A private limited company (Ltd) is a business that is a separate legal entity from the people who own it — owned by shareholders, run by directors, and registered at Companies House (gov.uk). Because the company is legally its own person, its money, debts and contracts belong to the company rather than to you, which gives the owners limited liability: generally you can only lose what you have put in, or still owe, on your shares. The company pays Corporation Tax on its profit — 19% up to £50,000, 25% above £250,000, with Marginal Relief in between — for the 2026/27 tax year (gov.uk). In return for that separation it must file annual accounts and a confirmation statement with Companies House, and a Company Tax Return with HMRC, every year. That trade — protection and tax treatment on one side, filing discipline on the other — is what going limited actually means.
Figures are for the 2026/27 tax year and sourced to gov.uk; rates change at each Budget. This is general guidance, not personal tax advice.
What does "limited liability" actually protect — and what doesn't it?
Limited liability is the headline reason most directors incorporate, and it means what it says: because the company is a separate legal entity, its debts are the company's, so if things go wrong your personal assets — your home, your savings — are generally out of reach of the company's creditors. You can normally only lose the capital you have put into the company, plus anything still unpaid on your shares.
What it does not do is put you beyond all responsibility, and it is worth being straight about the exceptions. If you sign a personal guarantee — common when a young company takes out a loan, a lease or a credit account — you are personally on the hook for that debt, limited company or not. Directors who keep trading when they know the company cannot pay its debts can be personally liable for wrongful trading, and fraud or misuse of company money is never shielded by the corporate structure. Limited liability protects your personal wealth from ordinary business risk; it is not a wall against your own guarantees or your own misconduct.
How is a limited company taxed differently from a sole trader?
The clearest practical difference between a limited company and working as a sole trader is how the profit is taxed. A sole trader is not a separate entity: you and the business are one, all the profit is yours, and you pay Income Tax and National Insurance on it through Self Assessment. A private limited company pays Corporation Tax on its profit first — 19% on profits up to £50,000, 25% above £250,000, and an effective rate of about 26.5% on the slice in between through Marginal Relief — for the 2026/27 tax year (gov.uk). Only then do you take money out, usually as a mix of salary and dividends, and pay Income Tax personally on that (rates differ in Scotland) (gov.uk).
That two-step — the company is taxed, then you are — is what opens up planning a sole trader can't do, because you decide how much to draw and in what form. How you split salary and dividends is its own decision; our guide on how to pay yourself from a limited company walks through it. For the profit level at which the switch tends to pay off, see sole trader vs limited company.
An LLP (limited liability partnership) sits between the two: it is a separate legal body with limited liability like a company, but its members are taxed as self-employed on their share of profit, so the LLP itself pays no Corporation Tax. Here is how the three compare:
Structure
Separate legal entity?
Liability
How profit is taxed
Sole trader
No
Unlimited — personal
Self Assessment on all profit
Private limited company
Yes
Limited — generally your stake
Corporation Tax; you then pay tax on salary and dividends
LLP
Yes
Limited for members
Members taxed as self-employed; no corporation tax on the LLP
Which structure fits depends on your profit, your appetite for admin and whether you need the liability separation. Our free 49-page guide lays out the sole trader, limited and LLP routes side by side, with the 2026/27 figures, so you can see where you'd land before you commit.
Becoming a director means taking on a set of legal duties, and they are more concrete than they sound. Under the Companies Act you must act within the company's constitution, promote its success, exercise reasonable care and skill, avoid conflicts of interest, and keep the company's money separate from your own — that last one trips up first-time directors who treat the business account as a personal one.
Alongside the duties come the filings, and this is the discipline that comes with the separation. Every year the company files annual accounts and a confirmation statement with Companies House, and a Company Tax Return (CT600) with HMRC; the Corporation Tax itself is due before the return. You'll also keep proper accounting and statutory records. Setting the company up is quick and cheap — incorporating online costs £100 (from 1 February 2026) — but the yearly obligations are ongoing (gov.uk).
One newer duty catches people out: since 18 November 2025 every new director must verify their identity with Companies House before they can be appointed. We cover exactly what you do in our guide to Companies House identity verification for directors. If the filing calendar already feels like a lot, that is precisely what a good accountant is for — and our accountancy pages explain how we match you with one.
Is a private limited company right for you — and when is it not?
A limited company is not automatically the right move, and part of being an honest guide is saying when it isn't. It tends to earn its keep once your profit is high enough that the Corporation Tax and salary/dividend route beats being taxed on everything as a sole trader, when you want the liability separation, or when clients and lenders expect the credibility of a registered company. Contractors and freelancers going limited often find all three apply at once.
