Whether you’re a personal trainer, hairdresser, tradesperson or consultant, there are three main ways to earn a living: as an employee, as a sole trader, or through your own limited company. Each has a different tax bill, admin load and level of risk. Here’s how they compare for 2026/27.
At a glance
| Employed | Self-employed (sole trader) | Limited company | |
|---|---|---|---|
| How tax is paid | Deducted through PAYE | Self Assessment return each year | Corporation Tax on company profits, plus personal tax on salary and dividends |
| National Insurance | 8% employee NI (main rate) | Class 4 at 6% / 2%; Class 2 treated as paid from £7,105 profit | Employee and employer NI on salary; none on dividends |
| Holiday and sick pay | Yes | No | Only if you pay yourself through payroll |
| Personal liability for debts | No | Yes, unlimited | Usually limited to the company |
| Admin | Minimal | Records plus one tax return (MTD quarterly updates if over the threshold) | Annual accounts, Companies House filings, payroll and your own tax return |
Employed
The simplest route. Your employer deducts Income Tax and National Insurance through PAYE, and you get holiday pay, sick pay and a workplace pension. The trade-off is less control over your hours and less upside on what you can earn.
Self-employed (sole trader)
You work for yourself, find your own clients and keep the profit. You’re taxed on profit (income minus allowable expenses) through Self Assessment:
- Income Tax at 20% / 40% / 45% above the £12,570 Personal Allowance
- Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above
- Register with HMRC by 5 October after the tax year you start, once income is over £1,000
- Returns and tax due by 31 January, with payments on account once your bill is over £1,000
Read more in Self-employed? Tax and National Insurance explained and How to tell HMRC you’ve started a business.
Common allowable expenses include equipment and stock, travel and mileage, insurance, rent or desk/chair fees, phone and software, marketing and your website, training that updates existing skills, and accountancy fees. Keep receipts for every claim.
Limited company
The company is a separate legal entity. It pays Corporation Tax on its profits, and you take money out as salary, dividends or both:
- Corporation Tax: 19% on profits up to £50,000, 25% over £250,000, with marginal relief in between
- Dividends (2026/27): £500 tax-free allowance, then 10.75% basic rate, 35.75% higher rate and 39.35% additional rate
- Salary: employee NI at 8% above £12,570; employer NI at 15% above £5,000. The £10,500 Employment Allowance isn’t available if you’re the only employee and a director
A company can save tax once profits are healthy, but it costs more to run and the rules on paying yourself are more involved. Dividend tax rates rose in April 2026, so the saving is smaller than it used to be.
Which should you choose?
- Starting out or testing an idea? Sole trader is usually simplest and cheapest to run.
- Profits growing, especially well into the higher-rate band? It’s worth modelling a limited company.
- Unsure whether you’re really self-employed? Your status depends on how you actually work, not just what your contract says. HMRC’s employment status rules can apply.
VAT, whichever route you take
You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12 months. You can register voluntarily below that, which can help if your customers are VAT-registered businesses.
Not sure which fits? Everyday Accountants will compare your take-home pay under each option for free. Get in touch for a no-obligation chat.
Information correct for the 2026/27 tax year at the time of writing.