can start trading straight away, but you must register for Self Assessment if you earn more than £1,000 in a tax year. For the 2025-26 tax year, the deadline to tell HMRC was 5 October 2026, with a possible penalty for late registration.

Can I switch from sole trader to limited company later?#

Yes. gov.uk says you can move between structures and that moving from sole trader to limited company is usually easier. You register the company, tell HMRC you have stopped self-employment, file a final return, and move contracts, payment accounts and IP into the company.

Launch it, whatever the structure#

Your legal structure does not need to be final before your first customer. When your SaaS is ready, submit it to ZeroRaised for free and get it in front of people who back bootstrapped products. For more guides on building without investors, join the ZeroRaised newsletter.

Sources#

All last checked 9 Nov 2026.

• Income Tax rates and Personal Allowances, gov.uk
• Self-employed National Insurance rates, gov.uk
• Corporation Tax rates, gov.uk
• Marginal Relief for Corporation Tax, gov.uk
• Tax on dividends, gov.uk
• Rates and thresholds for employers 2026 to 2027, gov.uk
• Become a sole trader, gov.uk
• Register for Self Assessment, gov.uk
• Check if you're eligible for Making Tax Digital for Income Tax, gov.uk
• VAT registration: when to register, gov.uk
• Set up a business (legal structures), gov.uk
• Stop being self-employed, gov.uk
• Companies House fees, gov.uk
• Register your company, gov.uk
• Verifying your identity for Companies House, gov.uk
• Confirmation statement guidance, gov.uk
• Prepare and file annual accounts, gov.uk
• Running a limited company, gov.uk
• Companies House, gov.uk
• Business Asset Disposal Relief, gov.uk
• Apple Developer Program enrollment and enrollment support, Apple