Should a builder be a limited company?

Last checked 30-10-2026. A plain guide, not legal advice: check the official guidance below for your job.

A limited company is a separate legal person, so its debts are normally its own and not yours. It can cut the tax on steady, healthy profits, but it brings more paperwork and fixed deadlines, and personal guarantees and insurance still matter. Speak to an accountant before you switch.

Sole trader or limited company: what changes

As a sole trader, you and the business are the same thing. GOV.UK says sole traders have unlimited liability and are personally responsible for all the debts of the business. You keep the profits after tax, and you pay Income Tax and National Insurance on them through Self Assessment.

A limited company is legally separate from the people who own it. The owners are responsible for its debts only up to the value of their investment. The company pays Corporation Tax on its profits, and you take money out as a director and shareholder, usually as a salary and dividends.

Making Tax Digital for Income Tax now applies to sole traders. Those with qualifying income over £50,000 in the 2024 to 2025 tax year had to start on 06-04-2026, the threshold drops to £30,000 from 06-04-2027 and to £20,000 from 06-04-2028. It covers sole traders and landlords. A company pays Corporation Tax instead.

When it is usually worth looking at: profits are steady and more than you need to live on, so some can stay in the company; clients or contractors want to deal with a company; or the jobs are getting bigger and so is the risk. It is less likely to pay when profits are low or swing a lot, because the accountant and the admin cost more. The right answer depends on your figures, so get an accountant to run them. This guide is general information, not advice for your business.

What limited liability does not cover

Personal guarantees. Lenders, finance and hire companies, landlords and merchants opening a trade account may ask a director to guarantee the company's debts personally. If you sign one, you are liable for what it covers, company or not.
Directors' duties. The Companies Act 2006, sections 171 to 177, sets seven general duties: act within your powers, promote the success of the company, use independent judgement, take reasonable care, skill and diligence, avoid conflicts of interest, do not accept benefits from third parties, and declare an interest in a proposed transaction. GOV.UK says a director who does not meet their responsibilities may be fined, prosecuted or disqualified.
The company's money is not yours. GOV.UK says a company must not pay out more in dividends than its available profits, and you must keep records of any directors' loans.
Insurance. You still need it. Employers' liability insurance is compulsory once the company employs people, with cover of at least £5 million. HSE's guide says a company employing only its owner, where that person owns 50% or more of the issued shares, is exempt, but the family business exemption does not apply to limited companies. Public liability and any cover your contracts ask for are still needed.

How to set one up

You register with Companies House. Online it costs £100 by debit or credit card and the company is usually registered within 24 hours. By post, on form IN01, it costs £124 and takes 8 to 10 days. These fees have applied since 01-02-2026. You need:

a company name that is available
at least one director and at least one shareholder (the same person can be both)
the people with significant control, for example anyone with more than 25% of the shares or voting rights
a registered office address and a registered email address
a SIC code, which says what the company does

Identity verification has been a legal requirement since 18-11-2025. Each director and person with significant control verifies once and gets a Companies House personal code. You can verify free through GOV.UK One Login, or through an authorised agent such as an accountant, who may charge. When you register, you give each director's personal code. A person with significant control added after 18-11-2025 gives theirs when added or within 14 days. Do not post or email ID documents to Companies House.

The registered office must be a physical address in the UK, in the same country the company is registered in, and you cannot use a PO box. Post sent there has to reach someone who knows about it, and the sender must be able to get proof of delivery. It goes on the public register, so you can use your accountant's address, with their permission, to keep your home address off it. The registered email address is not published.

Companies House uses a condensed list of SIC 2007 codes, and only codes on that list are accepted. For a builder of houses, 41202 is "Construction of domestic buildings". The list has other codes for commercial building and the specialist trades, so pick what fits your work.

After registration you get a certificate of incorporation with the company number. You are usually set up for Corporation Tax at the same time. Open a bank account in the company's name and keep its money separate. The company must register as an employer before it pays you a salary.