It is usually not worth it when your profit is low, when you are testing an idea, or when a contract is short-term — the extra accounts, filings and admin can outweigh the tax saved, and any saving is conditional on your circumstances, never a guaranteed figure. If you are weighing it up, should you go limited: the pros and cons sets out both sides. Deciding at the margin — where the numbers are close — is exactly where a second opinion pays for itself.
The directors we help set up almost always focus on the tax and underrate the structural change. The upside they underrate is the clean separation between them and the company — the money, the risk and the legal identity are the company's, not theirs. The one they underestimate is the filing discipline that comes with it: a separate entity has to be fed accounts, a confirmation statement and a return, on time, every year, whether it made money or not.
Get that balance right and a private limited company is a genuinely useful structure for a UK business — a separate legal entity that protects your personal wealth from ordinary business risk and lets you plan how you take your income. Understand the duties before you incorporate, and the separation works for you rather than surprising you. Our free guide is the quickest way to see whether going limited fits where your business is now.
What is a private limited company?
A private limited company (Ltd) is a business registered at Companies House as a separate legal entity from its owners. It is owned by shareholders and run by directors, the owners have limited liability, and the company pays Corporation Tax on its profit and files annual accounts, a confirmation statement and a Company Tax Return each year.
What are the benefits of a private limited company?
The main benefits are limited liability (your personal assets are generally protected from the company's debts), a separate tax treatment that lets you plan how you take income through salary and dividends, and the credibility of a registered company with clients and lenders. For many directors the tax flexibility is the draw once profit is high enough.
What are the disadvantages of a private limited company?
More administration and less privacy. You take on directors' duties and annual filings with both Companies House and HMRC, your company details and accounts sit on the public register, and you can't simply treat the company's money as your own. For very low profits or short-term work, the extra effort can outweigh the benefit.
Do you pay less tax as a limited company?
Often, but not always. A company pays Corporation Tax on its profit (19% to 25% for 2026/27) and you then pay Income Tax on the salary and dividends you draw, which can work out lower than a sole trader taxed on all profit — but it depends on your profit, how you pay yourself and your wider circumstances. Any saving is indicative, not guaranteed.
Who owns a private limited company?
The shareholders (also called members) own the company, in proportion to the shares they hold; the directors run it day to day. In a small company the same person is often both the sole shareholder and the sole director, but the two roles are legally distinct.
A private limited company (Ltd) is a business that is a separate legal entity from the people who own it — owned by shareholders, run by directors, and registered at Companies House (gov.uk). Because the company is legally its own person, its money, debts and contracts belong to the company rather than to you, which gives the owners limited liability: generally you can only lose what you have put in, or still owe, on your shares. The company pays Corporation Tax on its profit — 19% up to £50,000, 25% above £250,000, with Marginal Relief in between — for the 2026/27 tax year (gov.uk). In return for that separation it must file annual accounts and a confirmation statement with Companies House, and a Company Tax Return with HMRC, every year. That trade — protection and tax treatment on one side, filing discipline on the other — is what going limited actually means.
Figures are for the 2026/27 tax year and sourced to gov.uk; rates change at each Budget. This is general guidance, not personal tax advice.
What does "limited liability" actually protect — and what doesn't it?
Limited liability is the headline reason most directors incorporate, and it means what it says: because the company is a separate legal entity, its debts are the company's, so if things go wrong your personal assets — your home, your savings — are generally out of reach of the company's creditors. You can normally only lose the capital you have put into the company, plus anything still unpaid on your shares.
What it does not do is put you beyond all responsibility, and it is worth being straight about the exceptions. If you sign a personal guarantee — common when a young company takes out a loan, a lease or a credit account — you are personally on the hook for that debt, limited company or not. Directors who keep trading when they know the company cannot pay its debts can be personally liable for wrongful trading, and fraud or misuse of company money is never shielded by the corporate structure. Limited liability protects your personal wealth from ordinary business risk; it is not a wall against your own guarantees or your own misconduct.
How is a limited company taxed differently from a sole trader?
The clearest practical difference between a limited company and working as a sole trader is how the profit is taxed. A sole trader is not a separate entity: you and the business are one, all the profit is yours, and you pay Income Tax and National Insurance on it through Self Assessment. A private limited company pays Corporation Tax on its profit first — 19% on profits up to £50,000, 25% above £250,000, and an effective rate of about 26.5% on the slice in between through Marginal Relief — for the 2026/27 tax year (gov.uk). Only then do you take money out, usually as a mix of salary and dividends, and pay Income Tax personally on that (rates differ in Scotland) (gov.uk).
