Key takeaways
- The main UK business structures are sole trader, partnership, limited liability partnership and limited company.
- Sole traders, partners and LLP members pay Income Tax and Class 4 NI on profits; companies pay Corporation Tax and owners are taxed on what they take out.
- Limited liability comes with companies and LLPs, along with public accounts and more administration.
- Moving from one structure to another has tax consequences, so plan the switch.
The legal form of a business decides how its profits are taxed, who is liable for its debts and how much paperwork it involves. This section explains the tax position of each structure and the main transitions between them.
The structures compared
| Sole trader | General partnership | LLP | Limited company | |
|---|---|---|---|---|
| Separate legal entity | No | No (England, Wales, NI) | Yes | Yes |
| Owners’ liability | Unlimited | Unlimited, jointly | Limited | Limited |
| Tax on profits | Income Tax and Class 4 NI on all profits | Each partner on their share | Each member on their share | Corporation Tax at 19% to 25% |
| Tax on taking money out | None extra | None extra | None extra | Salary (PAYE and NI) or dividends (10.75% to 39.35%) |
| Public accounts | No | No | Yes | Yes |
| Main HMRC returns | Self Assessment | Partnership return and partners’ returns | Partnership return and members’ returns | CT600, payroll, directors’ returns where needed |
| Making Tax Digital for Income Tax | From April 2026 to 2028, by income | Later, date to be confirmed | Later, date to be confirmed | Not applicable |
Guides in this section
- Sole trader vs limited company: the tax comparison at different profit levels, with the pros and cons of each.
- Switching from sole trader to limited company: forming the company, registrations, transferring assets and closing the sole trade.
- Incorporation relief: deferring Capital Gains Tax when a business is transferred to a company for shares, now a claim from April 2026.
- Partnership tax: how partners are taxed, the partnership return and profit-sharing.
- LLP tax guide: how limited liability partnerships are taxed, salaried members and filing.
- Holding company structure: when a group structure helps, and how to insert a holding company.
- How to dissolve a limited company: strike-off, members’ voluntary liquidation and how the remaining cash is taxed.
Related guides elsewhere on the site
- How to register as a sole trader
- How to set up a limited company
- How to set up a partnership
- What is a dormant company?
- Directors’ responsibilities
Choosing a structure: the main questions
- How much profit will the business make? At lower profits, being a sole trader is usually simplest and costs about the same tax. At higher profits, a company can reduce tax, especially if profits are left in the business.
- Do you need limited liability? If the business takes on contracts, staff or premises with significant risk, a company or LLP protects personal assets, although lenders often ask for personal guarantees.
- Will there be more than one owner? Partnerships and LLPs suit professional firms sharing profits; companies suit businesses that may bring in investors.
- Do you want to retain profits? Companies can keep profits at Corporation Tax rates and pay them out later; in partnerships and LLPs, all profits are taxed on the owners each year.
- How much administration can you take on? Companies and LLPs have Companies House filings, identity verification and public accounts.
Frequently asked questions
Which business structure pays the least tax?
It depends on profits and how much you take out. A limited company often pays less once profits are well into the higher rate band and some profit is retained; at lower profits a sole trader can pay similar tax with less cost.
Can I change my business structure later?
Yes. Sole traders often incorporate as the business grows. The move has tax consequences, particularly for goodwill and property, so plan it with an accountant.
Do partnerships pay Corporation Tax?
No. General partnerships and LLPs are transparent: partners and members pay Income Tax on their shares. Only companies pay Corporation Tax.
What is the difference between a partnership and an LLP?
An LLP is a separate legal entity with limited liability for its members and public accounts. A general partnership has unlimited liability and no public filing, but both are taxed in a similar way.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.