Last updated: 14 October 2026
Are you employed or self-employed if you have a limited company?
If you trade through your own limited company, you aren’t self-employed. The company is a separate legal person that runs the business. You’re usually a director and shareholder, and if you take a salary you’re an employee of the company for tax purposes, paid through PAYE. Profits belong to the company and are taxed with corporation tax. You take money out as salary, dividends or pension contributions, not as self-employed drawings.
Sole trader vs company owner
| Point | Sole trader | Limited company director |
| Legal status | You are the business | The company is separate |
| How profits are taxed | Income tax and Class 4 NIC on all profits | Corporation tax at 19% to 25% on company profits |
| How you’re paid | Drawings, which aren’t taxed separately | Salary through PAYE, dividends, pension contributions |
| Tax return | Self Assessment with self-employment pages | Company files a CT600 and accounts; you usually file Self Assessment for dividends |
| Liability | Unlimited personal liability | Usually limited to your shares, unless you give guarantees |
Why the difference matters
- Tax: company profits are taxed first, then dividends are taxed on you, at 10.75%, 35.75% or 39.35% above the £500 allowance in 2026/27.
- Employment rights: directors aren’t automatically employees for employment law, but are office holders taxed under PAYE.
- Benefits: Universal Credit and mortgage lenders look at your salary and dividends, not company profits.
- IR35: if you work for clients through your company in a way that looks like employment, the off-payroll rules may apply.
Example
Kieran incorporates his plumbing business in 2026. His company makes £60,000 profit before his pay. It pays him a salary of £12,570 and employer NIC, then corporation tax on the rest. He takes dividends from what’s left. He’s not self-employed any more, so he doesn’t pay Class 4 NIC, but he files a Self Assessment return for his dividend income.
Can you be both?
Yes. You can run a limited company and also be a sole trader in a separate business, such as letting a holiday cottage or freelance writing. Each has its own tax treatment. Keep the businesses’ finances completely separate.
Director’s National Insurance
Directors have an annual earnings period for Class 1 NIC, so NIC is worked out on total pay for the year, not each month. Many directors take a salary around the Personal Allowance and the rest as dividends.
Common mistakes
- Taking company money as “drawings” without recording a salary, dividend or director’s loan
- Treating company income as your own on a self-employed return
- Paying dividends without enough retained profits
Records to keep
Keep a record of salary paid, dividends declared, board minutes, dividend vouchers and your director’s loan account. HMRC can ask for these if it checks your company or personal return. Good records also show clearly that money you took was salary or dividend, not an overdrawn loan.
Frequently asked questions
Do I need to register as self-employed if I have a company?
No, unless you also have a separate sole trade.
Is a contractor company director self-employed?
No; they’re a director, and possibly within IR35.
Can my company employ me part-time?
Yes, salary can reflect the hours you work.
Do I need a P60?
Yes, if you’re paid a salary through payroll.
Related: employment or self-employment, the director’s loan tax charge and whether a director with no income needs a return.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with employment status for company owners. See our sole trader accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