That two-step — the company is taxed, then you are — is what opens up planning a sole trader can't do, because you decide how much to draw and in what form. How you split salary and dividends is its own decision; our guide on how to pay yourself from a limited company walks through it. For the profit level at which the switch tends to pay off, see sole trader vs limited company.
An LLP (limited liability partnership) sits between the two: it is a separate legal body with limited liability like a company, but its members are taxed as self-employed on their share of profit, so the LLP itself pays no Corporation Tax. Here is how the three compare:
Structure
Separate legal entity?
Liability
How profit is taxed
Sole trader
No
Unlimited — personal
Self Assessment on all profit
Private limited company
Yes
Limited — generally your stake
Corporation Tax; you then pay tax on salary and dividends
LLP
Yes
Limited for members
Members taxed as self-employed; no corporation tax on the LLP
Which structure fits depends on your profit, your appetite for admin and whether you need the liability separation. Our free 49-page guide lays out the sole trader, limited and LLP routes side by side, with the 2026/27 figures, so you can see where you'd land before you commit.
Becoming a director means taking on a set of legal duties, and they are more concrete than they sound. Under the Companies Act you must act within the company's constitution, promote its success, exercise reasonable care and skill, avoid conflicts of interest, and keep the company's money separate from your own — that last one trips up first-time directors who treat the business account as a personal one.
Alongside the duties come the filings, and this is the discipline that comes with the separation. Every year the company files annual accounts and a confirmation statement with Companies House, and a Company Tax Return (CT600) with HMRC; the Corporation Tax itself is due before the return. You'll also keep proper accounting and statutory records. Setting the company up is quick and cheap — incorporating online costs £100 (from 1 February 2026) — but the yearly obligations are ongoing (gov.uk).
One newer duty catches people out: since 18 November 2025 every new director must verify their identity with Companies House before they can be appointed. We cover exactly what you do in our guide to Companies House identity verification for directors. If the filing calendar already feels like a lot, that is precisely what a good accountant is for — and our accountancy pages explain how we match you with one.
Is a private limited company right for you — and when is it not?
A limited company is not automatically the right move, and part of being an honest guide is saying when it isn't. It tends to earn its keep once your profit is high enough that the Corporation Tax and salary/dividend route beats being taxed on everything as a sole trader, when you want the liability separation, or when clients and lenders expect the credibility of a registered company. Contractors and freelancers going limited often find all three apply at once.
It is usually not worth it when your profit is low, when you are testing an idea, or when a contract is short-term — the extra accounts, filings and admin can outweigh the tax saved, and any saving is conditional on your circumstances, never a guaranteed figure. If you are weighing it up, should you go limited: the pros and cons sets out both sides. Deciding at the margin — where the numbers are close — is exactly where a second opinion pays for itself.
The directors we help set up almost always focus on the tax and underrate the structural change. The upside they underrate is the clean separation between them and the company — the money, the risk and the legal identity are the company's, not theirs. The one they underestimate is the filing discipline that comes with it: a separate entity has to be fed accounts, a confirmation statement and a return, on time, every year, whether it made money or not.
Get that balance right and a private limited company is a genuinely useful structure for a UK business — a separate legal entity that protects your personal wealth from ordinary business risk and lets you plan how you take your income. Understand the duties before you incorporate, and the separation works for you rather than surprising you. Our free guide is the quickest way to see whether going limited fits where your business is now.
What is a private limited company?
A private limited company (Ltd) is a business registered at Companies House as a separate legal entity from its owners. It is owned by shareholders and run by directors, the owners have limited liability, and the company pays Corporation Tax on its profit and files annual accounts, a confirmation statement and a Company Tax Return each year.
What are the benefits of a private limited company?
The main benefits are limited liability (your personal assets are generally protected from the company's debts), a separate tax treatment that lets you plan how you take income through salary and dividends, and the credibility of a registered company with clients and lenders. For many directors the tax flexibility is the draw once profit is high enough.
What are the disadvantages of a private limited company?
More administration and less privacy. You take on directors' duties and annual filings with both Companies House and HMRC, your company details and accounts sit on the public register, and you can't simply treat the company's money as your own. For very low profits or short-term work, the extra effort can outweigh the benefit.
Do you pay less tax as a limited company?
Often, but not always. A company pays Corporation Tax on its profit (19% to 25% for 2026/27) and you then pay Income Tax on the salary and dividends you draw, which can work out lower than a sole trader taxed on all profit — but it depends on your profit, how you pay yourself and your wider circumstances. Any saving is indicative, not guaranteed.
Who owns a private limited company?
The shareholders (also called members) own the company, in proportion to the shares they hold; the directors run it day to day. In a small company the same person is often both the sole shareholder and the sole director, but the two roles are legally distinct.
