Last updated: 16 October 2026
What is the best way to structure a new business?
For most new businesses, the choice is between a sole trader, a partnership, a limited company or a limited liability partnership. Sole trader status is simplest and cheapest, and suits low-risk businesses and those testing an idea. A limited company protects your personal assets and can be more tax-efficient once profits are well above what you need to live on. Partnerships and LLPs suit two or more people running a business together. The right answer depends on risk, profit, funding plans and how much admin you’re willing to take on.
Comparing the main structures
| Structure | Liability | Tax | Admin |
| Sole trader | Unlimited | Income tax and Class 4 NIC on profits | Self Assessment only |
| Partnership | Unlimited, shared | Each partner taxed on their share | Partnership return plus individual returns |
| LLP | Limited | Members taxed on their shares | Partnership return, Companies House accounts |
| Limited company | Limited | Corporation tax 19% to 25%, then tax on salary and dividends | Accounts, CT600, payroll, confirmation statement |
Questions to ask
- How risky is the business? Could you face large claims or debts?
- Will profits be more than you need to draw?
- Will you need outside investment (SEIS, EIS, shares)?
- Do you want to bring in family members as owners?
- How much time do you want to spend on admin?
Example
Two friends start a gardening business, expecting £40,000 profit between them in the first year. They start as a partnership, filing a partnership return and paying tax on £20,000 each. In year 3, profits reach £150,000 and they want to buy machinery and hire staff. They incorporate a company, take modest salaries and dividends and leave the rest in the company at corporation tax rates.
Tax in 2026/27
Dividend tax rose by 2 percentage points from 6 April 2026, to 10.75% and 35.75%, which reduces the advantage of a company for owners who draw all their profits. Property income tax and savings rates rise from April 2027. Corporation tax remains at 19% for profits up to £50,000 and 25% above £250,000.
Changing structure later
You can start as a sole trader and incorporate later. Incorporation relief may defer CGT on goodwill, and losses can sometimes be used against income from the new company. Moving the other way, from a company to a sole trade, can trigger tax.
Other considerations
- VAT registration applies once turnover exceeds £90,000, whatever the structure
- MTD for Income Tax applies to sole traders and landlords, not companies
- Companies’ accounts are public
- Lenders and some customers prefer limited companies
Common mistakes
- Incorporating too early for small profits
- Ignoring personal liability as a sole trader
- Not having a partnership or shareholders’ agreement
- Choosing a structure only for tax
Records to keep
Whatever structure you choose, keep separate business bank accounts, invoices and receipts from day one.
Frequently asked questions
Can I run more than one business as a sole trader?
Yes, reporting each on your return.
Can a company have one person?
Yes, as sole director and shareholder.
Is a CIC different?
Yes, community interest companies have asset locks.
Does structure affect National Insurance?
Yes, directors pay Class 1 NIC on salary; sole traders pay Class 4.
Related: whether to incorporate, what an LLP is and SEIS relief.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with business structure advice. See our small business 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 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