Corporation Tax, salary and dividends

For the Corporation Tax year starting 01-04-2026:

profits up to £50,000: 19% (the small profits rate)
profits over £250,000: 25% (the main rate)
profits between the two: 25%, reduced by marginal relief at a fraction of 3/200

Salary goes through PAYE. For 2026 to 2027 the personal allowance is £12,570. Employee National Insurance is 8% above £12,570 a year and 2% above £50,270. Employer National Insurance is 15% above £5,000 a year. The Employment Allowance (£10,500) is not available to a company whose only employee paying employer National Insurance is its single director.

Dividends are paid from profit after Corporation Tax. For 2026 to 2027 the dividend allowance is £500, and dividends above it 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. The first two went up by 2 points from 06-04-2026. Add your dividends to your other income to see which band they fall in.

Scotland: a Scottish taxpayer pays Scottish Income Tax rates and bands on salary, but GOV.UK says you pay the same tax as the rest of the UK on dividends.

Worked example: Thomas Telford Building Ltd

The figures are invented and rounded to show how the sums work. They assume a 12-month accounting period, no associated companies, one director who owns all the shares and has no other income, and an English taxpayer in 2026 to 2027.

Salary £12,570. Income Tax £0 (within the personal allowance). Employee National Insurance £0 (not above £12,570).
Employer National Insurance: (£12,570 - £5,000) x 15% = £1,135.50, which the company pays.
Profit left after the salary and employer National Insurance: say £60,000.
Corporation Tax: £60,000 x 25% = £15,000, less marginal relief of 3/200 x (£250,000 - £60,000) = £2,850, so £12,150.
Profit after tax: £60,000 - £12,150 = £47,850.
Dividend paid: £37,000. Taxable income is £12,570 + £37,000 - £12,570 allowance = £37,000, all in the basic rate band.
Dividend tax: the first £500 is covered by the allowance, then (£37,000 - £500) x 10.75% = £3,923.75.
In your hand: £12,570 + £37,000 - £3,923.75 = £45,646.25. The company keeps £47,850 - £37,000 = £10,850.

Pension contributions, expenses, a van, a second shareholder or Scottish rates would all change the answer. Ask an accountant to compare it with the same profit as a sole trader.

Deadlines every year

First accounts to Companies House: 21 months after the date you registered. After that, 9 months after the end of the financial year.
Paying Corporation Tax: usually 9 months and 1 day after the end of the accounting period.
Company Tax Return: 12 months after the end of the accounting period.
Confirmation statement: at least once every 12 months, up to 14 days after the review period ends. It costs £50 online or £110 on paper, and Companies House will not accept it until all the directors have verified their identity.
Records: keep them for 6 years from the end of the last financial year they relate to, or longer in some cases.

For example, for a later year ending 31-03-2027: accounts by 31-12-2027, Corporation Tax paid by 01-01-2028, and the tax return by 31-03-2028. GOV.UK says a director who pays an accountant is still legally responsible for the records, accounts and performance of the company. Put the dates in your job register or diary.

CIS and VAT for a company

If contractors take CIS deductions from the company, it does not wait for a tax return to get them back. Each time you send the Full Payment Submission for payroll, send an Employer Payment Summary with the total CIS deductions for the year to date. HMRC takes them off what you owe and you pay the balance. Anything left over carries forward in the same tax year, and after the year ends you claim a refund. Do not use the Company Tax Return to claim them, or you may get a penalty.

For gross payment status, HMRC checks the company has paid its tax on time, does construction work in the UK and runs through a bank account. Its turnover for the last 12 months, leaving out VAT and materials, must be at least £30,000 for each director or £100,000 for the whole company. If the company is controlled by 5 people or fewer, it needs £30,000 for each of them. From 06-04-2026, HMRC can remove the status straight away where a business knew or should have known its payments were connected with tax fraud, and then it cannot reapply for 5 years.

If you move from sole trader to company, you will usually have to register for CIS again, and apply again for gross payment status if you had it.

VAT does not change on its own. Registration depends on the taxable turnover of the business making the sales, and the company is a new business. It can take over your VAT number with form VAT68, or register afresh. Our guide on VAT registration for builders covers the threshold and schemes.

Should a builder be a limited company?

Sole trader or limited company: what changes

What limited liability does not cover

How to set one up

Corporation Tax, salary and dividends

Worked example: Thomas Telford Building Ltd

Deadlines every year

CIS and VAT for a company

Sources

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