Sole practice vs limited company

The four structures you'll consider

Most new firms choose between:

• Sole practice (sole trader) — you practise on your own account. The SRA authorises this as a recognised sole practice.
• Partnership — two or more people trading together under a partnership agreement.
• Limited liability partnership (LLP) — a body corporate that limits members' liability while keeping partnership-style flexibility.
• Limited company — a separate legal entity owned by shareholders and run by directors.

A crucial regulatory point: a limited company is not a sole practice. Even if you are the only person involved, if you trade through a company the company itself must be authorised by the SRA as a recognised body (or a licensed body). Your structure decision therefore feeds directly into how you get authorised.

Liability and risk

As a sole trader (or general partner) there is no legal separation between you and the business: you are personally responsible for its debts and obligations. An LLP or limited company creates a separate legal person, which can limit your personal exposure for business debts. That protection is not absolute — directors and members still have duties, and it never replaces good professional indemnity insurance — but it is one of the main reasons firms incorporate as they grow.

How a sole practice is taxed

As a sole trader you pay income tax on your profits through Self Assessment, plus Class 4 National Insurance. For 2026/27, Class 4 NIC is charged at 6% on profits between £12,570 and £50,270, and 2% above £50,270. Class 2 NIC is no longer payable by most self-employed people, though those below the small-profits threshold can pay voluntarily to protect their record. You are taxed on the firm's profits whether or not you draw them out.

How a limited company is taxed

A company pays corporation tax on its profits. For the financial year from April 2026, the rates are:

• 19% small profits rate for profits of £50,000 or less;
• 25% main rate for profits over £250,000;
• profits between £50,000 and £250,000 are taxed at the main rate with marginal relief, giving an effective marginal rate of around 26.5%.

You then extract money personally — typically via a mix of salary and dividends — and pay personal tax on that. This split can be tax-efficient, but it is more complex and brings extra obligations: filing accounts at Companies House, a corporation tax return, payroll and so on. The right salary/dividend balance depends entirely on your numbers, which is why this is a conversation to have with an accountant.

Admin and cost

A sole practice is the simplest and cheapest to run: less filing, no Companies House obligations, and straightforward accounts. A company or LLP carries more administration — public filing of accounts, statutory records, director/member duties — and usually higher accountancy fees. For some firms the tax efficiency outweighs the extra admin; for others, particularly very early on, simplicity wins.

How to decide

Weigh four things together: your expected profit level (the tax comparison only really bites at higher profits), your appetite for personal risk, the admin you're willing to carry, and your growth plans (bringing in partners or owners points towards an LLP or company). Many solicitors start as a recognised sole practice for simplicity and incorporate later once profits and plans justify it — and the SRA process accommodates that change. Take tailored advice from an accountant before you commit.

Tax rates and thresholds change each year and individual circumstances vary widely. This is general information, not tax or legal advice — confirm current figures with GOV.UK and take advice from a qualified accountant.

Sources & further reading

• GOV.UK — Corporation Tax rates and allowances
• GOV.UK — Set up a business
• SRA — Firm authorisation guidance